EMEA PRIVATE EQUITY Market Snapshot •

Investment into EMEA Wanes as Regional Issues Accumulate

•

Private Equity Shifts Focus Towards Internet Retailers

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Private Equity Exits: Secondaries and IPOs – Buffers and Bull Markets

OCTOBER 2015 │ ISSUE 7

[email protected]

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EMEA PRIVATE EQUITY MARKET SNAPSHOT

Editors’ Note Welcome to the 7th issue of the EMEA Private Equity Market Snapshot, a quarterly publication focusing on the private equity (PE) market in Europe, the Middle East, and Africa (EMEA). We begin this issue with an overview of the downward drift the EMEA PE market has continued to experience as both a recipient and an originator of private equity investment. We then proceed to examine deal making in the ever-evolving retail subsector and levels of activity in the Iberian PE market. It is interesting to note that, during the first nine months of 2015, a significant 41% of all capital deployed to new investments in the retail sector was allocated to internet retail companies. W e review common salient characteristics across these new deals and identify key industry players that match these criteria.

sector-level multiples for private equity and the region’s broader merger and acquisition market. At the heart of our analysis is the S&P Capital IQ platform which incorporates a database capturing more than 3.1 million historical transactions, including deal values and transaction multiples, target company fundamental data, sectorlevel financials, and comprehensive private equity manager and fund information. We look forward to receiving feedback and suggestions on regions or sectors of interest for future analysis. To subscribe or comment on the EMEA Private Equity Market Snapshot, email [email protected]. Authors Silvina Aldeco-Martinez

Separately, the findings of our analysis of the Iberian PE market indicate that the region is currently witnessing the early stages of a private equity revival. This is in comparison to the strong momentum observed in deal making in the wider non-sponsored M&A market. The last article of this issue, the feature article, explores both the shifting nature of private equity exits across the pre- and post-crisis periods, and the global revival of secondaries and IPOs. Through the lenses of current LBO activity and prevailing capital market conditions, we also take a look at the undercurrents impacting future IPO activity across Asia, Europe and the US. As always, in the appendix of each issue is a data pack which provides a topdown view of the market compared to its position at the same point in time last year. Included in the data pack are charts showing transaction numbers and volumes among EMEA-based PE and venture capital (VC) targets, transaction volumes and deal counts undertaken by EMEA-based PE firms and VCs, and

Managing Director Product & Market Development EMEA, S&P Capital IQ

Paul Bishop Product Manager, S&P Capital IQ

Ian Hazard Team Leader, Private Equity Research S&P Capital IQ

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EMEA PRIVATE EQUITY MARKET SNAPSHOT

Investment into EMEA Wanes as Regional Issues Accumulate The EMEA region as a destination for new global private equity investments showed weaker performance between 1 July and 15 September 2015 than over the same period in 2014. Although new investments into EMEA-located target companies over the period only fell by 5% (from 881 new EMEA entry deals in 2014 to 839 new deals in 2015), capital deployments plunged by 42% with investment reaching €20.2bn in 2015 compared to €35bn in 2014. This represents a continuation of the trend discussed in the last issue of the EMEA Private Equity Market Snapshot that saw a decline in both overall capital invested and the number of deals in the EMEA region by global private equity firms in Q2 2015 compared to Q2 2014.

pools of capital into the region1. S&P Capital IQ data shows that between July and 15 September 2015, total aggregate transaction value has decreased by 33% compared to the same period in 2014. Significant reductions in capital occurred in Eastern Europe which saw a 90% decline from aggregate transaction values of €1.3bn in 2014 to €0.1bn in 2015. Western Europe recorded a fall of €5.8bn in the amount of invested capital deployment totalling €1.2bn over the period compared to €7bn in 2014 - an 83% decline. EMEA GPs’ investments into North America, on the other hand, increased by 92%, allocating €8.7bn into target companies versus €4.5bn over the same period in 2014. This may be explained by the renewed attractiveness of North America’s economy and a natural alternative to mature European markets when political and economic uncertainty prevents capital deployment locally. “In what has

become a familiar pattern, we forecast that third and fourth quarter economic On a sector basis, investments into EMEA consumer staples sector targets have growth will outpace first and second quarter growth” writes Gabriel J Petek of seen the largest increase in terms of aggregate capital deployed by global private equity firms, with €0.9bn invested between 1 July and 15 September 2015 compared to €0.3bn over the same period in 2014. This rise is explained by one of the largest deals during the period which saw Paine & Partners Capital Fund IV, L.P. of Paine & Partners, LLC acquire an equity stake in Spearhead International Ltd for approximately €302mn. On the opposite side of the spectrum, Utilities saw a significant fall in invested capital from €1.1bn in 2014 to €0.1bn in 2015.

Standard & Poor’s Ratings Services.2 Exits by EMEA private equity firms globally have also seen a sharp decline in capital realisations, resulting in aggregate transaction values of €30.9bn during the 2015 period compared to €44.8bn in 2014. This trend is also replicated in the EMEA-located target universe where a €19.6bn drop in capital raised was registered, accounting for a 47% decrease.

On a sector basis, 1 July to 15 September 2015 saw a significant increase for the In terms of divestitures, capital realised from EMEA-located target sales reached materials sector, with €0.8bn of investments worldwide by EMEA-located private €22.2bn over 306 deals during the 2015 period, 47% lower than the €41.8bn over equity firms compared to €0.1bn in 2014. Information technology sector assets 331 exits in 2014. also saw an increase in capital realised from target sales, jumping to €10.5bn in Another notable trend has been the shrinkage of deal size. The average entry deal size in EMEA-located target companies decreased to €42.1mn, and the average exit deal size declined to €224.3mn. 1

EMEA GPs’ Confidence Knocked by the Eurozone Uncertainties Growing political, economic and social uncertainties related to the recent migration crisis appear to have driven EMEA GPs further away from investing large

Suggested further reading: “The Surge of Refugees In The EU: Boon or Burden For Sovereign Ratings?” – Moritz Kraemer, Standard & Poor’s Ratings Services, https://www.capitaliq.com/CIQDotNet/CreditResearch/SPResearch.aspx?DocumentId=32236455&From=SNP_C RS 2 “U.S. State And Local Government Credit Conditions Forecast: Financial Management Stands Out In An Age Of Economic Limitations” – Gabriel J Petek, Standard & Poor’s Ratings Services, https://www.capitaliq.com/CIQDotNet/CreditResearch/SPResearch.aspx?DocumentId=31825698&From=SNP_C RS

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EMEA PRIVATE EQUITY MARKET SNAPSHOT

2015 compared to €2.6bn in 2014. The most notable exit was the €4.2bn sale of attractive targets continue to lie outside EMEA. iGATE Corporation (NasdaqGS:IGTE) by Apax Europe VII, APA Excelsior VII, L.P. and Apax Europe VI, funds managed by Apax Partners LLP to Capgemini North EMEA PE Firms “e“e-Shopping” in Retail America, Inc. It is interesting to note that, rather unsurprisingly, the energy sector was hardest Following our analysis of consumer confidence and the wider consumer hit in terms of attracting new deals and capital inflows globally from EMEA GPs. discretionary sector in the last issue of this report, here, we take a deep dive into S&P Capital IQ data shows that during the 2015 period there was a 54% drop in the rapidly evolving retail subsector and examine how private equity firms globally total deals compared to 2014. At the same time, aggregate transaction value are increasingly moving away from traditional bricks-and-mortar retailers and decreased from €2.2bn during the same timeframe in 2014 to €0.02bn in 2015, into technology enabled e-commerce. We also examine how this is impacting the criteria used to assess attractive investment opportunities and is moving the representing a remarkable 99% decline. focus away from management and leasing towards growth. This was also the sector that saw the biggest decline in capital realisation by EMEA GPs, dropping to €0.003bn over the 2015 period from €2.2bn in 2014. A It would appear that investments made by private equity firms in the retail sector broad imminent recovery appears unlikely given tumbling oil prices and have shifted significantly away from traditional high street retailers towards more uncertainties surrounding the Middle East3. However, some large GPs have technologically focused businesses. Increasingly, private equity firms are looking announced their desire to increase their exposure to the sector given the at investments within the internet retail space and are targeting high growth firms with the objective of turning them into profitable operations, relying on perceived attractive valuations.4 sustained growth and client base expansion. Separating the wheat from the chaff Trends in the venture capital (VC) world are similar. The EMEA region attracted will be the key to continued private equity success in the new e-retail paradigm. 387 new deals from global VC firms putting a total of €1.6bn of capital to work. This represents a reduction in both new deal count and capital invested by 9% The retail industry has long been a stalwart subsector of the private equity industry, constituting a 25% share of all investment into the broader consumer and 12%, respectively in 2015 compared to the same period in 2014. discretionary sector in the last 10 years. However, it has recently undergone Similarly, EMEA-located venture capital firms also saw a 10% decline in the total some significant changes in terms of the constitution of investments. Deals in number of new deals into global targets, falling from 461 deals in 2014 to 415 in traditional brick-and-mortar retailers are losing out to more technologically 2015. Nevertheless, capital invested increased to €2.7bn from €2.2bn focused internet retailers and challenges in the appraisal of these new targets are representing a 21% growth. The data suggests that EMEA venture capital firms changing the game for EMEA private equity. are continuing to concentrate higher levels of capital on fewer deals, and that

3 Further reading: “Some Gulf Corporates And Infrastructure Issuers Will Likely Feel The Heat Of Lower Oil Prices” – Karim Nassif, Standard & Poor’s Ratings Services, https://www.capitaliq.com/CIQDotNet/CreditResearch/SPResearch.aspx?DocumentId=32264500&From=SNP_C RS 4 “KKR Backs New European Oil and Gas Producer” – Simon Clark, Wall Street Journalhttps://www.capitaliq.com/CIQDotNet/News/Article.aspx?companyId=21401&nab=True&newsItemId=18 2107967&stateKey=2e8e239d96524d55a80e33834e7d0a72

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EMEA PRIVATE EQUITY MARKET SNAPSHOT

directed to internet retailers. This trend has continued into 2015 with 85 new investments made into these companies between 1 January and 15 September compared to 79 new deals over the same period in 2014. An incredible 41% of all capital deployed to new investments in the retail sector has been allocated to internet retail companies.

Figure 1. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

Since 2000, the number of PE driven deals in the retail sector has increased significantly, from 102 in 2000 to 202 closed deals in 2014, as shown in figure 1. This trend appears to have been prompted by the increased levels of consumer confidence, as outlined in the Q2 issue of EMEA Private Equity Market Snapshot, whereby increased levels of consumer confidence have led to increasing revenues for consumer sector companies.

Figure 2. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

Looking at investments by EMEA private equity firms in the internet retail sector over the last five years, there seems to be a few common characteristics across the targets. As noted, strong sales growth appears as the prime characteristic of those stores acquired by private equity backers. Of those companies acquired in the past five years, the vast majority had three year CAGR for revenues above 23%, although several of the companies that have received financial backing from private equity investors were not bottom line profitable. In this sense, it would Private equity firms in EMEA seem to have taken note of this shift in the balance appear that strong growth rates in revenues are enough to provide a strong of power towards high growth internet retailers with high margins, low overheads rational for capital injection to support further growth. and shifting consumer preferences. Figure 2 illustrates the phenomenal increase in these investments, with 61% of all deals into retail sector companies in 2014 This tide seems to have positively impacted the retail subsector, with publicly listed companies registering positive shifts in their fundamentals (total revenue for the aggregate of companies in the retailing subsector grew by 9% between 2013 and 2014). Some of the biggest winners within the subsector have been internet retail companies which have seen total revenue growth of 23% from 2013 to 2014 and a five year CAGR (2009 – 2014) of 42% in revenues.

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EMEA PRIVATE EQUITY MARKET SNAPSHOT

So what impact is this having on the criteria private equity investors are using to evaluate retail sector target companies? Increasingly the focus for retail sector investments is shifting to technological enablement but also liquidity, capital, branding and the ability to react quickly to rapid changes in consumer preferences are also crucial. This is a significant change to traditional factors such as real estate location, retail leasing arrangements and an established company management experience. Leveraging the screening capability of S&P Capital IQ’s extensive public and private company database we have identified the top 20 internet retail companies within EMEA by three-year revenue growth. The majority of these companies are located within Sweden, the United Kingdom and France which have traditionally provided a significant number of the targets for EMEA private equity firms. Fig. 3 – Top 20 EMEA Companies within Internet Retail by 3 Year Revenue CAGR Rank

Company

1

Mavshack AB (publ)

2

Fyndiq AB

3

ApoEx AB

4

Vision Direct Europe Ltd.

5

The Hut.com Ltd

6

Mathem i Sverige AB

7

windeln.de AG

8

boohoo.com plc

9

SARL Mon bento

Company Type Public Company Private Company Private Company Private Company Private Company Private Company Public Company Public Company Private Company

10 11 12 13 14 15

BZT Fashion AB Czerwona Torebka Spólka Akcyjna Victoria Plum Ltd. Ecommerce Alliance AG GetLenses Limited Babyshop Sthlm AB

16

Cocooncenter

17

JB Global Ltd.

18

Royal Design Group AB

19

Snowleader Sarl

20

Sportamore AB (publ)

Private Company

Sweden

72.3

43%

No

Public Company

Poland

53.8

43%

No

United Kingdom

65.3

42%

Yes

Germany

77.2

39%

No

United Kingdom

27.1

38%

No

Sweden

8.2

37%

No

France

8.8

35%

Yes

United Kingdom

246.2

33%

Yes

Sweden

26.5

32%

Yes

France

8.3

32%

Yes

Sweden

39.0

30%

No

Private Company Public Company Private Company Private Company Private Company Private Company Private Company Private Company Public Company

2014 Revenue (EURmn)

3 Year Revenue CAGR

In Profit?

Sweden

5.4

163%

No

Figure 3. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

Sweden

14.8

95%

No

Sweden

170.5

90%

Yes

27.1

72%

No

EMEA and global private equity firms have already focused heavily on these high growth internet retail companies. Of this list of top 20 internet retail companies only two companies are yet to receive sponsor backing – ApoEx AB and JB Global Ltd.

289.0

72%

Yes

Sweden

49.0

69%

No

Germany

101.3

68%

No

United Kingdom

133.2

57%

Yes

France

4.0

52%

No

Country

United Kingdom United Kingdom

Expanding the search for internet retail sector companies beyond the top 20 by revenue growth, a further 18 companies were identified as presenting three-year revenue growth rates of above 20%. Of these companies, six had not received any form of financial investment from a sponsor or corporation, and four within that subset are already in profit.

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billion in 2014 to € 2.3 billion in 2015. This trend, however, is a consequence of big-ticket acquisitions in the financial sector, with Lone Star and JP Morgan’s acquisition of Commerzbank’s Iberian commercial property loan portfolio In this section we review whether the Iberian PE market has seen any significant (including €1.1 billion of non-performing loans) accounting for €3.5bn of the change from our initial regional analysis last year. The findings from the S&P 2014 total. Capital IQ transactions database indicate that Iberia is currently witnessing the In fact, from 2011 to date, at €7.7 billion the financial sector has attracted the early stages of a private equity revival, and global players appear aware of the largest amount of capital invested, surpassing industrials (€7.4bn) as a opportunities in the region, whilst local private equity players are showing their consequence of a small number of large deals in the last two years. Interestingly, continued commitment to the region through actual deal making. However, the the number of completed deals in the financial sector increased from 11 deals in total level of activity indicates that clear revival seems to be still some way off. 2014 to 13 deals in 2015, with all-but-one deal targeting real estate or related After the Spanish banking crisis of 2012, the subsequent banking reforms and assets. consolidations, and a significant package of labour market reforms, the Spanish economy has been showing promising signs of recovery. Throughout 2014 and 2015 the macro-indicators have been firmly positive with growth in economic output, a decrease in unemployment and an increase in domestic consumption suggesting that Spain is slowly becoming an attractive investment proposition. This has prompted a number of international players in the PE industry to open offices in the region over the last year; including KKR, Ardian and Cinven.

Iberian Private Equity, Revival in the Making or Damp Squib?

The outlook for Portugal is relatively similar within the broader European context; after a 35% fall in investment between 2007 and 2014 (OECD5), business investments have started to improve based on strong external demand and promising recovery of the internal market. With this in mind, and considering that the number of strategic non-sponsorbacked M&A transactions in the Iberian peninsula has now surpassed pre-crisis levels in terms of deal count, (1,287 deals completed in 2014 and 1,058 in 2008), it would be logical to expect a similar revival in the deal count and aggregate Figure 4. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September spend for sponsor-backed transactions in the region. However, the aggregate number of sponsor-backed PE transactions for Iberian targets closed between January and 15 September is down by 8.5% to 203 compared to the same period Over the first nine months of 2015, the highest deal count of entry transactions in last year. Aggregate deal amount also registered a significant drop from €5.8 the region was recorded in the information technology sector with a total of 92 deals closed, a fall from 107 over the same period last year (or €96 million down to €101.7 million in monetary amounts). In second place, the industrials sector, 5 http://www.oecd.org/eco/outlook/portugal-economic-forecast-summary.htm

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with 23 transactions at €353.6 million, was up 50% and 31% on 2014, respectively. Consumer discretionary completes the top three with 23 deals at €245 million but this represents a significant drop from 37 transactions and €521 million last year.

The presence of international investors over the period demonstrates that the United States is the largest participant in the Iberian market with 18 and 19 investments in 2014 and 2015, representing €4.1 billion and €1.1 billion, respectively. The United Kingdom is a distant second with €706 million in 2014 (11 deals) and €111 million this year (6 deals). Club deals involving buyers from multiple geographies complete the top three, representing €575 million in aggregate investments over the January to 15September 2015 period. Interestingly, whilst United States GPs show a large proportion of investment in real estate, our data finds that the UK GPs have focused primarily on investments in consumer discretionary and information technology.

Cross Border Transactions? No, Gracias… In spite of the sluggish growth in sponsor-backed Iberian investments, our data seems to suggest that Iberian GPs do not seem to be looking outside their immediate region for investment opportunities.

Figure 5. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September

Iberia GPs Commanding Most of the Action? According to S&P Capital IQ data, it is apparent that, in terms of deal activity, if not in terms of raw firepower, local GPs has played a crucial role in the overall success of private equity in the region.

M&A and private placement activity by Iberian GPs from January 2011 – 2015 YTD indicates that only 20% (282) of the deals made by domestic GPs were located outside the peninsula, representing 26.6% (€2.7bn) of the invested capital. The largest target markets are the United States, United Kingdom and France, together representing 8.1% of the deals and 15% of the invested capital (111 deals, €1.63 billion). Interestingly, over the same period, investment in Mexico represented €292 million (12 deals) and investment in Brazil amounted to €157.7 million (17 deals). The latter would appear low considering the extensive presence of Iberian businesses and banking conglomerates in Latin America, the shared languages and the cultural similarities. In comparison, international investments by their immediate neighbours - French GPs - represented a sizable 43.6% of the invested capital, or 18.3% of their total deal count over the period (733 deals, €25.4 billion). In this respect, French GPs seem to have been much more willing to commit capital outside their borders, sourcing investment opportunities their Iberian counterparts were leaving untouched.

Expanding on the findings for 2014 and 2015 above, 73% (163 deals) and 79% (161 deals) of the sponsor-backed investments in the region respectively, involved an Iberian GP. Moreover, deal value statistics show that, whereas overall the investment amount fell in 2015, the Iberian GP-backed deals increased from €362.5 million to €399.6 million. This would suggest that, although international investors are required to finance the larger transactions in the region, the extensive expertise of local GPs may often be crucial to the success of the However, zooming into the details of the first nine months of 2014 and 2015, the S&P Capital IQ database suggest this trend may slowly be reversing, with Iberian investments. 8

EMEA PRIVATE EQUITY MARKET SNAPSHOT

GPs allocating 64 % (€717 million) of the invested capital internationally, representing 17% of the completed deals (33 deals). This is an increase on an already notable set of numbers for 2014 where 17.6% of deals (35 deals) and 40% (€251 million) of the capital went to international transactions.

pure secondaries6 constituting a further 4.3% of deals.

With EUR 4.6 trillion of capital realised globally from sales to trade buyers since 2005, strategic sellers make up the exit lifeblood of the global private equity market. This is consistent globally as trade sales amount to 93%, 91% and 90% Overall transaction data suggests that although there are early indications of a of historical private equity exits since 2005 across EMEA, North America and revival of private equity in Iberia, deal-making remains difficult. S&P Capital IQ APAC, respectively. data shows significant volatility in deal activity and deal values year-over-year, The overall deal count of global private equity trade sales is tightly correlated to making it premature to claim a growth spurt is just around the corner. Whilst the wider M&A activity as the exit process relies heavily on broad market conditions macro indicators are positive for both countries in the region, it seems that at the being conducive to M&A in order to bring strategic buyers into the market place. investment level the balance sheets and expected growth are often still a step too As shown in figure 6, trade sale activity largely tracks activity within the wider far for many PE investors. M&A market, and PE exit activity typically represents around 9.7% of overall M&A globally. IPOs: Your nearest exit may be located behind you… S&P Capital IQ’s transaction and market data shows that the make-up of global private equity exits has changed and evolved over the past 10 years through boom, bust and beyond. Based on our study below, current market conditions could provide interesting hints about the future of IPOs as exit strategies for global private equity firms. We examine how the use of secondaries has evolved into a mainstream option at exit and provided a shock absorbing effect during the financial crisis. We then examine how the LBO pipeline and holding periods correlate to IPO activity and suggest that market performance and these two factors may give us an indication of the future for the IPO market. Since 2005, over 37,000 exit transactions realising more than EUR 5 trillion of capital have been undertaken by global private equity sponsors. Trade exists made up the majority of these transactions, where private equity sponsors have fully or partially realised their investments by selling to a strategic buyer or consortium of strategic buyers and private equity firms. 92% of all exits globally since 2005 have fallen into this category, with other exits such as takepublic (initial public offerings) or follow-on equity offerings making up 3.7%, and

Figure 6. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

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Pure secondaries for the purpose of this analysis will refer to those deals which feature a single private equity buyer acquiring a portfolio company from a single private equity seller 9

EMEA PRIVATE EQUITY MARKET SNAPSHOT

Secondaries, the industry’s new shock absorbers However, placing all your eggs in one basket at exit time means that in a volatile market when strategic buyers retreat from the M&A market private equity activity is also directly affected. This explains why after years of pre-crisis bonanza, an increasing number of private equity firms beyond those involved in public-toprivate leveraged buyouts are looking to the public markets as an attractive exit opportunity, and also why increasingly PE firm-to-PE firm secondaries are coming into the mainstream. During the period 2005 – 2008, leading up to the global financial crisis, pure secondary deals as a proportion of the overall exit mix remained relatively steady, whereas IPOs and follow-on equity offerings, unsurprisingly, took a hit from volatile equity markets, as shown in figure 7. Most interestingly, during the 2007 – 2008 period of market stress, whilst trade sale activity declined by 21% and IPO activity retreated by 78%, secondary activity only decreased by 9% underscoring the importance of this exit strategy during times of crisis. Pure secondaries as a proportion of the global exit mix have proved resilient to external market conditions and have increased markedly in the post-crisis period.

Secondaries as an exit strategy really began to increase globally from the early 1990s with only 3 secondaries completed in 1990 rising to 101 in 1999. Activity then increased significantly, rising from 97 deals registered in 2000 to 732 deals in 2007, until the financial crisis took hold and all exit strategies took a hit - although, as we’ve seen, secondaries resisted the downturn comparatively well. From 2009 to 2014, the number of pure secondaries increased at a five year CAGR of 17%, with 2014 reaching a record 194 secondary deals. Present activity, as characterised in the period 1 January to 15 September 2015, records 117 pure secondaries compared to 116 over the same period in 2014, suggesting that the year is on track to at least register as many secondary deals as the record breaking number of 2014. It would appear, therefore, that the once shunned secondary deal has become substantially more mainstream and now narrowly trails IPOs as a viable exit strategy for portfolio companies. Certainly, its resilience during the financial crisis underscores its role as the shock absorber within the private equity industry when trade buyers dry up under market stress. Nowhere is this truer than in EMEA, which has been the global leader for pure secondaries as a proportion of overall deal activity since 2005. 6% of all exits since 2005 were secondary exits within EMEA, compared to 4% for North America and 3% for APAC

IPO Activity: LBO or Equity Market Driven? Whilst secondaries are increasingly accepted worldwide as a viable exit strategy they are not yet the second most favoured strategy. Exits into the public markets have long been a staple of private equity, especially in the days of the LBO boom in the 1980s during the industry’s inception. However, much of this activity appears to be strongly correlated to both LBO deal counts and equity markets.

Figure 7. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

LBO activity is considered by several market participants to be a leading indicator of IPO activity, with holding periods giving a degree of indication around future IPO activity. This is grounded on the fact that the endgame of the LBO process is a return to public markets. However, our analysis reveals that IPO activity depends as heavily, if not more, on equity markets and that the relationship between LBO holding periods and IPO activity - whilst linked - results in a correlation that is not necessarily perfect. 10

EMEA PRIVATE EQUITY MARKET SNAPSHOT

Figure 8. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

Figure 9. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

As shown in figure 8, the average global LBO holding period has traditionally sat around the four to five year horizon and this is a key benchmark for funds that target LBOs in order to return capital to their investors. However, the average holding periods for LBO targets have been challenged by volatile markets post the 2007 crisis, and the average holding period has been pushed out as far as six years from the initial investment. Figure 9 shows both global LBO numbers and IPOs, indicating that according to the thesis of holding period calculations we would expect to see the spike in IPO activity at point A to correlate to a spike in LBO activity six years earlier at point B. However, this relationship does not hold for the specific period, indicating that IPO activity is driven by factors beyond pure LBO deal count. As exemplified in figure 10 for example, EMEA IPO numbers versus the S&P Europe 350 close show a higher degree of correlation between equity market performance and IPO activity. Figure 10. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

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EMEA PRIVATE EQUITY MARKET SNAPSHOT

It seems logical therefore to incorporate both LBO activity and equity market performance into any consideration of what the future for IPO activity may hold on a regional level. Using these two drivers, this report provides some data driven perspectives on the outlook for EMEA, North America and APAC IPO activity.

What Does The Future Hold For IPO Activity Regionally? Improving macroeconomic conditions have led to robust issuance by EMEA sponsors in 2015. Whereas in 2005 North American IPOs led the way with 22 issuances versus EMEA’s 9, 2015 paints a very different picture. Between 1 January and 15 September 2015, EMEA completed 32 IPOs compared to only 6 in North America. Within EMEA, regional sponsored driven IPO activity has been led by the core private equity markets of the UK, Germany and France, with the UK market concentrating 28% of all EMEA IPOs since 2005. As shown in in figure 11, we do see an uptick in LBO activity in EMEA five to six Figure 12. For Illustrative Purposes Only. years prior to 2015, suggesting that there will be a number of LBO targets looking Source: S&P Capital IQ platform. As at 15th September 2015 to exit over the coming one to two years. However, as already outlined, IPO activity will also depend heavily on the performance of regional markets. Given the reliance within EMEA on the UK market for IPO activity, it seems logical that future activity is likely to be heavily dependent on the stability and performance of equity markets within the UK. The FTSE 100 fell 3% from 5 January to 15 September this year and this is likely to have a knock on effect on EMEA IPOs coming to market. Broader market volatility has also had an impact with investors concerned about the turmoil from Chinese markets spreading to EMEA markets. Underscoring these headwinds, there have been 35 announced IPO transactions in EMEA between 1 January and 15 September this year compared to 37 during the same period in 2014. Cancellations over the same period, however, are slightly lower with only 3 IPOs cancelled in 2015 versus 4 over the same period in 2014. The outlook for EMEA looks challenging to say the least.

Figure 11. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

On the North American front, PE-backed IPO activity has fallen 79% since 2010 and this trend appears to continue with only 9 IPOs announced between 1 January and 15 September this year compared to 13 over the same period in 2014. However, there are a number of factors that could contribute to an increase in activity. 12

EMEA PRIVATE EQUITY MARKET SNAPSHOT

Considering again LBOs as one of the leading indicators of IPO activity, leveraged buyouts in North American targets increased significantly in 2009 as demonstrated by figure 12. If the holding period of LBO targets continues to lie within the five to six year range as demonstrated by S&P Capital IQ transaction data, it seems fair to expect an increasing pipeline of IPOs in the coming year as these funds seek to return capital to investors. However, the crystallisation of this will largely depend on strong equity market performance continuing. If markets become volatile, funds may opt for trade sales where possible. The S&P 500 is down 3.9% so far this year and if this performance continues throughout the remainder of the year it could constitute a headwind for the IPO market. It would seem that the US market is in wait-and-see mode at present. Within APAC markets there has been significant turmoil in Q3 which has led to a lot of uncertainty for private equity investors around the IPO track as a viable exit strategy. Furthermore, the underwhelming performance of some big Chinese names in the in US IPO markets, such as Alibaba, contributed to the hesitations. Nevertheless, there are a number of factors that may push Asian companies into the market. As shown in figure 13, in the first half of this year, US-listed Chinese companies took advantage of the higher-valuation environment in China. Several buy-outs and relaunches in Chinese equity markets with relatively higher valuation environments attest this trend. The question for APAC will be whether, once market volatility subsides, it would be better to seek a listing in an APAC equity market or the US. A lot will depend on investor demand for IPOs going forward in both Chinese and US markets.

Figure 13. For Illustrative Purposes Only. Source: S&P Capital IQ platform. As at 15th September 2015

13

DATA PACK

PE-EMEA Based Targets Number of Private Equity Entry Transactions by Region July - 15 September 2014 vs. July - 15 September 2015

300 250

BeNeLux

Eastern Europe

120

Eastern Europe

Middle East

100

Middle East

Nordics

200

Number of Private Equity Exit Transactions by Region July - 15 September 2014 vs. July - 15 September 2015

BeNeLux

North Africa

150

Nordics

80

North Africa

60

Northern Europe

Northern Europe

40

100 Southern Europe

Southern Europe

20

50 Sub-Saharan Africa

0

Sub-Saharan Africa

0 July - 15 September 2014

July - 15 September 2015

Aggregate Private Equity Entry Transaction Values by Region (€bn) July - 15 September 2014 vs. July - 15 September 2015

Western Europe

BeNeLux

12.0

Eastern Europe

10.0

Middle East

July - 15 September 2014

July - 15 September 2015

Aggregate Private Equity Exit Transaction Values by Region (€bn) July - 15 September 2014 vs. July - 15 September 2015

16.0

Western Europe

BeNeLux Eastern Europe

14.0 Middle East

12.0 Nordics

Nordics

8.0

10.0 North Africa

6.0

North Africa

8.0

Northern Europe

6.0

Northern Europe

Southern Europe

4.0

Southern Europe

Sub-Saharan Africa

2.0

Sub-Saharan Africa

4.0 2.0 0.0 July - 15 September 2014

July - 15 September 2015

Western Europe

0.0 July - 15 September 2014

July - 15 September 2015

Western Europe

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

14

DATA PACK

Average Entry Transaction Size by Region (€mn) July - 15 September 2014 vs. July - 15 September 2015

Average Exit Transaction Size by Region (€mn) July - 15 September 2014 vs. July - 15 September 2015

BeNeLux

500.0

BeNeLux

Eastern Europe

1400.0

Eastern Europe

Middle East

1200.0

Middle East

Nordics

1000.0

Nordics

450.0 400.0 350.0 300.0 North Africa

250.0

Northern Europe

200.0 150.0

Southern Europe

100.0 Sub-Saharan Africa

50.0

Western Europe

0.0 July - 15 September 2014

800.0 600.0

Southern Europe

200.0 Sub-Saharan Africa

0.0 July - 15 September 2014

Consumer Discretionary Consumer Staples

400

Northern Europe

400.0

July - 15 September 2015

Number of Private Equity Entry Transactions by Industry July - 15 September 2014 vs. July - 15 September 2015

North Africa

July - 15 September 2015

Number of Private Equity Exit Transactions by Industry July - 15 September 2014 vs. July - 15 September 2015 80

Western Europe

Consumer Discretionary Consumer Staples

350

Energy

300

Financials

60

Financials

Healthcare

50

Healthcare

Industrials

40

Industrials

Information Technology

30

Information Technology

Materials

20

250 200

Energy

70

150 100 50 0 July - 15 September 2014

July - 15 September 2015

Telecommunication Services Utilities

Materials

10

Telecommunication Services

0 July - 15 September 2014

July - 15 September 2015

Utilities

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

15

DATA PACK

Aggregate Private Equity Entry Transaction Values by Industry (€bn) July - 15 September 2014 vs. July - 15 September 2015

Consumer Discretionary Consumer Staples

12.0

Aggregate Private Equity Exit Transaction Values by Industry (€bn) July - 15 September 2014 vs. July - 15 September 2015

Consumer Discretionary Consumer Staples

18.0

Energy

16.0

Energy

Financials

14.0

Financials

10.0 12.0

8.0

Healthcare

Healthcare

10.0 6.0

Industrials

4.0

Information Technology

2.0

Materials

0.0

Telecommunication Services

Industrials

8.0 6.0

Information Technology

4.0

Materials

2.0 July - 15 September 2014

July - 15 September 2015

Average Entry Transaction Size by Industry (€mn) July - 15 September 2014 vs. July - 15 September 2015

Consumer Staples

500.0

July - 15 September 2014

Utilities

Consumer Discretionary

450.0

Energy

400.0 350.0

Financials

300.0

Healthcare

Telecommunication Services

0.0 July - 15 September 2015

Average Exit Transaction Size by Industry (€mn) July - 15 September 2014 vs. July - 15 September 2015

Utilities

Consumer Discretionary Consumer Staples

3000.0

Energy

2500.0 Financials

2000.0 Healthcare

1500.0

250.0

Industrials

Industrials

200.0

1000.0

Information Technology

Information Technology

150.0 100.0

Materials

50.0

Telecommunication Services

0.0

500.0

Materials

0.0

Telecommunication Services

July - 15 September 2014 July - 15 September 2015 July - 15 September 2014 July - 15 September 2015

Utilities

Utilities

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

16

DATA PACK

PE – EMEA GP’s Number of Private Equity Entry Transactions by Region July - 15 September 2014 vs. July - 15 September 2015

Asia/Pacific Developed Markets Caribbean

300

Number of Private Equity Exit Transactions by Region July - 15 September 2014 vs. July - 15 September 2015

BeNeLux

Central America

90

Central Asia

Eastern Europe

80

Eastern Europe

Far East

70

Far East

Central Asia

Indian Sub-Continent

Indian Sub-Continent

200

Middle East

150

Nordics

North Africa

40

North Africa

July - 15 September 2014 July - 15 September 2015

Aggregate Private Equity Entry Transaction Values by Region (€bn) July - 15 September 2014 vs. July - 15 September 2015

South America

South-East Asia

10

South-East Asia

Sub-Saharan Africa

Asia/Pacific Developed Markets BeNeLux

Southern Europe

0 July - 15 September 2014 July - 15 September 2015

Western Europe

Aggregate Private Equity Exit Transaction Values by Region (€bn) July - 15 September 2014 vs. July - 15 September 2015

Caribbean Central Asia

9.0

Northern Europe

20

Central America

10.0

North America

30

South America Southern Europe

0

Middle East

50

Northern Europe

50

60

Nordics North America

100

Far East

7.0

Indian Sub-Continent

6.0

Middle East

5.0

Nordics

4.0

North Africa North America

3.0

Northern Europe

2.0

South-East Asia

0.0

Southern Europe

July - 15 September 2014July - 15 September 2015

Sub-Saharan Africa Western Europe

Western Europe

Asia/Pacific Developed Markets BeNeLux Central America Central Asia

14.0

Eastern Europe

12.0

Far East Indian Sub-Continent

10.0

Middle East Nordics

8.0

North Africa

6.0

North America Northern Europe

4.0

South America

South America

1.0

Sub-Saharan Africa

Caribbean

16.0

Eastern Europe

8.0

BeNeLux Caribbean

100

Central America

250

Asia/Pacific Developed Markets

2.0

South-East Asia Southern Europe

0.0

Sub-Saharan Africa

July - 15 September 2014 July - 15 September 2015

Western Europe

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

17

DATA PACK

Average Entry Transaction Size by Region (€mn) July - 15 September 2014 vs. July - 15 September 2015

Asia/Pacific Developed Markets Caribbean Central America

700.0

Central Asia

600.0

Eastern Europe Far East

500.0 400.0 300.0

Eastern Europe

800.0

Far East

600.0

Middle East

Nordics

500.0

Nordics North Africa

400.0

North America

Northern Europe

300.0

Northern Europe

South America

200.0

Sub-Saharan Africa

South-East Asia

Consumer Staples

350

Energy

Southern Europe

0.0

Sub-Saharan Africa

July - 15 September 2014 July - 15 September 2015

Number of Private Equity Exit Transactions by Industry July - 15 September 2014 vs. July - 15 September 2015

Consumer Discretionary

400

South America

100.0

Western Europe

Number of Private Equity Entry Transactions by Industry July - 15 September 2014 vs. July - 15 September 2015

Central Asia

Indian Sub-Continent

Southern Europe

July - 15 September 2014 July - 15 September 2015

Central America

900.0

Middle East

South-East Asia

0.0

Caribbean

700.0

North America

100.0

1000.0

BeNeLux

Indian Sub-Continent

North Africa

200.0

Asia/Pacific Developed Markets

Average Exit Transaction Size by Region (€mn) July - 15 September 2014 vs. July - 15 September 2015

BeNeLux

Western Europe

Consumer Discretionary Consumer Staples

100 90

Energy

80 300

Financials

250

Healthcare

Financials

70 60

Healthcare

50

200

Industrials

Industrials

40

150 Information Technology

100 Materials

50

Information Technology

30 20

Materials

10 Telecommunication Services

0 July - 15 September 2014

July - 15 September 2015

Utilities

Telecommunication Services

0 July - 15 September 2014

July - 15 September 2015

Utilities

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

18

DATA PACK

Aggregate Private Equity Entry Transaction Values by Industry (€bn) July - 15 September 2014 vs. July - 15 September 2015 9.0

Consumer Discretionary

Aggregate Private Equity Exit Transaction Values by Industry (€bn) July - 15 September 2014 vs. July - 15 September 2015

Consumer Discretionary

Consumer Staples

14.0

Consumer Staples

Energy

12.0

Energy

Financials

10.0

Financials

8.0 7.0 6.0 5.0

Healthcare

8.0

4.0

Industrials

6.0

3.0

Information Technology

Healthcare Industrials Information Technology

4.0

2.0 Materials

1.0

Materials

2.0 Telecommunication Services

Telecommunication Services

0.0

0.0 July - 15 September 2014

July - 15 September 2015

Average Entry Transaction Size by Industry (€mn) July - 15 September 2014 vs. July - 15 September 2015

July - 15 September 2014

Utilities

Consumer Discretionary

July - 15 September 2015

Average Exit Transaction Size by Industry (€mn) July - 15 September 2014 vs. July - 15 September 2015

Consumer Staples

500.0

Consumer Discretionary Consumer Staples

3000.0

450.0

Utilities

Energy

Energy

2500.0

400.0

Financials

350.0

Financials

2000.0 Healthcare

300.0 250.0

Industrials

Healthcare

1500.0

Industrials

200.0 Information Technology

150.0 100.0

Materials

1000.0

Information Technology Materials

500.0

50.0 Telecommunication Services

0.0 July - 15 September 2014 July - 15 September 2015

Utilities

Telecommunication Services

0.0 July - 15 September 2014 July - 15 September 2015

Utilities

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

19

DATA PACK

VC – EMEA GPs Asia/Pacific Developed Markets

Number of Private Equity Entry Transactions by Region July - 15 September 2014 vs. July - 15 September 2015

140

Number of Private Equity Entry Transactions by Industry July - 15 September 2014 vs. July - 15 September 2015

BeNeLux Caribbean

Consumer Discretionary Consumer Staples

300

Central America Energy

Central Asia

120

Eastern Europe

250 Financials

Far East

100

Indian Sub-Continent

200

Healthcare

Middle East

80

Nordics

Industrials

150

North Africa

60

North America

40

Information Technology

100 Materials

Northern Europe South America

20

South-East Asia

50

Telecommunication Services

Southern Europe

0 July - 15 September 2014 July - 15 September 2015

Aggregate Private Equity Entry Transaction Values by Region (€mn) July - 15 September 2014 vs. July - 15 September 2015

Sub-Saharan Africa Western Europe

July - 15 September 2014

July - 15 September 2015

Asia/Pacific Developed Markets BeNeLux Caribbean

1200.0

Utilities

0

Central America

Aggregate Private Equity Entry Transaction Values by Industry (€mn) July - 15 September 2014 vs. July - 15 September 2015

Consumer Discretionary Consumer Staples

1200.0

Central Asia

1000.0

Eastern Europe

Energy

1000.0

Far East Indian Sub-Continent

800.0

Financials

800.0

Middle East Nordics

600.0

Healthcare

600.0 Industrials

North Africa North America

400.0

400.0

Information Technology

200.0

Materials

Northern Europe South America

200.0

South-East Asia Southern Europe

0.0 July - 15 September 2014 July - 15 September 2015

Sub-Saharan Africa Western Europe

Telecommunication Services

0.0 July - 15 September 2014 July - 15 September 2015

Utilities

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

20

DATA PACK

250

Average Entry Transaction Size by Region (€mn) July - 15 September 2014 vs. July - 15 September 2015

200

Asia/Pacific Developed Markets

Average Entry Transaction Size by Industry (€mnn) July - 15 September 2014 vs. July - 15 September 2015

BeNeLux Caribbean

450.0

Central Asia

400.0

Energy

350.0

Financials

300.0

Healthcare

250.0

Industrials

Far East Indian Sub-Continent Middle East Nordics North Africa

100

North America

200.0

Information Technology

150.0 Materials

Northern Europe South America

50

South-East Asia

100.0 Telecommunication Services Utilities

50.0

Southern Europe

0

Sub-Saharan Africa

July - 15 September 2014

July - 15 September 2015

Consumer Staples

Central America Eastern Europe

150

Consumer Discretionary

0.0 July - 15 September 2014 July - 15 September 2015

Western Europe

VC – EMEA Based Targets Number of Private Equity Entry Transactions by Region July - 15 September 2014 vs. July - 15 September 2015

BeNeLux

140

Eastern Europe

120

Middle East

100

Nordics

Number of Private Equity Entry Transactions by Industry July - 15 September 2014 vs. July - 15 September 2015

Consumer Discretionary Consumer Staples

300

Energy

250 Financials

200 Healthcare

80

North Africa

60

150

Industrials

100

Information Technology

Northern Europe

40

Southern Europe

Materials

50

20 Sub-Saharan Africa

0

Telecommunication Services

0 July - 15 September 2014

July - 15 September 2015

Western Europe

July - 15 September 2014

July - 15 September 2015

Utilities

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

21

DATA PACK

Aggregate Private Equity Entry Transaction Values by Region (€mn) July - 15 September 2014 vs. July - 15 September 2015

BeNeLux

Aggregate Private Equity Entry Transaction Values by Industry (€mn) July - 15 September 2014 vs. July - 15 September2015

Consumer Discretionary Consumer Staples

700.0

Eastern Europe

600.0

Middle East

500.0 400.0

900.0 800.0

Energy

700.0

Financials

Nordics

600.0

North Africa

500.0

Healthcare Industrials

400.0

300.0 Northern Europe

300.0

Information Technology

200.0

Materials

200.0 Southern Europe

100.0 Sub-Saharan Africa

0.0

100.0

Telecommunication Services

0.0 July - 15 September 2014

July - 15 September 2015

Average Entry Transaction Size by Region (€mn) July - 15 September 2014 vs. July - 15 September 2015

Western Europe

July - 15 September 2014 July - 15 September 2015

BeNeLux

Average Entry Transaction Size by Industry (€mn) July - 15 September 2014 vs. July - 15 September2015

Eastern Europe

30.0

Middle East

25.0

Utilities

Consumer Discretionary Consumer Staples

450.00 Energy

400.00 350.00

Financials

300.00

Healthcare

Nordics

20.0 North Africa

250.00

Industrials

15.0 Northern Europe

200.00 Information Technology

150.00

10.0 Southern Europe

5.0

Sub-Saharan Africa

Materials

100.00

Telecommunication Services

50.00 0.00

0.0

Western Europe

July - 15 September 2014

July - 15 September 2015

Utilities

July - 15 September 2014

July - 15 September 2015

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

22

DATA PACK

Multiples Tables Implied Enterprise Value/EBITDA Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecommunication Services Utilities

EMEA Private Equity Exits, 16/09/2014 - 15/09/2015

M&A, 16/09/2014 15/09/2015

11.1

11.9

11.0 2.4 21.3 13.7 9.4

11.6 5.9 17.4 11.6 9.2

15.6

13.5

11.2

9.6

10.7

8.9

17.9

8.7

Implied Equity Value/LTM Net Income Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecommunication Services Utilities

EMEA Private Equity Exits, 16/09/2014 15/09/2015

M&A, 16/09/2014 15/09/2015

16.7

17.9

19.8 18.1 18.7 33.0 23.0

21.9 15.9 15.0 19.7 17.5

26.6

19.7

19.0

18.4

3.9

11.4

21.7

12.4

*Multiples highlight in bold represents the sector average over a two year time horizon in order to provide a more comprehensive sector average

For Illustrative purposes only. Source: S&P Capital IQ. As at 15th September 2015

23

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