Press Release

Audinate Pty Ltd Secures $4 Million in Series A Funding

Sovereign funds dominating global M&A

A report by Global Insight, has stated that Sovereign Wealth Funds (SWFs) have grown at a rate of 24% annually for the past three years. If this rate continues, SWFs will exceed the economic output of the United States by 2015. More than 30 countries now have SWFs, with the Nigeria’s fund growing at the fastest rate, followed by Oman and Kazakhstan.

The large amounts of cash available to SWFs have allowed them to play a major role in stabilising the global credit markets through their investments, which have seen over US$80 billion injected into major American investment banks. Additionally SWFs have continued to place funds into private equity, accounting for around 10% of investments globally. To the broader M&A sector, during January there were US$60 billion in global M&A transactions, approximately one-third of this was backed by direct and indirect SWF investment. This was inline with 35% of M&A transactions during 2007 being funded by SWFs.

The criticisms of SWFs are very similar to that of private equity in recent years, focused on lack of transparency and disclosure. Australia’s own Future Fund has been criticised for both of these reasons. However SWFs, raise an additional concern when they invest across boarders. While it is clear the purpose of a buyout firm is financial gain, concern has risen that SWFs have other ulterior motives in their investments.

In response to this Australia established six principles that will be looked at when a SWF investment takes place. (See AVCAL article ‘Sovereign funds cashed up and spending’ AVCAL article) Likewise the US treasury has established principles with Singapore and Abu Dhabi for their SWFs to adhere to when investing. The basis is that they are investing on a commercial basis, with strong governance structures and offer compliance with host country regulation. In return the US will not put up any protectionist barriers.

Sources:
Global Insight – Sovereign Wealth Reaches $3.5 Trillion in 2007, growing by 24%
AltAssets – Sovereign wealth funds and private equity
Financial News – Sovereign wealth funds growing 24% annually

Superannuation and Future Fund Looking to Private Equity

According to the survey conducted by John Evans, associate professor at the University of New South Wales, Australian superannuation funds have increased their commitment to private equity investment from 4.5 percent (2005) to 6 percent (2008). The survey sponsored by private equity fund manager, Adveq Management covered more than 40 Australian Superannuation funds, with $250 billion in funds under management.

Amongst the market turmoil, Super funds remained quite optimistic on private equity investments. As in the 2005 survey, diversification was seen as the main objective behind private equity investment. While, there was a major increase in the use of fund-of-fund structures (50% to 75%), there was a significant fall in the allocation to Australian private equity (74% to 46%).

This came as the nominal return expectations fell 4.9 percent to 11.6 percent. The expectation gave a 3.4 percent premium to listed equity, a valuation stated to be more reasonable and steady, after years which saw some returns above 30 percent.

Australia’s sovereign wealth fund, the $60 billion Future Fund, has indicated its intention to get involved in the sector, both domestically and internationally. The general manager of the fund, Paul Costello, stated that they were looking at how the liquid fund could participate at a time when the market is running dry of cash.

As at the end of January, the Future Fund held nearly 75 percent of its $50 billion in cash. The fund’s equity allocation has about one-third in the domestic market and two-thirds overseas. Additionally the fund has a 16.5 percent holding in Telstra, received from the Government sale in November 2006 which is worth around $9 billion. Sales in the Telstra holdings are restricted until the end of 2008.

Costello stated the fund’s private markets team will focus on opportunities globally across infrastructure, private equity and real estate investments.

Sources:
The Australian - Future Fund looking at private equity
The Australian --Future Fund checks out private equity
Financial Standard – Super funds commit 6pc to private equity
Reuters – Australia’s Future Fund sees opportunities in debt
Money Management Private equity remains important
InvestorDaily – Funds maintain stake in private equity

First Quarter Slowdown for Global M&A

According to Thomson Financial, private equity deals globally reached a four year low of US$43.5 bn for the first quarter of 2008, down 77 percent compared to the first quarter of 2007. Against the preceding quarter (4th quarter 2007) this was a 47 percent drop where there was US$82.6 billion of activity. Some have indicated this is the end of the latest ‘era’ of private equity, which had seen six years of continuous growth, peaking in the second quarter of 2007 with nearly US$364 billion of deals completed. On a wider scale the global credit crunch affected all merger and acquisition activity, which fell to US$693 billion down 22 percent for the quarter compared to the previous time last year.

The global decline of the M&A market has been felt more in the US given that private equity accounts for a higher proportion of M&A than in other markets such as Europe. Current conditions have favoured corporate buyers with solid balance sheets, given their ability to raise debt, as well as the additional option to fund takeovers with stock.

Australian activity has fallen 30% in announced M&A during the first three months of 2008. The deal volume also decreased to 561 transactions, compared to 719 in the year before.

Sources:
Thomson Financial - Mergers & Acquisitions Review: First Quarter 2008
Thomson Financial - Global private equity deals in Q1 down 77 pct to 43.5 bln usd
The Australian - M&A down 31pc amid credit squeeze
Forbes.com - Global M&A value drops 31 pct to 661 bln usd in Q1; US value drops 54 pct
| Reuters - Global M&A volumes tumbled by a third in Q1: Thomson

Pacific Equity Partners Raise Largest Australian Buyout Fund

Pacific Equity Partners (PEP) has finalised its fourth fund, PEP Fund IV, raising A$4 billion which was reported to be heavily oversubscribed. It becomes the largest buyout fund raised in Australia, eclipsing the A$1.36 billion raised by Archer in June 2007.The fund will invest in companies that run their main operations from Australia or New Zealand and have a minimum enterprise value of at least A$300 million. The size of the fund gives it a considerable advantage, as one of PEP’s founders Rickard Gardell stated, “In the current environment, a fund of this size is necessary to address deals much above A$300 million in size.”

PEP was established in 1998 and has since made 18 portfolio company acquisitions and over 20 add-on acquisitions. Currently the firm has investments in 13 companies with combined revenue in excess of $3 billion per annum.

Sources:
FinAlternatives - Firm Raises ‘Largest’ Private Equity Fund In Australia
Scoop Independent News - Pacific Equity Partners closes A$4 billion Fund IV
Asia Private Equity Review - PEP Fund IV Claims Title as Largest Aussie Fund

Record Year for Cleantech Venture Investments

Results released by Dow Jones VentureSource have shown that globally venture capitalists invested a record US$3 billion into 221 deals throughout 2007, a 41% increase over 2006 investment. The results are inline with data released at the end of November by Thomson Financial and the National Venture Capital Association (NVCA) showing that U.S. venture firms spent nearly $2.6 billion in the sector within the first nine months of the year. According to VentureSource the U.S. was responsible for 83% of the investment throughout the year, accounting for eight percent of the country’s total venture capital investment. Within Europe, VC cleantech investment increased 27% to $360m led by the Nordic region, Spain and Germany.

For the year ahead, cleantech is expected to remain at the forefront of global VC investment. A survey released in December by the NVCA showed cleantech is expected to be the highest expected growth industry. Approximately 80% of respondents expected higher levels of financing to the sector throughout 2008.

Managing direct of Cascadia Capital, Ted Bernhard stated that a recession may actually boost activity within the cleantech sector, given potential economic benefits to a wide range of companies. For 2008, the sectors within cleantech expected to receive significant funding include; solar, advanced materials for energy efficiency and improvements for biofuels.

Within Australia, clean technology is growing but further support is needed from the government. Australian cleantech companies have found it hard to raise money, especially given the current state of the market. However, incentives such as the proposed $417 million Australian Water Resources Information System are expected to stimulate specific parts of the industry.

Sources:
Alt Assets – Cleantech venture capital investment in 2007 jumps 43 per cent to $3bn
Business Journal – Investors put $3B into cleantech in 2007
The Deal.com – Dealwatch: Cleantech
The Australian – Ivor Frischknecht, investment director, Starfish Ventures

Skipping past the banks

One of the world’s largest private equity funds, Blackstone Group, has stated its intention to go directly to lenders to finance future leveraged buyouts. Targeted sources include; hedge funds, sovereign wealth funds and smaller banks which haven’t been as affected by the credit crisis. The demand for debt securities backed by LBOs reduced significantly in August along with the collapse of the U.S. subprime mortgages.

As a result, the banks have been left with approximately US$230 billion of debt to clear off their balance sheets. JPMorgan has decided to keep US$4.9 billion of leverage loans, changing their classification from “held for sale” to “held to maturity”. The bank still has a further US$21.4 billion of loans still classified for sale, indicating the intention to syndicate them. Major PE firms have already started to go directly to hedge funds for their debt financing. Debt providers for Hellman & Friedman’s purchase of Goodman Global (~US$1.8 billion) included fund manager Farallon Capital Management and hedge fund manager GSO Capital Partners.

The threat to bypass the banks poses significant potential losses to the investment banking industry. According to Freeman & Co. and Thomson Financial, JPMorgan alone earned US$412 million through arranging loans for US buyouts during 2007. This was more than twice the amount JPMorgan received in advisory fees. Banks have retaliated, stating that private equity firms will be entering into a market where they have less knowledge, fewer structuring skills, smaller distribution networks and taking on the “storage” risk associated with financing deals.

Sources:
Bloomberg - Blackstone Plans to Line Up LBO Lenders, Bypass Banks
Deal Journal: Wall Street Journal - Can Private Equity Firms Do What JP Morgan Does?
Reuters – Private equity sees new fund sources amid slowdown
Goodman Global Press Release - Goodman Global Completes Merger with Hellman & Friedman

Large venture funds forming

Starfish Ventures is in the process of creating Australia’s largest early stage venture fund of A$250 million. The Melbourne based venture capital firm already has commitments of $150 million for the new fund, Starfish Technology Fund II which will be targeted at clean-tech, information technology/communications and life sciences.

Starfish expects to raise around 95 percent of the fund from domestic institutional investors. A small proportion will be raised from offshore, with the firm paying interest to Asian funds.
 
Additionally, Technology Venture Partners from Sydney is considering raising its first fund since 2001, with a target of $100 to $200million of new capital.

Sources:
Business Spectator - A rising star of R&D
The Australian - Starfish spreads its venture capital arms

Australian Funds Remain Active

According to the new bi-annual figures released by Thomson Financial during 2007, Australia was the most active fundraising nation and had the third highest level of investment within the private equity sector for the Asia Pacific region
Australia’s fundraising of nearly $US5.8 billion represented 38 percent of all funds raised in the region. Three of the largest new funds in the region came from Australia including: Affinity Asia Pacific Fund III, Archer Capital Fund 4 and Pacific Equity Partners (PEP) Fund IV.

Source: Thomson Financial Year End 2007: Asia Pacific Private Equity Review

Over 17 percent of deals in the region took place in Australia. Buyout stages dominated the investments made across the region, accounting for nearly 31 percent of all investments. The buyout of Consolidated Media Holdings (CMH) ranked in the top five deals for the Asia Pacific region.

Source: Thomson Financial Year End 2007: Asia Pacific Private Equity Review

New Australian VC in Silicon Valley

Southern Cross Venture Partners have established a new office in Palo Alto, California. The new office for the Sydney-based early stage VC firm will be led by Southern Cross co-founder and managing director John Scull. Mr. Scull co-founded Southern Cross with Bob Christiansen in 2006. Mr. Scull will be joined in California by Australian entrepreneur Dr Larry Marshall.

Southern Cross closed its first fund, $170m (USD$150m) in mid-2007, focusing on software and hardware, telecom, semiconductors, digital media and internet applications, advanced materials, nanotechnology and cleantech investments. Southern Cross has already made investments in four Australian companies: Xerocoat, Mantara, M&MD, and UIactive.

The US office intends to strengthen connections with US venture funds, assisting Australian and New Zealand based start-ups through their growth cycle, allowing them to receive further venture funding and exit in an international market.

Mr. Scull stated that Australia and New Zealand are 15-20 years behind the United States in terms of the maturity of the venture capital industry. The relationship is very similar to that of America and Israel, where Israel start-ups often venture to the U.S. to receive capital and the prospect of U.S. exits.

Sources:
Southern Cross Venture Partners Website - Southern Cross Venture Partners Opens Silicon Valley Office
AltAssets -Australian venture capital firm Southern Cross opens Silicon Valley office
Silicon Valley / San Jose Business Journal - Australian VC firm moves into Palo Alto

Sovereign Funds Cashed Up and Spending

Sovereign Wealth Funds (SWFs) in the gulf region, are cashed up and impacting the financial marketplace like never before. The SWFs in the six gulf states of Abu Dhabi, Dubai, Kuwait, Oman, Qatar and Saudi Arabia, account for nearly half of the sector through their estimated control of US$1.7 trillion. This staggering amount is roughly equal to the size of all the hedge funds in the world and easily accedes the roughly US$1 trillion in private equity funds.

Morgan Stanley research has estimated that funds are expected to rise by $400 billion annually for the next several years. Their recent investment in US investment banks, private equity houses and private equity deals suggests changing times ahead for the global financial industry.

Generally, SWFs are funds derived from the reserves of a country, which are placed aside for investment purposes to benefit the nation. Usually, they are made up of a combination of; stocks, property and other financial instruments. Worldwide it is estimated they control in excess of US$3 trillion in assets. Australia’s Future Fund is an example of a (rather small) SWF.

During 2007, it is estimated that the gulf funds brought in about US$180 billion in profit. Meanwhile their traditional source of income, through oil and gas generated $315 billion in revenue.

Gulf SWFs continued in their quest for international acquisition, according to Zephyr, they spent $83 billion buying foreign companies through 173 corporate transactions. The actual level is expected to be much higher due to the undisclosed nature of a further 108 cross border deals.

While $83 billion is just 1.7 percent of global M&A according to Dealogic, the influence of gulf is growing rapidly as they move to deals with the US Investment banks and private equity institutions. Gulf funds are becoming interested in LBOs, both alongside PE firms and sometimes by themselves, despite lack of experience.

The funds are building up for the so called ‘post-oil’ era. High oil prices in the foreseeable future are expected to keep the SWFs investing abroad with their surplus funds. The expected push is expected to see a sharp increase in acquisitions in Asia and other emerging markets such as Brazil, Russia, China, India and Latin America.

In September 2007, the Abu Dhabi fund bought 7.5% of Carlyle private equity, adding to other SWFs buying large portions of Citigroup, UBS, Bear Stearns, Morgan Stanley and Merrill Lynch. This is seen as a very different investment strategy to when majority of oil profits were invested in the ultra conservative investments of US Treasury Bonds.

There have been concerns in the United States with the investments of sovereign wealth funds into large financial institutions. The first rounds of investments were welcomed as a source of liquidity, the second wave of injections have been scrutinised by the US government. Some “outrage” has been controlled by the banks refusal to sell anymore than 12 per cent stakes in their businesses. In the past few weeks, SWFs have invested in excess of $35 billion in the major US investment banks.

The Rudd government has indicated that SWFs will be subject to greater scrutiny due to the concern some investments may be against the national interest. Treasurer, Wayne Swan stated six ‘principles’ would be applied when approving such transactions in addition to the final approval from the Foreign Investment Review Board (FIRB).

Australian Government Guidelines (Source: Treasury Press Release)
 
1. An investor’s operations are independent from the relevant foreign government
2. An investor is subject to and adhere to the law and observes common standards of business behaviour 
3.An investment may hinder competition or lead to undue concentration or control in the industry or sectors concerned 
4. An investment may impact on Australian Government revenue or other polices
5. An investment may impact on Australia’s nation security
6. An investment may impact on the operations and directions of Australian business, as well as its contribution to the Australian economy and broader community.

Sources:
Financial Times - Kuwait set to invest as Merrill seeks $4bn
Business Week – Who’s Afraid of Mideast Money?
Financial Times - Gulf States to stay on trail of foreign companies
Financial Times - Citi and Merrill in SWF talks
Times Online - US investigates sovereign funds as Wall Street hunts for capital
Australian Financial Review, pg 1 – Sovereign Funds warned on Resource Plays, 23 January 2008
Australian Financial Review, pg 1 – More Scrutiny of Foreign Wealth Funds, 18 February 2008
Treasury Press Release – Government Improves Transparency of Foreign Investment Screening Process, 17 February 2008

US VC funds cashed up

Statistics released this week from the National Venture Capital Association (NVCA) and Thomson Financial show that VC fund raising in the United States have reached their highest level since 2001. During 2007, 235 venture capital firms raised in excess of $34.7 billion. This was divided across the range of VC investment, early stage funds raised $9.7 bn, balanced stage $10.6 bn, later stage $7.2 bn and expansion funds raised $4.8 bn. The three largest funds created over the year included:
* Technology Crossover Ventures VII, L.P. (later stage; $3.0 billion)
* Bessemer Venture Partners VII, L.P. (balanced stage, $1.3 billion)
* Vector Capital IV, L.P. (expansion stage; $1.2 billion)
(*Amounts in $USD)

Source: National Venture Capital Association and Thomson Financial
The venture capital sector has not been so cashed up since 2001. Excess cash at the end of the ‘tech bubble’ resulted in negative IRRs and capital being returned to investors. There is expectation that excess cash from the past few years of fund raising, alongside the predicted economic slowdown may cause a rough time for VC firms in the US.

Sources:
The Deal.com VCs raise $34.7B in 2007
NVCA Press Release - 2007 Venture Fundraising Reaches Highest Level Since 2001

Deals are shrinking and changing

It is well known that the credit crisis is causing buyout firms to go after considerably smaller deals with significantly less leverage. According to Thomson Financial, Bain Capital’s deal last week to buy Bright Horizons Family Solutions for US$1.3 billion is the biggest private equity deal to occur in the United States for nearly three months. During the boom times of the last two years, investment banks in the US took home more than US$30 billion in fees associated with private equity deals. However the deals are set for a period of change as investment banks are looking to reduce exposure to the industry as they become increasingly concerned about the level of risk associated with the asset class.

For the Bright Horizons deal, Bain is paying $640 million in cash, the rest in debt provided by Goldman Sachs which advised Bright Horizons. The leverage of nearly 50 percent is far from the levels 70 percent seen less than twelve months ago.

Additionally deal documents are set to change, with increased protections for all parties involved. Banks in particular are calling for “outs” to become standard, allowing them to back out of deals without penalty. This was considered common before the 2005 leveraging boom.

The current environment is expected to continue to increase pressure on buyout firms through; increasing cash levels, reducing their use of debt and diminishing expected returns.

Sources:
Deal Journal - LBO 3.0: Bain’s Unleveraged Bright Horizons Buyout
Reuters - Bain Capital to buy Bright Horizons for $1.3 bn
Wall Street seeks protection in future LBO deals

Private Equity Trading Carbon

While investing in the clean energy sector has become common to both venture capital an private equity investments in the past few years, 2008 could see the industry’s further expansion into environmental investments through trading in carbon credits. This has already taken place in China and India, where funds invest in a project and take the carbon credits to sell into an established carbon market. Companies captured within this can include; those with technology to reduce emissions, highly inefficient corporations and those which can reduce their carbon emission.

Funds could see the potential credits as under valued, or combine assets to gain an excess value through the sale of the credits. A new financial definition has been coined within carbon trading, CAAV, carbon adjusted asset value. The previous Liberal government had set 2012 as a date for Australia’s emission trading scheme to start. However the new Labor party has indicated they would like to see the scheme established as early as 2010.

Sources:
Business Spectator - Private equity’s carbon play
Australian Government – Department of Climate Change

US Pension Funds against Proposed Fee Hike

Late last year the US Senate rejected a US$50 billion tax increase to the managers of hedge funds and private equity firms.  While the issue is gone for now, it is an issue that is expected to return in 2008 as the US government looks to offset the cost of removing the Alternative Minimum Tax (AMT).

Ahead of this, senior officials from the Oregon Public Employees Retirement System ($65bn FUM) and the California State Teachers’ Retirement System ($170bn FUM) stated to the Financial Times they would oppose private equity firms attempting to offset a potential tax increase through increasing costs to investors.

The two retirement funds are amongst the biggest investors to private equity in the United States, and could cause other funds to follow.  The response comes from private equity executives telling the government that a tax raise from 15 to 35 percent would be passed on to investors through higher fees. 

Investors in US private equity funds, face similar fees to that in Australia, with a fee of 2 percent of funds under management and 20 percent of profits above a set hurdle rate.

Sources:
Financial Times - Pension funds in threat over private equity fees

Global Decline of the Mega Deals

The first half of 2007 saw private equity take off, as massive deals became common. In July alone, private equity deals in the United States exceeded US$64 billion. For the remaining months of 2007 deals, dropped to a monthly total below $US8 billion. The “mega deals” virtually disappeared from the market; no deals above US$10 billion were announced after July. For the first half of 2007, the average deal size for transactions over US$1 billion was US$4.2 billion. After July this was halved to US$2.1 billion. Through this time middle market transactions have survived. With the large end of the private equity spectrum getting hit by the “credit crisis”, characteristics of the middle market have allowed it to survive.

Middle market deals tend to have a smaller percentage of debt financing around six times EBITDA as opposed to eight times EBITDA for larger deals. The trends within the market are for firms to use new tactics, more syndicated deals, use of mezzanine debt and putting extra levels of equity into deals.

It has been stated that the US buyout market is exhausted and the big cashed up private equity firms will look to move into new places such as China, India, Brazil, the Middle East and South Africa. Already, deals and funds are forming in less ‘traditional’ areas. In Turkey, KKR spent US$1.3 billion on a shipping group, while Actera Group set up the largest buyout fund through raising US$475 million. UK based Aureos, is currently raising Central Asia’s first buyout fund, looking to invest in countries such as Kazakhstan. The biannual barometer of LP investment, by Coller Capital stated that the proportion of LPs with exposure to emerging market private equity has grown from 24 to 40 percent within two years.

A major difference within emerging market corporations is that owners of the companies dealing with private equity are commonly not short of capital or looking to cash out. Their objective of attracting ‘western’ investors is to gain their expertise and assist with the expansion of the company. Therefore these deals tend to take have a more venture capital structure, with minority investment leveraged with little or no debt.

Sources:
Sydney Morning Herald - What happened to private equity? Subprime
Wall Street Journal - Mid-Market Deal Flow Expected to Sustain in ‘08
JS Online - Mergers, acquisitions slowing
Financial Times – Private road to nowhere? Buy-out teams face a bumpy ride now raising debt is hard

Applications Called for IIF - Round Three Tranche Two

The Minister for Innovation, Industry, Science and Research, Senator Kim Carr, today announced the commencement of the second tranche of round three of the Australian Government’s Innovation Investment Fund. Aimed assisting companies at seed, start-up or early expansion stage of commercialisation the second tranche will provide $20 million for each of the successful venture capital firms.

Applications close on 29 February 2008.

Source:
Applications Called for Innovation Investment Fund - Round Three Tranche Two

Private equity backed floats beat the market

According to two academic studies based in the UK and Germany, initial public offerings (IPOs) backed by private equity (PE) companies outperformed the stock market and other non-PE backed IPOs. The UK study showed that an investor buying an equal share in every PE backed IPO since 1990 and selling 3 years later would have beaten the FT All-Share index by 3.3 times.

Christian von Drathen and Flaviano Faleiro at the London Business School stated, “Criticism of LBO-backed IPOs is largely unwarranted.” The 128 IPOs of private equity firms listed in the UK between 1990 and 2006 averaged annual returns of 18.4 percent in the first three years. The 1,121 non-private equity backed listings had annual returns of 11.9 percent. A Deutsche Bank sponsored, Germany study found similar results, as private equity backed IPOs returned more than three times the CDAX index.

Source:
LBO flotations ‘outperform stock market’

Private equity backed floats beat the market

According to two academic studies based in the UK and Germany, initial public offerings (IPOs) backed by private equity (PE) companies outperformed the stock market and other non-PE backed IPOs. The UK study showed that an investor buying an equal share in every PE backed IPO since 1990 and selling 3 years later would have beaten the FT All-Share index by 3.3 times.

Christian von Drathen and Flaviano Faleiro at the London Business School stated, “Criticism of LBO-backed IPOs is largely unwarranted.” The 128 IPOs of private equity firms listed in the UK between 1990 and 2006 averaged annual returns of 18.4 percent in the first three years. The 1,121 non-private equity backed listings had annual returns of 11.9 percent. A Deutsche Bank sponsored, Germany study found similar results, as private equity backed IPOs returned more than three times the CDAX index.

Source:
LBO flotations ‘outperform stock market’

First Quarter Slowdown for Global M&A

April 2008. According to Thomson Financial, private equity deals globally reached a four year low of US$43.5 bn for the first quarter of 2008, down 77 percent compared to the first quarter of 2007.

Against the preceding quarter (4th quarter 2007) this was a 47 percent drop where there was US$82.6 billion of activity. Some have indicated this is the end of the latest ‘era’ of private equity, which had seen six years of continuous growth, peaking in the second quarter of 2007 with nearly US$364 billion of deals completed. On a wider scale the global credit crunch affected all merger and acquisition activity, which fell to US$693 billion down 22 percent for the quarter compared to the previous time last year.

The global decline of the M&A market has been felt more in the US given that private equity accounts for a higher proportion of M&A than in other markets such as Europe. Current conditions have favoured corporate buyers with solid balance sheets, given their ability to raise debt, as well as the additional option to fund takeovers with stock.
Australian activity has fallen 30% in announced M&A during the first three months of 2008. The deal volume also decreased to 561 transactions, compared to 719 in the year before.

Sources:

Thomson Financial - Mergers & Acquisitions Review: First Quarter 2008
Thomson Financial - Global private equity deals in Q1 down 77 pct to 43.5 bln usd
The Australian - M&A down 31pc amid credit squeeze
Forbes.com - Global M&A value drops 31 pct to 661 bln usd in Q1; US value drops 54 pct
Reuters - Global M&A volumes tumbled by a third in Q1: Thomson

Skipping past the banks

One of the world's largest private equity funds, Blackstone Group, has stated its intention to go directly to lenders to finance future leveraged buyouts. Targeted sources include; hedge funds, sovereign wealth funds and smaller banks which haven't been as affected by the credit crisis. The demand for debt securities backed by LBOs reduced significantly in August along with the collapse of the U.S. subprime mortgages. As a result, the banks have been left with approximately US$230 billion of debt to clear off their balance sheets.

JPMorgan has decided to keep US$4.9 billion of leverage loans, changing their classification from “held for sale” to “held to maturity”. The bank still has a further US$21.4 billion of loans still classified for sale, indicating the intention to syndicate them. Major PE firms have already started to go directly to hedge funds for their debt financing. Debt providers for Hellman & Friedman's purchase of Goodman Global (~US$1.8 billion) included fund manager Farallon Capital Management and hedge fund manager GSO Capital Partners. The threat to bypass the banks poses significant potential losses to the investment banking industry. According to Freeman & Co. and Thomson Financial, JPMorgan alone earned US$412 million through arranging loans for US buyouts during 2007. This was more than twice the amount JPMorgan received in advisory fees. Banks have retaliated, stating that private equity firms will be entering into a market where they have less knowledge, fewer structuring skills, smaller distribution networks and taking on the “storage” risk associated with financing deals.

Sources:

Bloomberg: Blackstone Plans to Line Up LBO Lenders, Bypass Banks
Deal Journal: Wall Street Journal - Can Private Equity Firms Do What JP Morgan Does?
Reuters: Private equity sees new fund sources amid slowdown
Goodman Global Press Release: Goodman Global Completes Merger with Hellman & Friedman

Record Year for Cleantech Venture Investments

Results released by Dow Jones VentureSource have shown that globally venture capitalists invested a record US$3 billion into 221 deals throughout 2007, a 41% increase over 2006 investment. The results are inline with data released at the end of November by Thomson Financial and the National Venture Capital Association (NVCA) showing that U.S. venture firms spent nearly $2.6 billion in the sector within the first nine months of the year.According to VentureSource the U.S. was responsible for 83% of the investment throughout the year, accounting for eight percent of the country's total venture capital investment. Within Europe, VC cleantech investment increased 27% to $360m led by the Nordic region, Spain and Germany.

For the year ahead, cleantech is expected to remain at the forefront of global VC investment. A survey released in December by the NVCA showed cleantech is expected to be the highest expected growth industry. Approximately 80% of respondents expected higher levels of financing to the sector throughout 2008.

Managing director of Cascadia Capital, Ted Bernhard stated that a recession may actually boost activity within the cleantech sector, given potential economic benefits to a wide range of companies. For 2008, the sectors within cleantech expected to receive significant funding include; solar, advanced materials for energy efficiency and improvements for biofuels.

Within Australia, clean technology is growing but further support is needed from the government. Australian cleantech companies have found it hard to raise money, especially given the current state of the market. However, incentives such as the proposed $417 million Australian Water Resources Information System are expected to stimulate specific parts of the industry.

Alt Assets - Cleantech venture capital investment in 2007 jumps 43 per cent to $3bn
Business Journal - Investors put $3B into cleantech in 2007
The Deal.com - Dealwatch: Cleantech
The Australian - Ivor Frischknecht, investment director, Starfish Ventures

PricewaterhouseCoopers 2006 report (Feb 2007)

Private equity & venture capital deliver strong returns. (9/2/2005)

Embargo 10pm Eastern Standard Time Thursday (30/9/2004)

ILPA Endorses PEIGG U.S. Private Equity Valuation Guidelines. (20/9/2004)

Embargo 10pm Eastern Standard Time. Thursday 30th September, 2004

Venture Capital Limited Partnerships off to a flying start - 08/05/2003

AVCAL rejects IASB proposal for the expensing of employee options. - 14/03/2003

AVCAL supports first ever Australian Commercialisation Forum and Fair of Ideas - 13/02/2003

AVCAL's response to the draft BVCA Valuation Guidelines - 31/01/2003

Venture Capital Bills Welcomed by Australian Industry - 12/12/2002

QRxPharma completes a $10 million series a financing - 10/12/2002

MBO of N.M. Rothschild & Sons (Australia) Limited bioscience funds management arm by GBS Venture Partners - 09/12/02

CHAMP Ventures Pty Limited announces the First Close of its new private equity - 03/12/02

Minister announces detail of Venture Capital reform - 19/09/02

Income Tax: thin capitalisation-applying the arm's length debt test

Commonwealth Government's R&D Start Program

Australian Federal Budget - Key issues for businesses

Six Venture Capital Funds Ready to Back Brilliant Kiwi Businesses

$100 Million Boost For Australian Research And Industry

Changes To ASX Guidelines

AVCAL ESOPs Release

Federal Government announces Limited Liability Partnerships for Australian Venture Capitalists

VC LLP Synopsis of the Reforms prepared by Gilbert+Tobin

AVCAL 2001 Award Winners

Australian Venture Capital Industry Raises Record $1.2 Billion To Fund Innovation

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