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Q1 2011 Summary - Market Environment

ENVIRONMENT – US

US equity markets were volatile during the first quarter of 2011, with the S&P 500 con-tinuing to strengthen until mid-February, when it reversed on political instability in the Middle East and then tumbled after catastrophic events in Japan. However, a broad-based recovery towards the end of the quarter, with energy stock prices benefiting from rising commodity prices, resulted in well-above average gains of 5% during the first quarter. The resilient equity prices were due largely to continued strong US corporate fundamentals. Corporate profits from current production increased 2.9% during the first quarter of 2011. This ninth consecutive quarter of expanding profits set a new high for annualized profits at USD 1.727 trillion, according to the US Bureau of Economic Analysis.

  • Leveraged lending advanced and high-yield bond issuance recorded its strongest start ever

Capital markets remained buoyant. Leveraged lending, with USD 142.0 billion of new loan issue driven by refinancing as spreads tightened further and LIBOR floors decreased, was the strongest since the second quarter of 2007. High-yield issuance saw the highest first quarter values on record. Issue values increased 15% to USD 79.4 billion, compared with the same quarter of 2010, powered by investor demand for higher yield. Values did decline slightly from the final quarter of 2010, however.

The IPO environment was more subdued than in the fourth quarter. However, compared to the year-ago period, IPO activity was much stronger, boosted by a surge of private equity exits. Two thirds of the USD 16.0 billion quarterly volume was raised through IPOs of private equity-backed companies. M&A deal values increased sharply from the preceding quarter and the year-ago period, driven primarily by an increase in the number of large transactions. The quarterly disclosed deal value of USD 287.1 billion, which included the pending USD 39 billion cash acquisition of T-Mobile by AT&T, was the highest since the third quarter of 2008.

  • Private equity drove IPO activity, and total M&A deal values were at their highest since Lehman crashed

During the first quarter of 2011, the US economy grew at a slower rate than in the fourth quarter of 2010, due to increased imports, declining construction and, most importantly, slower consumer spending, which was affected by rising gasoline and heating prices. The University of Michigan Consumer Sentiment Index plunged to levels not seen since March 2009. Job creation improved, with 497,000 jobs added during the first quarter, primarily in the business services sector. As a result, the unemployment rate edged down to 8.8%. Recent data, though, shows a slowdown in job creation. Moderate growth of the US economy is expected to continue, driven mainly by business investments. However, widening Eurozone debt problems, increased scrutiny of sovereign debt by rating agencies and uncertainty stemming from the lack of agreement on the US debt ceiling, increases market volatility and will likely pose significant risks to US economic growth.

TABLE: US MACROECONOMIC AND FINANCIAL DATA

  2009 2010 Q110 Q410 Q111 Dy/y Dq/q
Real GDP in % q/q ann1 (2.6)  2.9  3.7  3.1  1.9  (1.8)  (1.2)
CPI in %y/y1 (0.4)  1.6  2.3  1.3  2.1  (0.2)  0.9
Interest rate in %2 0.25 0.25 0.25  0.25  0.25  0.0  0.0
Unemployment rate in %2 9.9  9.4 9.7  9.4  8.8  (0.9) (0.6)
Consumer confidence2 72.5  74.5  73.6  74.5 67.5  (6.1)  (7.0)
S&P 500 index price3 23.5%  12.8% 4.9%  10.2%  5.4%  n/m  n/m
NASDAQ Composite index price3 43.9% 16.9% 5.7% 12.0% 4.8% n/m n/m
IPO number 80  194  34  73  44  29%  (40%)
IPO in USD bn 20.2  48.2 5.4  27.2  16.0  199%  (41%)
M&A in USD bn 641.3  768.3  188.6  214.4  287.1  52% 34%
Leveraged loan in USD bn4 239.3  375.6 73.8  115.3  142.0  92%  23%
High yield bond in USD bn4 132.8 276.8 68.9 85.9 79.4  15% (8%)

1) Annual figures are annual averages and quarterly figures are period-end values.
2) Period-end figures.
3) Change for the relevant period.
4) New issue values.
Notes: Dq/q is the comparison of Q1 2011 vs. Q4 2010. Dy/y is the comparison of Q1 2011 vs. Q1 2010. na - data not available. n/m - not meaningful. Period of M&A deals relates to the announcement dates. Data for previous periods may change if pending deals are cancelled. Geography of M&A deals is based on the location of the target.
Source: Bloomberg, June 30, 2011; Credit Suisse Leveraged Finance Market Update, June 2011.

Private equity markets

Private equity fundraising started to recover following two lean years, although fundraising still remains difficult. After whetting investor appetite for IPOs last year, private equity firms made multi-billion dollar exits through public equity markets in the first quarter. The IPO pipeline remains full for coming months as well. The pace of investments slowed as buyout firms face stiffer competition for targets from corporate buyers. Nevertheless, credit markets were still supportive for deal making. Announced deal volumes in the first quarter were encouraging. Distributions were strong in 2010 and private equity performance improved substantially during the year. First-quarter valuations and exit activity indicate the trends will continue.

LBO

  • LBO fundraising is starting to recover

LBO fundraising was strong at the start of the year. Volumes increased by a half to USD 28.3 billion from the previous quarter and by nearly a third from a year ago. Growth was mainly supply driven, as a number of highly regarded managers launched funds. KKR, for example, launched a buyout fund targeting USD 8 billion, one of the largest funds raised since the debt crisis. However, the target size is still less than half of its predecessor fund of USD 17.6 billion. Small funds with targets below USD 100 million demonstrated the highest increase – 120% compared with the same period last year. GTCR Golden Rauner LLC raised the largest fund during the first quarter with the close of its tenth buyout fund on USD 3.25 billion, USD 0.25 billion above target.

  • Investment pace slowed and new platform acquisitions dominate LBOs

LBO investment pace slowed in the first quarter, with completed investment values cut nearly in half from those of the busy final quarter of 2010. Completed deal values were still 68% higher than a year ago, however, and announced deal values picked up as well. The average LBO deal purchase price multiple dipped to 7.5x EBITDA from 8.1x EBITDA, due to a drop in middle-market deal prices. Credit markets continued to support LBO activity and many firms used the window of opportunity to refinance or re-price deals. Credit markets did become a bit chilly for new middle-market LBO deals, as seen with leverage trends for various deal sizes. While large deal leverage increased to 5.2x EBITDA from 4.7x EBITDA in 2010, middle market deal leverage decreased to 3.4x EBITDA from 4.2x EBITDA in 2010. The number of new platform acquisitions surpassed other deal types in the first quarter for the first time, taking the top spot from add-ons, which had been the dominant deal type over several quarters. The change indicates a shift in focus by buyout firms, from re-building existing portfolios to making new investments. The largest announced deal of the first quarter was the USD 2.9 billion public-to-private acquisition of Emergency Medical Services Corporation by Clayton, Dubilier & Rice.

  • The LBO industry saw the largest IPO exits in its history

The IPO exit channel was successfully employed by LBO firms, demonstrated by the three largest buyout–backed IPOs in the industry’s history in terms of proceeds raised: the Bain Capital and KKR-backed HCA Holdings Inc. IPO was the largest at USD 3.8 billion, followed by Kinder Morgan’s and The Nielsen Company’s. Each company was acquired by a buyout firm during the last LBO boom, and each developed positively during the recent recession; although there were other mega deal acquisitions that did not fare as well. These three IPOs, together with three others, raised USD 9.2 billion of initial proceeds, with a market capitalization of USD 27.6 billion when listed. The number of M&A exits declined compared with a year ago, while M&A exit volumes increased, driven by large exits such as the USD 3.0 billion sale of electrical infrastructure company Dresser, Inc. to General Electric by First Reserve Corporation and Riverstone Holdings.

  • Distributions soared in 2010 and are likely to remain strong in coming quarters

The liquid credit market environment spurred some firms to pursue dividend recaps totaling USD 13.8 billion in 1Q 2011 and ranking second to the USD 16.4 billion in 4Q 2010, according to Thomson Reuters LPC. The latest available distribution data for a sample of 766 US buyout and other non-VC funds tracked by Thomson Reuters show that a high level of exit activity, including dividend refinancings in the past year, resulted in record distributions to Limited Partners in the final quarter of 2010. The USD 17.7 billion of distributions during the fourth quarter brought annual distributions to USD 40.4 billion, more than a three-fold increase over 2009. Exit activity in 2011 suggests distributions will continue at a similar heightened level. Portfolio assets appreciated 4.4% during the final quarter of 2010 and 12.0% over the full year. The positive valuations continued into 2011, according to first-quarter GP reports.

VC

  • VC fundraising picked up as successful VC managers launched funds

VC fundraising was at its best since the Lehman collapse, as well-known names such as Bessemer Ventures and Sequoia started fundraising. Commitment volumes more than doubled from the previous quarter and increased 92% from the same period a year ago as 42 VC funds raised USD 7.7 billion. More than half of all quarterly commitments were made to early-stage funds. Bessemer Ventures held the largest closing, with USD 1.9 billion for its early-stage fund. Four large VC funds with targets above USD 1.0 billion held closings in the first quarter, making up 60% of quarterly commitments.

  • Consumer information services remained the most popular industry segment for VC investments

VC investment activity was mixed. Investment deal values dropped 28% to USD 6.4 billion and the number of deals declined 16% to 661 from the fourth quarter. Fewer large deals in consumer information services, prevalent in the previous quarter, were behind the stark decrease in investment volumes. However, first-quarter activity was stronger than a year ago, suggesting the investment environment for VC deals is generally positive. Fifteen companies received VC financing of USD 50 million or more, compared with just five companies a year ago. Healthcare industry deal activity showed positive development as volumes and the number of deals increased over both the quarter and the year. IT industry investments surpassed healthcare deals by a small margin in the first quarter. IT investments may regain their dominance, following two years when healthcare deals attracted more dollars, as business investments in IT technology are expected to increase on continued economic growth. Among different industry segments, consumer information services deals attracted the most dollars in the first quarter despite a 71% decline in values from the fourth quarter. The largest deal was Institutional Venture Partners and Lightspeed Venture Partners’ investment of USD 203 million in Hungry Machine, Inc., a profitable provider of a web-based, social commerce buying programs.

  • Large IPOs of VC-backed companies are expected

VC exit activity slowed in the first quarter, mainly because of a slowdown in M&A exits. The number of M&A deals declined 32% from the previous quarter and 24% from the year-ago period. On the positive side, VC M&A exit volumes increased 18% over the same period last year despite a 24% decline from the previous quarter. US VC firms floated 14 companies during the first quarter compared with 10 during the same period last year and raised USD 1.4 billion in initial proceeds, 24% higher than a year ago. Although quarter-on-quarter IPO exit numbers declined, the IPO pipeline remained full with 49 VC-backed companies registered for IPOs – including companies with multi-billion dollar valuations like Groupon and Zynga – according to Dow Jones VentureSource. Furthermore, increased VC exit activity in 2010 was visible in the latest available distribution statistics from Thomson Reuters, which were up 64% from 2009. Valuations of VC-backed companies increased as well, driven by improved trading and exit events. During the final quarter of 2010, VC portfolios appreciated 3.2%, driving annual appreciation to 5.5%.

The first-quarter market environment was supportive for private equity as public equity prices continued to soar and the greater M&A appetite displayed by strategic corporate investors drove exits. The investment pace of buyouts is still not sufficient enough to deploy the existing capital overhang, and persistent investment pressure may drive LBO pricing in the near term. Finally, we expect an increased number of established managers to raise funds this year and next, and anticipate amplified fundraising activity in the coming months.

TABLE: US PRIVATE EQUITY MARKET DATA

  All values in USD billion  2009 2010 Q110 Q410 Q111 Dy/y Dq/q
LBO Funds raised1 78.3 80.9 21.6 18.7 28.3 31% 51%
  Number of funds2 190 241 81 85 88 9% 4%
  Investments 39.0 79.4 12.0 41.1 20.2 68% (51%)
  Drawdowns3 28.0 40.8 6.7 11.5 n/a 46% n/m
  Distributions 11.5 40.4 4.8 17.7 n/a 250% n/m
  Appreciation as % of NAV 8.4% 12.0% 3.3% 4.4% n/a 3.6% n/m
  5 year rolling net IRR4 4.9% 4.5% 5.4% 4.5% n/a (0.5%) n/m
VC Funds raised1 16.2 13.3 4.0 3.6 7.7 92% 113%
  Number of funds2 153 162 45 45 42 (7%) (7%)
  Investments 23.8 28.5 4.8 9.0 6.4 35% (28%)
  Drawdowns3 5.0 4.5 1.2 1.2 n/a (10%) n/m
  Distributions 4.6 7.6 1.7 2.6 n/a 64% n/m
  Appreciation as % of NAV 2.9% 5.5% 1.0% 3.2% n/a 2.5% n/m
  5 year rolling net IRR4 4.7% 4.1% 5.1% 4.1% n/a (0.7%) n/m

1) Fundraising represents amounts closed during the period, net of downsized funds. Figures exclude commitments to Fund of Funds to avoid double counting.
2) Number of funds for the year can differ from the sum of the quarters if a fund held several closings during the year.
3) Drawdowns and Investments data are not comparable as Investments include debt. In addition, the figures are based on different sample databases.
4) IRR is calculated on pooled, rolling five-year cash flows and the end-period NAV.
Notes: Prior-period figures may be revised due to ongoing database updates conducted by the source. Dq/q is the comparison of Q1 2011 vs. Q4 2010, Dy/y is the comparison of Q1 2011 vs. Q1 2010. n/a Data was not yet published by Thomson One. n/m not meaningful.
Source: Thomson One, Buyouts for LBO investments; Dow Jones VentureSource for VC investments.

ENVIRONMENT – EU

  • Core European countries experienced growth, despite the ongoing sovereign debt crisis

The European sovereign debt crisis continued in the first quarter as unsustainable budget deficits and continued economic weakness resulted in the downgrade of Greece, Spain, Ireland and Portugal’s sovereign debt and contributed to market volatility. Stock markets, moving upward through mid-February, tumbled following the catastrophic events in Japan. Main equity indices did manage to recoup losses toward the end of the quarter, though, with the CAC 40 increasing 4.8%, the DAX gaining 1.8% and the FTSE 100 adding a marginal increase of 0.1%.

  • M&A and IPO activity declined on market volatility

Market unease affected IPO activity as well. Many companies postponed IPOs, resulting in a 10% decline in the number of offerings and a 69% decline in volume. Similarly, fewer and smaller European companies were acquired or merged during the first quarter, with volume dropping 25% from the final quarter of 2010. Leveraged loan issuance volume decreased slightly from the previous quarter. However, high-yield bond issuance set an all-time record with EUR 18.9 million. Overall, leveraged finance maintained a healthy level from the previous quarter and stayed well above the first-quarter 2010 level. Benchmark interest rates remained unchanged at the end of the first quarter. However, as inflation continued to increase, the ECB hiked rates twice consecutively to 1.50%.

Despite problems in peripheral countries, core European country economies continued to expand, led by 1.5% non-annualized growth in Germany, where historically low unemployment rates and rising disposable income drove consumer spending. French GDP accelerated to 1.0% in the first quarter from 0.3% in the fourth quarter, and UK GDP expanded 0.5% following a 0.5% decline in the previous quarter. Overall, Eurozone GDP increased above analyst expectations, at an 0.8% non-annualized rate in the first quarter. The IMF revised its 2011 Eurozone forecast upward to 2.0% from 1.6% in the June World Economic Outlook report. Greece’s problems escalated, however, forcing the ECB and IMF to design a EUR 110 billion bailout package. Fears of a default by Greece or another Eurozone country affected investor sentiment following the first quarter, and implementation of austerity budgets may be reflected in future Eurozone growth rates.

TABLE: EUROPEAN MACROECONOMIC AND FINANCIAL DATA

  2009 2010 Q110 Q410 Q111 Dy/y Dq/q
Real GDP in % q/q1 (4.1) 1.8 0.3 0.3 0.8 0.5 0.5
CPI in % y/y1 0.3 1.6 1.1 2.0 2.5 1.4 0.5
Interest rate in %2 1.00 1.00 1.00 1.00 1.00 0.0 0.0
Unemployment in %2 10.1 10.0 10.1 10.0 9.9 (0.2) (0.1)
Consumer confidence2 (16.1) (11.0) (17.3) (11.0) (10.6) 6.7 0.4
FTSE 100 index price3 22.1% 9.0% 4.9% 6.3% 0.1% n/m n/m
CAC 40 index price %3 22.3% (3.3%) 1.0% 2.4% 4.8% n/m n/m
DAX index price3 23.8% 16.1% 3.3% 11.0% 1.8% n/m n/m
IPO number 71 242 47 82 74 57% (10%)
IPO in EUR bn 5.5 27.1 4.6 10.4 3.3 (30%) (69%)
M&A in EUR bn 365.1 403.7 55.6 142.1 106.1 91% (25%)
Leveraged loan in EUR bn4 47.5 70.2 11.8 21.9 20.2 71% (8%)
High yield bond in EUR bn4 29.3 50.8 13.5 16.1 18.9 40% 17%

1) Annual figures are annual averages and quarterly figures are period-end values.
2) Period-end figures.
3) Change for the relevant period.
4) New issue values.
Notes: Dq/q is the comparison of Q1 2011 vs. Q4 2010. Dy/y is the comparison of Q1 2011 vs. Q1 2010. n/a - data not available. n/m - not meaningful. Period of M&A deals relates to the announcement dates. Data for previous periods may change if pending deals are cancelled. Geography of M&A deals is based on the location of the target.
Source: Bloomberg, June 30, 2011; Credit Suisse Leveraged Finance Market Update, June 2011.

Private equity markets

European private equity activity was subdued at the start of the year. Deal activity slowed from the fourth quarter, but maintained elevated levels compared with the same period last year, as the credit environment continued to support deal making. Fundraising is slowly gaining momentum, following increased exit activity in 2010, which resulted in significant distributions to Limited Partners.

LBO

European LBO fundraising is recovering and set to exceed levels of the previous two years as established managers return to fundraising. BC Partners raised EUR 4 billion in just one quarter for its EUR 6 billion-targeted fund, lifting overall European quarterly figures. Commitment volumes doubled from the same period last year and tripled from the final quarter of 2010 as 19 LBO funds raised EUR 6.0 billion during the first quarter. Despite improving commitment volumes, investors are still slow to commit and are committing to quality managers only.

  • 2011 LBO fundraising is set to outpace the last two years

Widespread uncertainty surrounding the economic prospects for Europe led to a marked slowdown in buyout activity in the first quarter of 2011. Buyout deal volumes and the number of deals declined 44% and 14% respectively, with EUR 12.1 billion invested across 97 transactions. The decline was due to fewer deals in the large segment. Only two deals worth EUR 1 billion or higher were conducted: First Reserve Corporation’s EUR 1.2 billion investment in Ansaldo Energia, a major Italian producer of thermoelectric power plants, as part of a management buyout transaction; and Advent International’s EUR 1.1 billion acquisition of the Priory Group from RBS. However, investments were stronger in the first quarter of 2011 than in 2010 as overall credit market conditions were more favorable for buyouts. Investment values increased 23% and the number of deals was up 15% over the first quarter of last year. The leverage used in LBO deals remained stable from last year at 4.7x EBITDA. Declining deal activity pushed purchase price multiples down to 8.2x EBITDA from 8.6x EBITDA.

  • Deal activity slowed, but there are signs M&A exits will increase

Likewise, buyout exit activity decreased 37% from the fourth quarter of 2010, but improved from the first quarter of 2010 by 88%. According to Private Equity Insight data, exit volumes reached EUR 12.4 billion, which included large deals such as LBO France’s EUR 3.2 billion sale of Alstom Power Conversion to General Electric. Secondary exits continued to dominate, comprising 46% of all exit deals. Trade sales gained in popularity as well, increasing their share to 40%. Subsequent to the first quarter, trade sale exits of Nycomed Pharma and Skype were announced, suggesting exit activity will continue to recover. Heightened exit activity was reflected in buyout distributions, which increased fourfold in 2010 from 2009. Buyout portfolio valuations progressed solidly during 2010; net assets appreciated 17% in 2010 compared with 3% in 2009. First-quarter General Partner reports suggest further incremental appreciation can be expected in first-quarter results.

VC

In contrast to buyout, venture capital fundraising activity declined further, with the number of funds raised decreasing compared with the first quarter of 2010. However, fundraising amounts increased slightly from the low base of the final quarter 2010, which was the weakest fundraising quarter since 2004. All funds that held closings in the first quarter were small; the largest fund, Fonds de Consolidation et de developpement des Entreprises, raised EUR 190 million. Expanding economic activity in Germany appears to be reflected in venture fundraising. During the first quarter, six German venture capital funds raised EUR 450 million, or 64%, of the quarterly fundraising total.

  • VC fundraising remains slow

European VC investment activity was mixed. VC funds invested EUR 1.1 billion during the first quarter, resulting in 17% and 10% increases from a year ago and the fourth quarter, respectively. However, investments slowed significantly, with the number of completed deals dropping 34% from the previous quarter and 35% compared with the same period of 2010. VC firms put more money into fewer key deals. This was especially apparent in healthcare, the largest European VC industry - investment volumes increased 3% to EUR 368 million, but the number of deals declined 45% to 39 from 71 in the previous quarter. The IT industry recorded the lowest quarterly deal flow and capital investment volume ever. Deal flow declined 40% to 49 completed deals from the fourth quarter while capital investment fell 39% to EUR 153 million. The stand-out performer was the consumer information services industry, which attracted EUR 284 million, five times more money than in the previous quarter. The largest deal of the quarter was also made in consumer information services, when a consortium of investors led by Accel Partners and Greylock Partners invested EUR 110 million in Wonga.com.

  • Deal activity fell, but deal values increased as VC firms focus on key deals

According to Dow Jones VentureSource, 34 European venture-backed companies raised EUR 1.1 billion through M&A during the first quarter of 2011, representing the lowest first-quarter M&A count since 2000 and a 48% drop in exit volumes from the same period a year earlier. Encouragingly, deal values and the number of deals picked up 10% and 6% respectively, from previous quarter lows. IPO exits remained rare, with three IPO exits of VC-backed companies raising EUR 259 million during the first quarter compared with four in the fourth quarter and none during the year-ago period. Netherlands data center company InterXion Holding, backed by a consortiom of VC investors including Baker Capital and Nautic Partners, raised EUR 176 million in an IPO on the NASDAQ. However, IPO activity heightened subsequent to the first quarter as 10 IPOs of European VC-backed companies took place. Distributions by European VC funds more than doubled in 2010, driven by a strong fourth quarter. Write-ups in connection with exits and moderate improvements in trading lifted VC fund performance, with portfolio assets appreciating 4.3% during 2010 as opposed to declining 1.8% in 2009.

  • M&A exits rose, but remained well below 2010 levels

There are signs the fundraising situation will start to improve, as established buyout managers return to fundraising. Nevertheless, fundraising continues to remain slow for the majority of managers currently raising funds. Investments and exits were sluggish at the start of the year, but overall M&A activity subsequent to the first-quarter suggests deal activity, especially for buyouts, will strengthen. Well-funded corporate buyers appear increasingly confident in strategic M&A, which would positively affect private equity fund exit activity over the coming months.

TABLE: EUROPEAN PRIVATE EQUITY MARKET DATA

  All values in EUR billion  2009 2010 Q110 Q410 Q111 Dy/y Dq/q
LBO Funds raised1 11.7 9.0 2.9 1.9 6.0 108% 223%
  Number of funds2 72 58 15 16 19 27% 19%
  Investments 27.6 65.4 9.8 21.8 12.1 23% (44%)
  Drawdowns3 9.7 15.2 2.1 5.5 n/a 58% n/m
  Distributions 2.2 10.0 2.2 3.7 n/a 347% n/m
  Appreciation as % of NAV 4.4% 17.1% 2.5% 7.5% N/A 12.7% n/m
  5 year rolling net IRR4 9.1% 6.0% 8.5% 6.0% n/a (3.0%) n/m
VC Funds raised1 5.6 4.1 1.1 0.5 0.8 (32%) 37%
  Number of funds2 107 64 21 14 14 (33%) 0%
  Investments 3.6 4.2 0.9 1.0 1.1 17% 10%
  Drawdowns3 1.2 1.0 0.2 0.3 n/a (16%) n/m
  Distributions 0.4 1.0 0.1 0.5 n/a 132% n/m
  Appreciation as % of NAV (1.8%) 4.3% 1.7% 3.1% n/a 6.1% n/m
  5 year rolling net IRR4 (0.7%) (1.6%) (0.7%) (1.6%) n/a (0.9%) n/m

1) Annual figures are annual averages and quarterly figures are period-end values.
2) Period-end figures.
3) Change for the relevant period.
4) New issue values.
Notes: Dq/q is the comparison of Q1 2011 vs. Q4 2010. Dy/y is the comparison of Q1 2011 vs. Q1 2010. N/a - data not available. n/m - not meaningful. Period of M&A deals relates to the announcement dates. Data for previous periods may change if pending deals are cancelled. Geography of M&A deals is based on the location of the target.
Source: Thomson One, Buyouts for LBO investments; Dow Jones VentureSource for VC investments.

ENVIRONMENT – ASIA-PACIFIC

  • Emerging Asian growth remained robust, while Australia and Japan’s economies contracted

The growth in China, India, South Korea and the rest of Emerging Asia remained robust, with investments and exports continuing to increase, although industrial production growth rates slowed in China. In China, policy measures to slow demand, especially in property markets, appeared to have had some effect, with housing price inflation falling in recent months and credit growth moderating. However, consumer price inflation increased further to 5.1%, above the government target of 4%. In response to higher inflation, the central banks of China and India increased interest rates by 25 and 50 basis points, 6.06% and 5.75% respectively, by the end of the first quarter. In contrast to other countries in the region, the Australian economy contracted 1.2% following weather-related disruptions that caused a decrease in commodity exports. Japan suffered a sharp fall in major economic indicators, following the earthquake, tsunami and nuclear reactor accidents. While the recovery will take time, the investment stance of Japanese firms appears to be solid, according to the Bank of Japan, and investments are “expected to increase gradually, aided partly by restoration of disaster-stricken facilities”.

  • IPO activity lost momentum following a record-breaking fourth quarter; M&A activity followed suit

The Nikkei 225 and Bombay SENSEX stock indices declined 4.6% and 5.2% respectively, the latter due to worries about inflation and a likely seasonal sell-off, while other major country indices continued to gain at moderate rates. Global public equity volatility took its toll on Asian IPO activity, which tumbled to 205 IPOs that raised USD 27.5 billion, from an exceptionally strong fourth quarter when 324 floated companies raised USD 72.4 billion. Despite the drop, Asia remained the dominant IPO force, contributing 52% to global IPO values thanks in part to the largest IPO in Singapore’s history; Hutchison Port Holdings, which raised USD 5.5 billion. M&A deal activity followed a similar path. About 500 fewer deals were announced during the first quarter compared with the fourth quarter, resulting in a 32% decline in deal values to USD 121.0 billion. The average M&A deal size also declined due to fewer large deals; the largest deal announced was BP’s 30% stake acquisition of Reliance Industries Ltd.’s oil and gas blocks in India for around USD 7.2 billion.

TABLE: ASIA-PACIFIC MACROECONOMIC AND FINANCIAL DATA



2009 2010 Q110 Q410 Q111 Dy/y Dq/q

 


Japan


Real GDP in % q/q1
(6.3) 4.0 2.3 (0.7) (0.9) (3.2) (0.2)
CPI in %y/y1 (1.4) (0.7) (1.1) 0.0 0.0 1.1 0.0
Interest rate in %2 0.10 0.10 0.10 0.10 0.10 0.00 0.00
Unemployment rate in %2 5.2 4.9 5.0 4.9 4.6 (0.4) (0.3)
Consumer confidence 2 37.6 40.2 41.0 40.2 38.2 (2.7) (1.9)
Nikkei 225 index price3 (19.0%) (3.0%) 5.2% 9.2% (4.6%) n/m n/m
China

Real GDP in %y/y1 9.2 10.3 11.9 9.8 9.7 (2.2) (0.1)
CPI in %y/y1 (0.7) 3.3 2.2 4.7 5.1 2.9 0.4
Interest rate in %2 5.31 5.81 5.31 5.81 6.06 0.75 0.25
Shanghai Composite price3 80.0% (14.3%) (5.4%) 5.7% 4.3% n/m n/m
India Real GDP in %y/y1 7.0 9.0 9.4 8.3 7.8 (1.6) (0.5)
CPI in %y/y1 10.8 12.1 15.3 9.2 9.0 (6.3) (0.2)
Interest rate in %2 3.25 5.25 3.50 5.25 5.75 2.3 0.5
Bombay index price3 81.0% 17.4% 0.4% 2.2% (5.2%) n/m n/m
 Korea Real GDP in %y/y1 0.3 6.2 2.1 0.5 1.3 (0.8) 0.8
CPI in %y/y1 2.8 3.5 2.3 3.5 4.7 2.4 1.2
Interest rate in %2 2.00 2.50 2.00 2.50 3.00 1.00 0.50
Unemployment rate in %2 3.5 3.5 4.1 3.5 4.3 0.2 0.8
 Kospi index price3 49.7% 21.9% 0.6% 9.5% 2.7% n/m n/m
Australia Real GDP in %y/y1 1.4 2.7 0.5 0.8 (1.2) (1.7) (2.0)
CPI in %y/y1 1.9 2.9 2.9 2.7 3.3 0.4 0.6
Interest rate in %2 3.75 4.75 4.00 4.75 4.75 0.75 0.00
Unemployment rate in %2 5.5 4.9 5.4 4.9 4.9 (0.5) 0.0
ASX 200 index price3 30.8% (2.6%) 0.1% 3.5% 2.0% n/m n/m
Total Asia  IPO number 496 914 183 324 205 12% (37%)
 IPO in USD bn 77.1 175.4 36.2 72.9 27.5 (24%) (62%)
M&A in USD bn 404.3 516.7 105.3 178.1 121.0 15% (32%)

1) Annual figures are annual averages.
2) Period-end figures.
3) Change for the relevant period.
4) New issue values.
Notes: Dq/q is the comparison of Q1 2011 vs. Q4 2010. Dy/y is the comparison of Q1 2011 vs. Q1 2010. n/a - data not available. n/m - not meaningful. Period of M&A deals relates to the announcement dates. Data for previous periods may change if pending deals are cancelled. Geography of M&A deals is based on the location of the target.
Source: Bloomberg, June 30, 2011; Credit Suisse Leveraged Finance Market Update, June 2011.

Private equity markets

  • Fundraising volumes rose as local institutional investors continued to commit to private equity

Fundraising values increased modestly over the previous quarter, while the number of funds closed dropped to about half from the previous quarter. USD 7.3 billion was raised by 28 funds, driven primarily by large fund closings. VC and growth fund commitments increased 13%, while buyout commitment amounts declined. In Japan, five private equity funds raised USD 776 million, a marked increase over USD 290 million raised by six funds during the first quarter a year ago. China-based funds continued to dominate Asian fundraising with 42% of quarterly commitment values. The largest pool of Limited Partners in China-based funds - about 60%, according to a survey by Asia Private Equity Review - is composed of corporations, state-owned and private enterprises that invest in funds focused on industries that have synergies with the corporate investors’ core businesses. Two of the largest closings of the first quarter, USD 773 million each, were held by such RMB denominated funds: Shanghai Guohe Modern Services Industry Equity Investment Management and Tencent Collaboration Fund.

  • Investment activity slowed, but large LBO deals pushed investment figures higher

Private equity investments totaled USD 12.7 billion, representing a 5% increase over the first quarter a year ago. However, investment activity slowed as deal values and the number of deals declined 25% and 14%, respectively, from the fourth quarter. Growth and venture capital investments declined both year-over-year and over the previous quarter, while LBO deal values increased 5%, lifted by the largest deal of the first quarter, the USD 2.2 billion acquisition of Australian Alinta Energy Group by Oaktree Capital Management and TPG. This debt-for-equity deal enabled the distressed Alinta Energy Group to avoid administration. Japan was the third largest investment destination measured by deal values, following Australia, as Carlyle Japan acquired equipment manufacturer Tsubaki Nakashima Co., Ltd. from Nomura Holdings for USD 807 million, in the biggest acquisition by a foreign private equity firm in Japan since November 2009. China continued to dominate regional investments, as a third of all targets were Chinese companies which were acquired in deals worth a combined USD 3.3 billion. While developed countries attract more buyout and turnaround deals, a majority of the deals in China are growth/expansion capital deals. Seventy of the 95 deals conducted during the quarter were such investments, with the USD 1.0 billion acquisition of internet commerce firm 360buy Jingdong Mall by Tiger Global Management and DST Advisors being the largest.

  • IPO exit activity decreased, yet trade sale values exceeded those from the year-ago quarter

Exit activity lost momentum following a boom in the second half of 2010 as equity markets peaked and concern about the speed of further economic growth persisted. Both exit channels, M&A and IPO, weakened from the previous quarter significantly, with exit values dropping 71% to USD 17.5 billion and the number of exits declining 39% to 129. Encouragingly, M&A exit values in the first quarter of 2011 were stronger than a year ago, suggesting generally improved conditions for M&A. Trade exits of Chinese companies were worth USD 2.3 billion, closely followed by the Japanese market with deals worth USD 2.2 billion in exit values. The largest exit transaction of the first quarter was Carlyle Group’s sale of shares in China Pacific Insurance after expiration of the lock-up period that followed the IPO of the third-largest Chinese insurer in December 2009. Carlyle made a nearly 6x return on its original investment, according to estimates by the Asian Venture Capital Journal. A recently published survey of Asia Private Equity Review on Asian Pacific exits indicates an increase in realized returns during 2010. While the median gross IRR and gross multiple returns were 23% and 1.9x across 291 surveyed exits in 2009, it climbed to 28% and 2.6x for 307 surveyed exits in 2010.

Asian private equity continues to attract investors, as fundraising volumes increase, driven by local institutional investors and a surge of RMB funds in China. Investment and exit activity slowed, both suffering from market volatility and peaking public equity prices. However, the robust economic growth presents plenty of attractive investment opportunities, and we expect heightened deal activity in the coming months, provided global markets become more stable.

TABLE: ASIA-PACIFIC PRIVATE EQUITY MARKET DATA

all values in USD billion

2009 2010 Q110 Q410 Q111 Dy/y Dq/q

LBO


Funds raised1 5.7 7.7 1.7 1.2 0.9 (4.7%) (28%)
Number of funds2 27 17 8 2 3 (63%) 50%
Investments 22.7 24.3 5.3 7.0 6.0 14% (14%)
Number of deals 127 165 34 48 33 (3%) (31%)
VC



Funds raised1 16.5 26.8 6.6 5.7 6.4 (3%) 13%
Number of funds2 250 264 68 57 25 (63%) (56%)
Investments 26.2 34.8 6.7 9.8 6.6 (1%) (33%)
Number of deals 1104 1249 331 315 280 (15%) (11%)
PE M&A exit values 16.5% 36.4 4.2 16.2 8.4 102% (48%)
Number of exits 262 325 91 86 68 (25) (21%)
IPO exit values 30.6 87.6 9.7 44.1 9.1 (6%) (79%)
Number of IPO exits 174 316 69 124 61 (12%) (51%)
Total number of exits 436 641 160 210 129 (19%) (39%)
Total exit values 47.2 124.0 13.8 60.3 17.5 27% (71%)

1) Fundraising represents amounts closed during the period, net of downsized funds. Figures exclude commitments to Fund of Funds to avoid double counting.
2) Number of funds for the year can differ from the sum of the quarters if a fund held several closings during the year.
Note: Prior-period figures may be revised due to ongoing database updates conducted by the source.
Source: Asian Venture Capital Journal database, as of July 19, 2011.

ENVIRONMENT – BRAZIL

  • After dramatic GDP growth in 2010, Brazil’s economy is returning to sustainable growth levels

Brazil’s economic expansion slowed in the first quarter of 2011 from the final quarter of 2010, though less than economists had predicted. Banco Central do Brasil, the Brazilian central bank, has taken measures to slow domestic consumption in order to limit inflation, which has exceeded the 6.5% upper limit of the country’s target range, by raising the lending interest rate (SELIC) at each of its policy meetings since April last year. It stood at 11.75% by the end of the first quarter and is currently at 12.25%. During the latest budget review at the end of May, Brazil’s planning ministry cut its growth forecast to 4.5% from 5% for 2011, though the reduced forecast is still above the IMF’s forecast of 4.1%. Brazil’s economic activity appears to be normalizing within the tighter macroeconomic framework from the unsustainable rebound levels it reached in 2010.

Thus far this year, investors have pulled 1.38 billion Reais from the Bovespa, resulting in the IPOVESPA index losing 1% during the first quarter and 10% in the first half of 2011. The index was trading at a 10.2 multiple of analysts’ earning estimates at the beginning of July, near its lowest since March 2009, according to weekly data compiled by Bloomberg. M&A activity slowed in the first quarter as well, with M&A deal values declining 39% from the previous quarter and 23% from a year ago. However, this may only be a temporary slump as M&A activity accelerated in the second quarter.

  • 2011 opened with strong private equity activity

During the first quarter, Brazilian private equity funds raised USD 150 million as the mid-market firm Axxon Group closed its second fund with USD 315 million, beating its initial target of USD 250 million. Subsequent to the first quarter close, two GPs have raised record-size funds: Vinci Capital Partners closed its fund with USD 1.4 billion and Banco BTG Pactual raised USD 1.6 billion. Such buoyant activity suggests 2011 fundraising in Brazil is on track to exceed 2010 levels substantially.

Investments were strong in the first quarter of 2011; USD 496 million was invested, representing half of the total invested in 2010. Banco BTG Pactual was also involved in an effort to merge the Brazilian part of the French supermarket chain Carrefour with Cia Brasileira de Distribuicao Pao de Acucar, a Brazilian supermarket chain controlled by French Casino Guichard-Perrachon. The transaction was blocked by Casino Guichard-Perrachon and while Banco BTG Pactual is still pursuing the investment opportunity, the outcome is not yet clear.

TABLE: BRAZILIAN MACROECONOMIC AND FINANCIAL DATA

  2009 2010 Q110 Q410 Q111 Dy/y Dq/q
Real GDP in %y/y1 (0.6) 7.6 9.3 5.0 4.2 (5.1) (0.9)
CPI in %y/y1 4.9 5.0 5.2 5.9 6.3 1.1 0.4
Interest rate in %2 8.75 10.75 8.75 10.75 11.75 3.00 1.00
Unemployment rate in %2 6.8 5.3 7.6 5.3 6.5 (1.1) 1.2
Consumer confidence2 117.2 117.1 116.0 117.1 114.5 (1.5) (2.6)
IBOVESPA total return index3 82.7% 1.0% 2.6% (0.2%) (1.0%) n/m n/m
IPO number  6 11 5 3 5 0% 67%
IPO in USD bn 12.0 5.9 3.2 2.0 1.9 (41%) (7%)
M&A in USD bn 58.9 146.7 22.5 28.6 17.4 (23%) (39%)
Country bonds in USD bn4 37.7 58.7 15.5 10.9 18.8 21% 72% 

1) Annual figures are annual averages.
2) Period-end figures.
3) Change for the relevant period.
4) New issue values.
Notes: Dq/q is the comparison of Q1 2011 vs. Q4 2010. Dy/y is the comparison of Q111 vs. Q110. n/a - data not available.
Source: Bloomberg, as of June 30, 2011.

ENVIRONMENT – MIDDLE EAST NORTH AFRICA

Gulf State economies continued to recover strength, though unrest in Syria and Libya (coupled with continued rumblings of discontent over the speed of political change in Egypt and Tunisia) have added to general uncertainty within the region. Egypt, North Africa’s dominant economy, experienced a plunge in Q1 economic growth. A significant rebound is unlikely until political, and therefore economic, clarity emerges following elections scheduled to take place this fall.

  • Economic recovery is ongoing, though political uncertainty clouds the outlook

The region’s instability has affected private equity significantly. Just one fund was raised during the first quarter – Palestianian Siraj Fund Management raised USD 60 million for its first generalist fund. Investment volumes were similarly affected, and dropped to USD 75 million compared with last year’s quarterly average of USD 550 million.

TABLE: MENA MACROECONOMIC AND FINANCIAL DATA



2009 2010 Q110 Q410 Q111 Dy/y Dq/q

 


Egypt


Real GDP in % q/q ann1 4.7 5.2 0.4 (1.7) (8.6) (9.0) (6.9)
CPI in  %y/y1 16.2 11.7 12.2 10.3 11.5 (0.7) 1.2
Interest rate in %2 9.75 9.75 9.75 9.75 9.75 0.00 0.00
Unemployment in %2 9.4 8.9 9.1 8.9 11.9 2.8 3.0
Israel

Real GDP in  %y/y1 0.8 4.7 5.0 7.6 4.8 (0.2) (2.8)
CPI in %1 3.3 2.7 3.2 2.7 4.3 1.1 1.6
Interest rate in %2 1.25 2.00 1.25 2.00 3.00 1.75 1.00
Unemployment in %2 7.2 6.5 6.9 6.5 6.0 (0.9) (0.5)
TA-25 Index price3  74.9% 15.8% 7.3% 8.2 (0.4%)  n/m n/m 
Saudi Arabia Real GDP in  %y/y1 0.6 3.7 n/a 3.8 n/a n/m n/m
CPI in  %y/y1 5.1 5.4 4.7 5.4 4.7 0.0 (0.7)
Interest rate in %2 2.00 2.00 2.00 2.00 2.00 0.00 0.00
Unemployment in %3 10.5 10.0 n/a 10.0 n/a n/m n/m
SASEIDX index price3  27.5% 8.2% 11.1% 3.5%  (0.9%)  n/m n/m 
All MENA Real GDP in  %y/y1.5 1.8 3.8 n/a n/a n/a n/m n/m
CPI in %y/y1.5 6.5 6.9 n/a n/a n/a n/m n/m
MSCI Arabian ex SA price3 (13.9%) 5.6% 5.0% 5.4% 2.0% n/m n/m
IPO 15 35 8 9 6 (25%) (33%)
IPO in USD bn 3.0  3.2  0.3  1.1 0.1  (8.3%)  (96%)
 M&A in USD bn  16.5 23.2  9.7  4.0  5.2  (47%)  (31%)
Region bonds in USD bn4 51.8 53.8 9.2 18.2 9.6 5% (47%)

1) Annual figures are annual averages and quarterly figures are period-end values.
2) Period-end figures.
3) Change for the relevant period.
4) New issue values.
5) Estimates of the International Monetary Fund.
Notes: Dq/q is the comparison of Q1 2011 vs. Q4 2010. Dy/y is the comparison of Q1 2011 vs. Q1 2010.
n/a - data not available.
n/m - not meaningful.
Period of M&A deals relates to announcement dates. Data for previous periods may change if pending deals are cancelled.
Geography of M&A deals is based on the location of the target.
Source: Bloomberg, June 30, 2011.The International Monetary Fund World Economic Outlook April 2011 database.

ENVIRONMENT – SUB-SAHARAN AFRICA

The positive economic story in Sub-Saharan Africa continues, aided in part by China’s pledge to support the region’s development. On the political front, while some recent elections proved less peaceful than hoped for, the trouble-free process in the Nigerian presidential elections provides a powerful and positive signal in the region’s most important economy. Economic growth accelerated in South Africa, another of the region’s most important economies, in the first quarter to 4.8%, from 4.5% in the previous quarter. Following 8.4% growth in 2010, Nigeria’s economy is projected to grow at 6.9% in 2011, according to IMF estimates. The IMF’s annual outlook for the entire Sub-Saharan region is positive, with 2011 GDP growth expected to be at 5.5%, 50 basis points higher than in 2010.

  • Growth continues across Sub-Saharan Africa

Private equity fundraising across Sub-Saharan Africa continues to increase, and received a significant vote of confidence in June when Helios Investment Partners closed its second fund at USD 900 million.

TABLE: SSA MACROECONOMIC AND FINANCIAL DATA



2009 2010 Q110 Q410 Q111 Dy/y Dq/q

 


South Africa


Real GDP in % q/q ann1 (1.7) 2.8 4.8 4.5 4.8 0.0 0.3
CPI in  %y/y1 7.1  4.3 5.1 3.5 4.1 (1.0) 0.6
Interest rate in % 7.00 5.50 6.50 5.50 5.50 (1.00) 0.00
Unemployment in % 24.2 24.0 25.2 24.0 25.0 (0.2) 1.0
ZADOW (SA) index price3 24.2% 17.6 3.8% 7.4% (1.4%) n/m n/m
Nigeria

Real GDP in  %y/y1 7.0 8.4 n/a n/a n/a n/m n/m
CPI in %1 12.5 13.7 14.8 11.7 12.8 (2.0) 1.1
Interest rate in % 6.00 6.25 6.00 6.25 7.50 1.50 1.25
Unemployment in % 19.7 n/a n/a n/a n/a n/m n/m
Kenya Real GDP in  %y/y1 2.6 5.0 5.9 n/a n/a n/m n/m
CPI in  %y/y1 5.1 5.4 5.0 3.8 7.0 2.0 3.2
Interest rate in % 4.25 5.43 6.75 6.00 6.00 (0.75) 0.00
All SSA Real GDP in  %y/y1.5 2.8 5.0 n/a n/a n/a n/m n/m
CPI in %y/y1.5 10.5 7.5 n/a n/a n/a n/m n/m
MSCI EFM Africa price3 43.6% 28.7% 5.3% 11.8% (3.9%) n/m n/m
SSAXSA50 index price3 (13.9%) 5.6% 5.0% 5.4% 2.0% n/m n/m
IPO  number 2 12 1 5 0 (100%) (100%)
IPO in USD bn 2.1 2.1 0.2 0.9 0.0 (100%) (100%)
 M&A in USD bn 18.4 41.1 16.1 13.4 7.4 (64%) (45%)
Region bonds in USD bn4 13.9 21.6 7.2 3.1 9.9 37% 221%

1) Annual figures are annual averages and quarterly figures are period end values.
2) Period-end figures.
3) Change for the relevant period.
4) New issue values.
5) Estimates of the International Monetary Fund.
Notes: Dq/q is the comparison of Q1 2011 vs. Q4 2010. Dy/y is the comparison of Q1 2011 vs. Q1 2010. n/a - data not available. n/m - not meaningful. Period of M&A deals relates to the announcement dates. Data for previous periods may change if pending deals are cancelled. Geography of M&A deals is based on the location of the target.
Source: Bloomberg, June 30, 2011.The International Monetary Fund World Economic Outlook April 2011 database.

ENVIRONMENT – TURKEY AND RUSSIA/CEE/CIS

GDP growth in Central Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) continued in Q1. However, and somewhat unexpectedly, consumer spending, and therefore growth, eased in Russia. Turkey’s strong economic progress continued; growing at 11% in Q1 – faster than both India and China. Nevertheless, there are rising concerns over Turkey’s widening current account deficit (seen as a significant vulnerability), with the Turkish Central Bank seeking to manage it by raising reserve requirements for banks, rather than the more conventional approach of raising interest rates.

  • The region’s economy continues to rebound

Private equity investment activities varied across the region, with limited success in Russia and considerable success in Turkey. In Russia, Runa Capital raised USD 20 million during the first quarter for its growth fund that focuses on Consumer Services and internet companies. Combined, the CEE and CIS countries raised USD 51 million in the first quarter; considerably less than the quarterly average for 2010. In contrast, investment volumes increased substantially as USD 1,290 million was invested in 24 deals, setting the stage for solid investment levels in 2011. Investment volumes were lifted by the USD 599 million investment of Montagu Private Equity in Polish telecommunication company TP Emitel. Another notable transaction was the USD 200 million investment by General Atlantic in well-known Russian antivirus software company Kaspersky Lab.

TABLE: CEE/CIS MACROECONOMIC AND FINANCIAL DATA



2009 2010 Q110 Q410 Q111 Dy/y Dq/q

 


Turkey

Real GDP in %y/y1 (4.7) 8.2 12.0 9.2 11.0 (1.0) 1.8
CPI in  %y/y1 6.3 8.6 9.6 6.4 4.0 (5.6) (2.4)
Interest rate in %2 6.50 6.50 6.50 6.50 6.25 (0.25) (0.25)
Unemployment in %2 13.5 11.4 13.7 11.4 10.8 (2.9) (0.6)
Consumer confidence2 78.8 91.0 84.7 91.0 93.4 8.7 2.4
XU100 index price3 96.6% 24.9% 7.0% 0.3% (2.4%) n/m n/m
IPO number 1 22 1 6 7 600% 17%
IPO number in USD bn 0.0 1.9 0.4 1.1 0.7 58% (36%)
M&A in USD bn 2.7 13.1 1.6 7.5 3.6 121% (52%)
Country bonds in USD bn4 3.9 8.7 3.1 1.9 6.1 99% 221%
Russia

Real GDP in %y/y1 (7.8) 4.0 3.5 4.5 4.1 0.6 (0.4)
CPI in %y/y1 11.7 6.9 6.5 8.8 9.5 3.0 0.7
Interest rate in %2
8.75 7.75 8.25 7.75 8.00 (0.25) 0.25
Unemployment in %2
8.2 7.2 8.6 7.2 7.1 (1.5) (0.1)
RTS index3 128.6% 22.5% 8.9% 17.4% 15.5% n/m n/m
IPO number 0 5 0 1 0 n/m (100%)
IPO number in USD bn 0.0 0.5 0.0 0.0 0.0 n/m (100%)
M&A in USD bn 2.7 13.1 1.6 7.5 3.6 121% (52%)
Country bonds in USD bn4 43.4 61.6 12.2 20.0 14.0 15% (30%)
Ukraine Real GDP in %y/y1 (15.0) n/a 4.8 3.3 5.3 0.5 2.0
CPI in %y/y1 15.9 9.4 11.0 9.1 7.7 (3.3) (1.4)
Interest rate in %2 10.25 7.75 10.25 7.75 7.75 (2.50) 0.00
Unemployment in %2 9.4 8.4 9.0 8.4 n/a n/m n/.m
PFTS index3 90.1% 70.2% 64.1% 24.4% 12.7% n/m n/m
IPO number 0 0 0 0 0 n/m n/m
IPO in USD bn 0.0 0.0 0.0 0.0 0.0 n/m n/m
M&A in USD bn 2.7 13.1 1.6 7.5 3.6 121% (52%)
Country bonds in USD bn4
3.4 5.0 0.0 1.5 3.6 n/m 145%

1) Annual figures are annual averages and quarterly figures are period-end values.
2) Period-end figures.
3) Change for the relevant period.
4) New issue values.
Notes: Dq/q is the comparison of Q1 2011 vs. Q4 2010. Dy/y is the comparison of Q1 2011 vs. Q1 2010. n/a - data not available. n/m - not meaningful. Period of M&A deals relates to the announcement dates. Data for previous periods may change if pending deals are cancelled. Geography of M&A deals is based on the location of the target.
Source: Bloomberg, June 30, 2011.

TABLE: EMERGING MARKETS PRIVATE EQUITY MARKET DATA


All values in USD millions
2009 2010 ann. 2011 Q111 % of total Dy/y

 


MENA


Funds raised

 448 1,070 240 60 1% (78%) 
Investments  793  2,215 300  75  1%  (86%)
Number of deals  23  34 24   6  3%  (29%)
PE penetration in %1 0.04  0.11         
SSA

Funds raised  1,499  964 624   156  2%  (35%)
Investments  631  1,383  692  173  3% (50%)
Number of deals  48 37   40 10 5%  8%
PE penetration in %1  0.06 0.16        
CEE & CIS Funds raised 1,192  1,586  204  51  1%  (87%)
Investments  2,398  3,323  4,836  1,209  20%  46%
Number of deals  117  76  96  24 12%  26%
Russia2 Funds raised  75  455        
Investments  1,516  217  1,224  306  5%  464%
Number of deals  45  20  24  6  3%  20%
PE penetration in %1  0.10  0.02        
Latin America 
& Caribbean
Funds raised  5,608  2,248  1,588  397  4%  (29%)
Investments 6,648 1,318  2,064  516  9%  57%
Number of deals  92  54  56  14  7%  4%
Brazil2 Funds raised  1,078  401  600 150  1%  50%
Investments  4,604  989  1,984  496  8%  101%
Number of deals 53  20  28  7  4%  40%
PE penetration in %1  0.23  0.06        
Emerging Asia Funds raised  14,206  15,938  37,828  9,457  93%  137%
Investments  18,308  13,867  15,800  3,940  67%  14%
Number of deals  576  473  580  145  73%  23%
Multiregion Funds raised  524  801  128  32  0%  (84%)
Global Emerging
Markets
Funds raised 23,477  22,607  40,153  10,153  100%  80%
Investments  28,778  22,106  23,692  5,923  100%  7%
Number of deals  856  674  796  199  100%  18%

1) Private equity penetration is a ratio of private equity annual investments to nominal gross domestic product (GDP).
2) Data is included in CEE & CIS and Latin America & Caribbean, respectively.
Note: Dy/y is the comparison of annualized 2011 vs. 2010.
Source: Emerging Markets Private Equity Association, as of April 30, 2011.

 

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This document contains information that has been provided by a number of sources not affiliated with Capital Dynamics. “Capital Dynamics” comprises Capital Dynamics Holding AG and its affiliates. Capital Dynamics has not verified the information provided. Nothing contained herein shall constitute any representation or warranty and no responsibility or liability is accepted by Capital Dynamics as to the accuracy or completeness of any information supplied herein. This document does not constitute an offer to sell or a solicitation of an offer to purchase any securities of any kind in Capital Dynamics, including any of its funds of funds. Any such offer or solicitation shall be made pursuant to a private placement memorandum furnished by Capital Dynamics.

Before relying on this information in any way, Capital Dynamics advises the recipient of this information (the “Recipient”) to perform independent verification of the data and conduct his or her own analysis hereto with appropriate advisors. Statements contained in this document may include statements of future expectations and other forward-looking statements. Any projections or other estimates in these materials are based upon certain assumptions. Actual events may differ materially from those assumed, which may have a material impact on any projections or estimates provided herein. In addition, certain assumptions may have been made to simplify the document and/ or calculation of projections or estimates. Capital Dynamics does not purport that any such assumptions will reflect actual future events, and reserves the right to change its assumptions without notice to the Recipient. The information contained herein may contain general, summary discussions of certain tax, regulatory, accounting and/ or legal issues. Any such discussions and issues may be generic and may not be applicable to or complete for the Recipient. Capital Dynamics does not offer tax, regulatory, accounting or legal advice and this document should not and cannot be relied upon as such. Prior to entering into any proposed transaction or agreeing to proposals made herein, the Recipient should determine, in consultation with the Recipient’s own legal, tax, regulatory and accounting advisors, the economic risks and merits of any action, as well as the legal, tax, regulatory and accounting consequences of such action. When considering alternative investments, such as private equity funds, the Recipient should consider various risks including the fact that some funds may use leverage and engage in a substantial degree of speculation that may increase the risk of investment loss, can be illiquid, are not required by law to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees, and in many cases the underlying investments are not transparent and are known only to the investment manager.

With respect to alternative investments, such as private equity funds, in general, the Recipient should be aware that: (1) Returns can be volatile (2) The Recipient may lose all or portion of your investment (3) The manager has total portfolio authority, and the use of a single manager could mean a lack of diversification and higher risk (4) Many funds are subject to substantial expenses that must be offset by portfolio profits. A portion of the profit is paid to the investment manager in the forms of carried interest and management fees (5) There is often a lack of transparency as to the fund's underlying investments (6) With respect to funds of funds, the fund of fund's manager has complete discretion to invest in various sub-funds without prior disclosure. There is no way to ascertain with certainty the specific investments made by the sub-fund or to know whether the sub-fund investments are consistent with the fund of fund’s historic investment philosophy or risk levels (7) A fund of fund invests in other funds and fees are charged at both the fund of fund and sub-fund level. Thus the overall fees paid by an investor will be higher than such investor would pay by investing directly in the sub-fund. In addition, each sub-fund charges or may charge an incentive fee, or carry, on new profits regardless of whether the overall operations of the sub-fund are profitable (8) There may be no secondary market for fund interests. Transfers of interests are subject to limitations. The fund's manager may deny a request to transfer if it determines that the transfer may result in adverse legal or tax consequences for the fund (9) The fund's offering memorandum and the investment manager’s disclosure document describes the various risks and conflicts of interest relating to an investment and to its operations. The Recipient should read those documents carefully to determine whether an investment is suitable in light of, among other things, the Recipients financial situation, need for liquidity, tax situation, and other investments (10) The Recipient should only commit risk capital to any investment product. Alternative investment products, including private equity funds, are not for everyone and entail risks that are different from more traditional investments. Should this document contain performance information, then please note: Except where otherwise specified, (i) all gross and net IRRs are “pooled IRRs”, i.e. calculated on the basis of aggregated cash flows of all products of each generation of products, and (ii) all cashflows since inception (July 1991) have been taken into account up to, unless otherwise stated, the track record date. Cashflows between Capital Dynamics’ funds of funds are excluded. The latest value that an underlying manager reports for its fund is counted as a positive cash flow. The calculations depend on valuations, therefore, in particular in respect of unrealized value, that has often been determined by third parties, which third parties are typically the underlying funds’ general partners.

Actual realized returns on any unrealized investments will depend on the value of investments at the time of disposition, any related transaction costs and the manner of sale. “Gross” means gross of Capital Dynamics fees but net of underlying funds’ fees. “Net” means Gross less Capital Dynamics fees. “Multiple” stands for the TVPI (Total Value to Paid-In) multiple (i.e. the ratio of the sum of distributions plus current NAV to the sum of draw downs). Where investments have been made in a currency other than the reference currency of the track record: (i) actual cash flows have been converted into the reference currency at the exchange rate for the relevant payment or receipt; and (ii) unrealized investments have been converted into the reference currency at the prevailing exchange rate as at the track record date. Past performance is not an indication of future results. The information compiled by Capital Dynamics has not been audited.

Material notes to investors based in United States of America: Capital Dynamics, Inc. is registered as an Investment Adviser with the Securities and Exchange Commission (SEC). Securities are offered through Capital Dynamics Broker Dealer LLC, a registered broker-dealer with the SEC, and a member of the Financial Industry Regulatory Authority (FINRA) and Securities Investor Protection Corporation (SIPC). Any Recipient not interested in the analysis described herein should return this document to Capital Dynamics, Inc. or Capital Dynamics Broker Dealer LLC, 645 Madison Avenue 19th floor, New York, NY 10022 USA and contact Capital Dynamics as soon as possible (t. +1 212 798 3400).

Material notes to investors in Switzerland: Material is presented to investors by Capital Dynamics AG. It does not constitute a public offering or marketing within the meaning of the Swiss Act on Collective Investment Schemes. It is addressed to a limited group of qualified investors. Any Recipient not interested in the analysis described herein should return this document to Capital Dynamics AG, Bahnhofstrasse 22, 6301 Zug, Switzerland and contact Capital Dynamics AG as soon as possible (t. +41 41 748 84 44).

Material notes to investors in Germany: This document is issued and distributed by Capital Dynamics GmbH. This document has not been filed with or approved by the Federal Financial Supervisory Authority (BaFin). It does not constitute a public offer of sales prospectus within the meaning of article 8f Law on the Prospectus for Securities offered for Sale (VerkProspG). It is addressed to a limited group of professional investors. Any recipient not addressed by Capital Dynamics GmbH should return this document to Capital Dynamics GmbH, Possartstrasse 13, 81679 Munich, and contact Capital Dynamics GmbH as soon as possible (t. +49 89 2000 4180).

Material notes to investors in the United Kingdom and select countries in the European Union: Material is presented to investors by Capital Dynamics Ltd. Capital Dynamics Ltd is authorized and regulated by the Financial Services Authority (FSA). Any Recipient not interested in the analysis described herein should return this presentation to Capital Dynamics Ltd, 9 Colmore Row, Birmingham, B3 2BJ, United Kingdom and contact Capital Dynamics as soon as possible (t. +44 121 200 8800).

Material notes to investors in Japan: Material is presented to investors by the issuer. The registration statement under Article 4, Paragraph 1 of the Financial Instruments and Exchange Law of Japan, as amended (the “FIEL”), has not been and will not be filed with respect to the offering of the interests of the fund (the "Interests") as the offering consists of a “solicitation for a small number of people” (as defined in Article 23-13, Paragraph 4 of the FIEL), and the Interests, which are “securities” within the meaning of Article 2, Paragraph 2, Item 6 of the FIEL, will be offered in accordance with Article 2, Paragraph 3, Item 3 of the FIEL, where the Interests shall not be held by 500 or more investors. The offering and sale of the Interests by the general partner is intended to be exempt from the registration requirement under the FIEL in reliance on the exemption provided for in Article 63, Paragraph 1, Item 1 of the FIEL, and the management of the fund's assets by the general partner is intended to be exempt from the registration requirement under the FIEL in reliance on the exemptions provided for in (i) Article 63, Paragraph 1, Item 2 of the FIEL or (ii) Article 16, Paragraph 1, Item 13 of the Cabinet Office Ordinance Concerning Definition Provided in Article 2 of the FIEL. The general partner has not been and will not be registered under the FIEL as “investment management business” (toshi unyo gyo) as defined in Article 28 of the FIEL and no Interests held by an investor can be transferred in any manner whatsoever if the transfer causes the general partner to be registered as “investment management business” under the FIEL.

Material notes to investors in Australia: This offer is only open to wholesale clients (as defined in the Corporations Act 2001 (Cth). Prospective investors should not treat the contents of this document as investment advice or advice relating to legal, taxation or any other matters. The offer is issued by Capital Dynamics Investments (Australia) Limited ARBN# 145 827 738, a foreign company registered in its original jurisdiction of the United Kingdom as Capital Dynamics Limited. The Issuer is operating in Australia under relief issued by the Australian Securities and Investments Commission from the requirement to hold an Australian Financial Services (AFS) license and therefore the issuer does not hold an AFS license.

Material notes to investors in other jurisdictions: The distribution of this presentation in certain jurisdictions may be restricted by law. Persons into whose possession this document comes are required by Capital Dynamics to inform themselves about, and to observe, any such restrictions. This document does not constitute an offer to sell or the solicitation of an offer to purchase any securities in any state or other jurisdiction: (i) in which such offer or invitation is not authorized; (ii) in which the person making such offer or invitation is not qualified to do so; or (iii) to any person to whom it is unlawful to make such offer or solicitation.

 

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