26 February PwC Private Equity 2013 Review and 2014 Outlook

PwC Private Equity 2013 Review and 2014 Outlook 26 February 2014 Foreword – explanation of data shown in this presentation • The data presented is...
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PwC Private Equity 2013 Review and 2014 Outlook

26 February 2014

Foreword – explanation of data shown in this presentation •

The data presented is based on information compiled by ThomsonReuters, ChinaVenture and PwC analysis unless stated otherwise



Thomson Reuters and ChinaVenture record announced deals. Some announced deals will not go on to complete



The deal volume figures presented in this report refer to the number of deals announced, whether or not a value is disclosed for the deal



The deal value figures presented in this report refers only to those deals where a value has been disclosed (referred to in this presentation as “disclosed value”)



“Domestic” means China including Hong Kong and Macau



“Private Equity deals” or “PE deals” refer to financial buyer deals with deal value over US$10mn and/or with undisclosed deal value but invested by Pes



“VC deals” refer to financial buyer deals with deal value less than US$10mn and/or with undisclosed deal value but invested by VCs



In order to exclude foreign exchange impact, deal values from 2008 to 2012 were adjusted based on 2013 average Rmb/US$ exchange rate



Statistics contained in this presentation and the press release may vary from those contained in previous press releases. There are three reasons for this: ThomsonReuters and ChinaVenture historical data is constantly updated as deals are confirmed or disclosed; PwC has excluded certain transactions which are more in the nature of internal reorganisations than transfers of control; and exchange rate data has been adjusted.

PwC

2

Overview

PwC

Key messages •

Between 2003 and 2013, fundraising in the China market dominated Asian PE with around US$312 billion raised.



2013, Renminbi PE fundraising declined for the second straight year as the domestic Chinese PE industry continued to consolidate; US$ denominated fundraising has been consistently healthy over the same period.



The number of new investments recovered in the second half of the year and, on a full year basis, deal values held up well. The average deal size for 2013 was around US$95.40 million, reaching its highest level since 2008.



PE investors’ industry focus was broadly consistent with earlier years; We believe that the technology, media and telecommunications (TMT), healthcare, industrial and consumer related sectors will show strong growth.



Growth capital deals declined as the PE industry shifted focus towards PIPE and, increasingly, buy-out transactions whilst PE interest in outbound deals continued, albeit still at low levels in absolute terms.



2013 was the third straight year of decline for PE exits as well as the first year that IPO was not the dominant exit-route; Although the overhang of new investments compared to exits remains the number one issue affecting the PE and VC industry, PE-backed IPOs showed a significant recovery in the second half of 2013 off a very low base.



In 2013, the number of PE/VC backed IPOs by Chinese companies was 35, 43% of the figure in the US, the first time the US figure has exceeded China since 2008.

PwC

4

Fundraising

PwC

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China focused funds made up only 7% of global PE fundraising in 2013 – a decline for the second straight year – while the global markets rebounded, China markets were slowed down by its domestic IPO embargo PE/VC funds raised with geographic preference in China vs ROW (2007 – 2013)

US$ billion 800 700

688

668

600 500 431 382

400 320

332

296

300 200 100

39.9

42.9

39.2

15.6

58.7

45.4

33.1

0 2007

2008

2009

2010 World

2011

2012

2013

China

Source: AVCJ ,Preqin

PwC

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Fundraising for the China market dominated Asian PE with around US$312 billion raised Total funds raised by fund country, with geographic preference in Asia (2003 –2013)

US$ billion 350

Excludes allocations from non-China specific funds 312

300

250

200

150 105

100

75

57 50

0 China/HK

Japan

India

Others

Source: AVCJ

PwC

7

2013, Renminbi PE fundraising declined for the second straight year as the domestic Chinese PE industry continued to consolidate; US$ denominated fundraising has been consistently healthy over the same period PE/VC fund raising for China investment*

No.

US$ billion 60

* Excludes PEs investing in China from non-region specific funds

300

277 250

50

249 21.8

200

40

172 165

150

21.1

14.9

123

39.8 100

130 20

30

20

31.8 9.5

50

21.0

20.3

10 13

0

4.5

6.7

2008

2009

0 Renminbi Fund Size

2010

2011 Non-renminbi Fund Size

2012

2013

Fund Volume

Source: AVCJ and PwC analysis

PwC

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Although Renminbi PE fundraising declined in dollar terms, its share of the market increased to 77% in 2013, up by 12% compared to 2012 The growth of Renminbi denominated funds (2008 - 2013) 100% 23% 66%

80%

35%

32%

24%

80%

60%

77%

40% 34%

20%

65%

68% 76%

20%

0% 2008

2009

2010 Renminbi Fund

2011

2012

2013

Non-renminbi Fund

Source: APER、AVCJ

PwC

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Better External Environment - Gradual improvement of the regulatory system & local policies for VC/PE for future development •

The relevant legislative and regulatory agencies are actively discussing how to further regulate and support the future development of VC/PE after the amended Law of the People's Republic of China on Funds for Investment in Securities took effect in June 2013.



Local governments have launched equity investment incentives to attract registration of Renminbi funds and stimulate local economies. A considerable deal of Renminbi funds have started looking at the areas like Shenzhen Qianhai, Guangzhou, Hengqin development area, Xinjiang and Tibet. (Shanghai PFTZ also recently became a new focus.) Shenzhen Qianhai Case study • Preferential policies of approval, taxation, management systems, legislation and other legal aspects are specially conferred by the State Council. The objective was to create the most relaxed, best, international and legal environment in Qianhai. •

PwC

3 financial reform s and innovations related to the Qianhai equity investment industry:  Broaden the channels for offshore RMB investment by building a pilot cross-border RMB business area; ;  Support and establish of FoF in Qianhai;  Support foreign equity investment funds’ development in Qianhai, actively explore new models for foreign equity investment firms in the capital settlement, investment, fund management and other areas

10

Deals

PwC

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The number of new investments recovered in the second half of the year …

Private Equity deals, 2013 vs. 2012 (half yearly) No.

US$ billion 18.5

300

20 16.5

250

18 16

15.1

14

200

12 150

8.8

10

8 205

100 168

164

162

6 4

50

2 0

0 1H2012

2H2012 Announced Deal Volume

1H2013

2H2013

Announced Deal Value

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC

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… and on a full year basis, deal values held up well. The average deal size for 2013 was around US$ 95.4 million, reaching its highest level since 2008 Private Equity deals, from 2008 to 2013 No.

US$ billion

550

40

500

400 350

35.0*

32.6

450

30

25.4 22.4

25

22.8

23.9

300

20

502

250 200

425 365

150

35

332

367

15 10

254

100 5

50 0

0 2008

2009

2010 Announced Deal Volume

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC

2011

2012

2013

Announced Deal Value * Includes US$9.8 bn Taikang and Guolian investment in Petrochina’s West Pipeline JV

13

PE investors’ industry focus was broadly consistent with earlier years; we think TMT and healthcare sectors will grow in importance PE deal volume by industry sector No. 550

500 450 400

13 30

350 8 47

300

250

14 33

200

40

150

60

100

0

12 20 23 32

77

54

45

50

2008

2009

50

Industrials Healthcare Materials

34 31 98

54 72

124

31 31

24 46

44

32

58

45

67

73 88

90

2010

2011

Consumer related Real Estate Retail

Media and Entertainment Financial Services Others

42 2012

82 2013

High Technology Energy and Power

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC

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PE invested heavily in high-tech, industrial and consumer-related industries in terms of deal value (Petrochina deal excluded)

PE deal value by industry sector US$ billion 40 35 1.4 2.6

30

10

5 0

1.5 2.5 0.7

0.5

20 15

3.6

1.0

25

0.9 0.4 3.0

7.5

9.2

7.2

6.3

1.0 2.1

2.0 0.5 2.1

1.2 1.4

3.5 1.5 2.3

2008

2009

2010

2011

Energy and Power Real Estate Raw Materials

High Technology Financial Services Telecommunications

1.8 6.8

11.6

3.2

4.1

Industrials Healthcare Others

4.1 6.2

1.9 3.4 1.7 3.2 1.8

11.0

2012

2013

Consumer related Media and Entertainment

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC

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Growth capital deals declined as the PE industry shifted focus towards PIPE and, increasingly, buy-out transactions

PE deal volume by type No. 550 16

500 450 400 350

13 15

118 29

85

18

21

300

132

51

200 150

68

4

250

329

368

327

246

199

100

206

50 0 2008

2009

2010 Growth

2011 PIPE

2012

2013

Buyout

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC

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Growth capital deals and PIPE were dominant in terms of deal value

PE deal value by type US$ billion 40 35 30 25 20

3.9

2.8

0.6 1.2

0.6

10.8 4.2

9.5

4.3

14.7

5.2 15 10

15.9 17.0

5

19.0

15.3

14.5

16.4

6.2

0 2008

2009

2010 Growth

2011 PIPE

2012

2013

Buyout

Source: ThomsonReuters, ChinaVenture and PwC analysis

PwC

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Exit

PwC

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PE-backed IPOs showed some recovery in the second half of 2013 off a very low base …

PE/VC backed deal exit volume by type, 2013 vs. 2012 (half yearly) No. 140 120

3

100 48 5

80 60

5

44

1 34

40 64

51

20

34

29 6

0 1H2012

2H2012 IPO

1H2013 M&A - trade

2H2013

M&A - PE

Source: AVCJ and PwC analysis

PwC

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… but it was the third straight year of decline for PE exits, almost entirely attributable to problems in the equity capital markets; 2013 was the first year that IPO was not the dominant exit-route PE/VC backed deal exit volume by type No. 350 8

300

6

83

250

91

200

8

5

150

92

84 100

7

212 171

85

44 50

6

98

88 46

35

0 2008

2009

2010 IPO

2011 M&A - trade

2012

2013

M&A - PE

Source: AVCJ and PwC analysis

PwC

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The overhang of new investments compared to exits remains the number one issue affecting the PE and VC industry

PE/VC deal volume vs. No. of exits

No. 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0

425

502 367

365

254

332 1,011

738

712

694

88 89

46 51 2008

903

2009

212

171

91

97

2010 VC deals

PE deals

473 98 100

2011 M&A exit

2012

35 91 2013

IPO exit

Source: ThomsonReuters, ChinaVenture, AVCJ and PwC analysis

PwC

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From November 2012 through to December 2013, China experienced its longest IPO embargo in the A Share’s history. Therefore all IPOs were split between the US and Hong Kong capital markets in 2013 PE/VC backed IPO exit volume by bourse No. 250

14 11

200

10 18

150 118

4

100

106

6-

50

0

7 2 21 4 12

2008

48

30

70

2009 Hong Kong

6

11

7 27

11

39

2010 NYSE/ NASDAQ

Shenzhen

26

2 11

29

2011

2012

2013

Shanghai A

Others

Source: AVCJ and PwC analysis

PwC

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In 2013, the number of PE/VC backed IPOs in China was 35, 43% of the figure in the US, the first time the US figure has exceeded China since 2008 PE backed IPO exits China vs US – number of exits (2008 – 2013)

No.

250

213 200 170 150

100

98

88

82 70 51

47

50

49 35

13

7 0 2008

2009

2010

2011 US

2012

2013

China

Source: AVCJ ,Thompson Reuters, NVCA

PwC

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2014 Outlook

PwC

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Outlook •

As IPO markets re-open, PwC has an optimistic outlook for fundraising markets in 2014 and expects them to significantly rebound. Meanwhile, Renminbi denominated fundraising will prevail as usual.



We also think that the number of new investments will increase with the trend to buy-outs continuing.



Although smaller in number, we will see more outbound PE deals and we expect to see some PE interest in investing in SOEs and in A-share listed companies.



PE exits will rebound strongly as IPO markets re-open, we expect to see quite a number of PE backed IPOs in 2014. Besides, we also expect to see more secondary (PE to PE) activity.



Better External Environment - Gradual improvement of the regulatory system & local policies for VC/PE for future development.

PwC

25

Thank you!

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