Briefing - BVCA admin

Pe and the
Social Sector
Autumn 2011
Briefing
LP Outlook
Q&A with
Michelle Kathryn
essomé
CeO, AVCA
Special international Edition
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Autumn 2011
Contributors
Sir Ronald Cohen, Michael Queen,
Sidney Chameh, Paul Perpère, Antony
Collins, Sarah E Alexander, Dörte
Höppner, Mahendra Swarup, Richard
Roach, Toshihisa Adachi, Jeanette
Lepper, Rory O’Sullivan, Sachin Date,
Luis Antonio Marquez Heine, David
Collinson, Edmund Tyler, William
Holder, Neal Greer and Michelle
Kathryn Essomè
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editor
Tom Allchorne
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Leon de Bono
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Training
Lisa Simpson
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Contents
Special international edition
Brazil 7
france 9
emerging markets 13
europe 14
india 15
Japan 18
MenA 19
Mexico 23
China 29
Q&A with Michelle Kathryn essomé, CeO, AVCA 30
editor’s note 3
Private equity and the social sector 5
A world of opportunity 5
LP outlook 9
Choosing the right funding partner 16
Technology M&A in 2011 20
exits and returns 21
The pensions risk 24
responsible investment 26
The Takeover Code 28
Private equity and the g20 32
Public policy update 33
Market statistics 34
Transaction tracker 37
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Autumn 2011 BVCA Briefing 1

More than 100 specialist private equity lawyers.
Eleven offices around the world.
Thirty years advising the industry on funds, deals and strategy.
SJ Berwin is not just a supporter of private equity.
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Get quick updates from SJ Berwin’s private equity
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20660

editor
Tom
Allchorne
Editor’s note
Welcome to the Summit 2011 edition of the BVCA Briefing. With our
flagship event taking on a distinctly international flavour this year, this
Autumn issue follows suit, with articles from a number of our international
association partners, from Brazil and France, to the Middle East & North
Africa, Japan and India.
Private equity and venture capital are today truly global industries. From being concentrated in
Western Europe and North America, we are now seeing markets opening up across the world. The
BVCA has developed extensive partnerships with our peers overseas providing BVCA members
with access to their markets, and offering our own support and expertise as the global hub of
private equity. Over the last 18 months the BVCA has signed Memoranda of Understandings with
fellow associations across the world, and have dedicated programmes of activities with the USA,
Russia, India, China, Brazil, Mexico, the MENA region, and, most recently Africa.
In July the BVCA’s CEO Mark Florman was part of a business delegation to Africa organised by
UK Trade & Investment (UKTI) and the UK Department of International Development (DFID).
He joined the Prime Minister David Cameron, Trade Minister Lord Green and the International
Development Secretary, Andrew Mitchell, on an historic visit to the continent, along with 20 other
business leaders, including the CEOs of Virgin, Barclays, Standard Chartered, Diageo, Vodafone,
Waitrose and more.
As part of the trip, and at a ceremony attended by the Prime Minister, in Lagos, Nigeria, Mark signed
a Memorandum of Understanding with Ms. Tokunboh Ishmael on behalf of the African Venture
Capital Association (AVCA), where she is a board member. In this issue you will hear from the new
CEO of AVCA, Michelle Kathryn Essomé, where she outlines her plans for the future and explores
the changing nature of Africa, socially, economically and financially.
You will also read about what investors think of private equity. With this being the last BVCA Briefing
of 2011, it is only fitting we ask some Limited Partners for their assessment of the year behind us
and what 2012 and beyond holds in store. With difficult market conditions in light of the on-going
Eurozone crisis and volatile capital and currency markets, competition is fierce on the fundraising
trail, and the LPs are putting GPs under greater scrutiny.
Of increasing importance to LPs is environment, social and corporate governance (ESG), and it
is on this topic that the BVCA recently conducted a survey, asking BVCA members for their
views on responsible investment. The survey found that 63% of respondents thought that active
management of sustainability issues made a company more attractive to investors, and 55%
reported that their LP had asked ESG specific questions over the past two years. See page 26 for a
detailed breakdown of the findings.
This is another example of the positive role private equity is playing in the global economy -
building better, sustainable businesses, creating jobs, fostering innovation and delivering genuine
value creation. With the global economic recovery continuing to stutter, such skills are needed
more than ever.
Tom Allchorne
Editor
tallchorne@bvca.co.uk
Autumn 2011 BVCA Briefing 3

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Comment
When the pioneers of private equity and venture capital set up shop
in the UK in the 1970s and early 1980s, we were met with widespread
scepticism. Venture capital, it was said, wasn’t needed here. The
established industrial and commercial giants who were responsible
for innovation and job creation were thought to be adequately
provided with capital by the stock exchange and the High Street
banks. There was no need for our proposed combination of patient,
active investment and entrepreneurial flair.
Well, we were right and conventional wisdom was wrong. Many of
the commercial and industrial giants of thirty years ago have gone
or survive in radically different and often much-reduced form. Their
positions of eminence have been taken by hi-tech enterprises, many
of them funded by private equity and venture capital.
So when we talk today about introducing private equity and venture
capital to support entrepreneurship in the social sector, we get a far
more receptive hearing. There is no doubt about the opportunity: the
social sector is vast and it is chronically undercapitalised. Once we have
Comment
3i is proud of its British roots. Up until the mid-1980s we invested
almost entirely in UK business and had been doing exactly that since
1945. However, as financial markets became more international, so
did 3i. We saw some great opportunities for investment across the
world and have expanded to take advantage of them. International
growth has been a fundamental driver of our business in recent years
and we now operate in 13 countries across four continents. Today
over three quarters of our investments are outside the UK.
Apart from the obvious benefits to investors in 3i, giving them
access to international opportunities, there are other benefits to
being an international investor. Having people on the ground in the
countries in which we invest means we are much more attuned to
the local market. We find this gives us an advantage, both in sourcing
proprietary deals and during competitive processes, as well as during
Transforming the
social sector
Sir Ronald Cohen
established an environment that includes appropriate tax incentives
and changes to the rules governing both the permitted investments
of charitable trusts and foundations and prudent investment by
institutions, private equity professionals can apply on a large scale
the financial and managerial disciplines, and the unwavering focus
on results, that we have honed over the last three decades. We will
use innovative financing products that will link social outcomes to
financial rewards and connect social entrepreneurs and the capital
markets. One such product, the social impact bond, is already in use.
Social entrepreneurs and social investors are already addressing social
problems. Success is measured by a blend of quantifiable social and
financial returns. The formation of Big Society Capital now gives our
efforts a huge boost. My forecast is that impact capital will transform
the social sector in just the same way that private equity and venture
capital have transformed the commercial sector over the past three
decades. Private equity and venture capital professionals have unique
skills to make this happen. n
A world of
opportunity
Michael Queen, 3i, CEO
the asset management stage of the investment.
Just as important is the international network that our portfolio
companies gain access to. This is how we really drive value – by
opening up markets that firms would otherwise not easily be able to
reach. Take one of our recent realisations - Norma Group, the German
engineering firm which we led to IPO this year - as an example. Over
the period of our investment, international sales increased from 40%
to almost 75% of the total, more than doubling the share that came
from North America and Asia.
Earlier this year we opened an office in Sao Paulo, Brazil. Not only
are we already seeing some excellent opportunities and deal flow
emerging from that office, it is also a great platform to help the
expansion of our other portfolio companies into one of the world’s
fastest growing markets. n
Autumn 2011 BVCA Briefing 5

6 Autumn 2011 BVCA Briefing
Annual
Gala Dinner
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This December, the BVCA’s Annual Gala Dinner will return for its 25th successful year,
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Country
Profile
Brazil
The destination for private equity
and venture capital investments
Sidney Chameh, Chairman of the Brazilian Private Equity and Venture Capital Association (ABVCAP)
In the past few years the Brazilian private equity and venture
industry has grown and most importantly maintained its
attractiveness on the global scene. Local players are increasing in
size and numbers and international players are setting up shops in
the country.
Fundraising in the region continues to have a positive outlook
for the years ahead with estimates showing that Latin American
private equity and venture capital could raise at least US$10bn in
2012. According to the Latin American Venture Capital Association,
private equity and venture capital fundraising in the region grew
59% to US$4.9bn in the first half of this year compared to the
same period in 2010, and Brazil accounts for the vast majority of it.
In fact, in the first three quarters of 2011, more than US$6.2bn has
been raised in Brazil alone. In spite of warnings over the possibility
of overheating, investors have showed no signs of any decrease in
their interest. The reasons for this continued interest vary but the
country´s continued growth, especially with the difficult economic
situation and fiscal adjustments taking place in the United States
and Europe, has put Brazil in an advantageous position.
Brazil is also enjoying a period of stable employment and a vibrant
and robust domestic consumer market. From 2003 to 2011,
more than 37 million people joined the middle class, which today
represents approximately 54% of the entire population. Sound
governmental policies, a solid legal and regulatory environment
and almost two decades of political stability have also helped to
consolidate Brazil´s position as an attractive destination for new
private equity investments.
According to the recent EMPEA/Coller Survey on the views of
global limited partners on emerging markets private equity, Brazil
has now leapfrogged China as the most attractive destination for
new long-term investments. The PE/VC industry in Brazil not only
has experienced an increase of interest from international limited
partners, but also from its own local investor base. In spite of the
low penetration of private equity and venture capital, which is
about 0.2% of Brazil´s GDP, Brazil has a solid base of local investors
which includes foundations and pension funds, corporate entities
and family offices. With approximately US$300bn in assets
under management (AUM), Brazil´s more than 350 pension
funds play a major role in supporting private equity and venture
capital investments in the local sphere. Around 20 local pension
funds are active investors in the asset class, with the 10 largest
controlling more than 60% of the total pension funds´ assets under
management, or approximately US$180m.
Alongside the many opportunities available, investors who come
to Brazil will also find some constraints that warrant their close
attention. Challenges faced by foreign investors include the lack of
information on the local fund managers and investment specialists,
and the difficulties of hedging for the long term a position in local
currency (Reais) versus the foreigners’ own currency. The high cost
of capital locally and short time horizons on hedging instruments
makes it almost untenable to implement a fully hedged strategy
in local currency, although this is improving as the level of real
interest rates falls and the tenors for hedging instruments extend.
Other burdens investors find in Brazil are the heavy bureaucratic
and tax structures, the infrastructure bottlenecks and the lack of
qualified labor. These and other upcoming challenges from global
sporting events such as the Olympic Games and the World Cup
need to be addressed and resolved for Brazil to benefit fully from
the unique position it has assumed in the global private equity and
venture capital industry. n
Autumn 2011 BVCA Briefing 7

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Country
Profile
france
Bouncing back from
the downturn
Paul Perpere, Managing Director of AFIC, the French private equity association
France has a dynamic SME segment, a strong and sophisticated
framework for private equity transactions and a well-established
infrastructure to successfully achieve critical mass in all private equity
activities. As a result, the French private equity industry today is the
second largest in Europe and is doing well judging by the number of
funds raised, the amounts invested and the number of companies it
funded in 2010. On an annual average basis, 1,450 companies were
funded by the French private equity industry between 2000 and
2010; 80% of which were SMEs and over 30% innovative companies.
Fundraising by French private equity firms in 2010 generated €5bn
and the leading sources of capital were: private individuals and family
offices (27%), government entities (19%), pension funds (12%),
banks (10%) and insurance companies (8%). The majority of the new
funds were French (73%), with 15% from European countries and
12% from the rest of the world.
Last year, investments by French-based private equity firms reached
€6.5bn, almost 60% more than in 2009 (€4.1bn), of which 85% was
invested locally and 15% abroad. The number of companies funded
also grew to reach 1,685 compared to 1,469 in 2009 with 53% of the
total amount invested by the French private equity industry directed
into buyouts. Growth investments, the only category not impacted
by the financial crisis, represented 34%, seed/start-up totalled 10%
and turnaround 1.7%. The total portfolio volume amounted €80bn
at the end of 2010 with the total number of firms in portfolios
exceeding 5 000.
However, due to the uncertain economic conditions throughout
the Eurozone and tightened market conditions for loans to LBO
transactions, which are 50% below 2007 transaction volumes, the
2010 market activity was a far cry from the €10bn invested in 2008.
The economic role of private equity has been heightened ever since
the 2008 financial crisis which led to a credit crunch and drove up
the demand for growth capital from French private equity firms. The
new solvency capital requirements for banks (Basel III) and insurance
companies (Solvency II), both key institutional providers of funds
for private equity firms in Europe, are putting significant stress on
the market and are threatening the financing of the industry as a
whole despite the fact that credit tightening should be encouraging
companies to strengthen their balance sheets. n
Autumn 2011 BVCA Briefing 9

Investor
Outlook
10 Autumn 2011 BVCA Briefing
Listening
to the LPs
The uncertain economy has made Limited Partners more selective over their private equity
managers. Antony Collins looks at the evolving expectations for General Partners going into 2012
It was a troubling summer for investors - ratings agencies slashed
national investment grades, capital and currency markets slumped
and billion dollar country bail-outs were negotiated. Little surprise that
Limited Partners (LPs) are now assessing closely where and with whom
to put their much-sought after capital.
“LPs on a macro level currently have concerns about the different
economic situations,” says Mounir Guen, CEO of MVision Private
Equity Advisers. “In the US there was the ratings downgrade while
places like Switzerland, Brazil and Australia have experienced
currency movement. In Europe there is, of course, anxiety over a
number of member states. As such, investors are reflecting on what
is going on, what countries to invest in and how they are positioned
in the market.”
Before the summer, things looked positive. Coller Capital’s Global
Private Equity Barometer Summer 2011 report predicted a boom in
activity. Almost two thirds (64%) of LPs were expecting “large growth”
in private equity exits while only 12% intended to decrease allocations.
The research, though, was undertaken in March and April 2011, long
before the financial hiccups. Since then, LPs have swapped optimism
for pragmatism.
William Gilmore, head of private equity at Scottish Widows Investment
Partnership (SWIP) asks: “Lots of LPs have enjoyed decent distributions
this year but the markets are volatile so the question is how much of
these distributions can be re-invested? The latest valuations were
made in June, before the turmoil in the markets, so we may have to
wait until the end of the year to see how valuations and allocations
stand. At the moment, many LPs are somewhat in limbo.”
natural selection
In such uncertain times, LPs require stability, which means more
pressure is being put on General Partners (GPs). Investors are now
analysing managers’ performance closer than ever before deciding
where and with whom to invest.
“LPs are looking for GPs that are well established, experienced across
cycles, and have generated cash on cash returns through a number of
exits and part of a stable team,” explains Andrew Bentley, a partner at
Campbell Lutyens. “LPs also expect GPs to demonstrate a thorough
understanding of, and influence over, its companies that result in real
value growth.”
The prevalence of secondary buyouts (SBOs), which unquote claimed
made up 52% of all European deals in the first half of 2011, is an
example of what is making LPs more selective. Investors have started
to find that one fund in which they are invested can end up selling an
asset to another fund in which they also hold a stake.
While the performance of SBOs is not necessarily worse than primary
buyouts (most assets with a 10-year cycle offer plenty of opportunity
for development), it does mean paying out fees and carried interest
to hold the same asset at a higher valuation. John Gripton, head of
investment management Europe at Capital Dynamics, states: “Often
there is still plenty of mileage left for certain assets to be further
developed and other GPs can see the remaining potential. Our concern
is that managers who are only working on secondary deals may have
limited sourcing capabilities.”
As such, private equity managers need to prove strong sourcing
capabilities and a decent portfolio. Choosing the right GPs has
become more important which, in turn, has meant managers have to
work harder to entice investors.
“There is lots of talk among LPs about the need to focus down the
number of GP firms they commit to,” adds Alan Mckay, CEO of
Hermes GPE. “A significant number of major LPs consider their private
equity programmes too diverse for the decade ahead and I think this
will result in a greater concentration of capital into the best managers.”
Gripton states that LPs are “digging a lot deeper into the track record
of a manager”. He adds: “The performance of individual funds can be
influenced if the investment phase commenced within six-to-nine
months either side of the crisis. The overall performance for funds
raised at this time will not always give a clear indication of the quality
of a manager.”
Indeed, management fees are becoming tighter too as GPs, especially
in larger funds, offer discounts to attract interest. It was reported that
BC Partners and Cinven issued reductions of 5% on fees for the first
close of their recent, well-received fundraisings.
invested development
Robert Coke, team head of absolute return and buyouts at Wellcome
Trust, believes that LP priorities are currently GPs who do not overuse
leverage but seek top line growth: “That implies sector specific and
emerging markets strategies, as well as more mid-market funds.”

LPs are looking for GPs that are well established, experienced
across cycles, and have generated cash on cash returns
through a number of exits and part of a stable team
Peers agree. The desire amongst LPs is to target more managers
in sub-regional or local funds to complement the more diverse
portfolios offered by the bigger players.
“I think the market is moving away from pan-regional funds,
operating in the upper/mid-market, and towards more countryspecific
funds targeting the lower mid-market,” says Mackay. “This
is the case in Europe and Asia where investments by local funds can
more easily secure financing from local banks.”
Turkey is one jurisdiction high on the LPs’ agenda. A young
population, stable political situation, strong economy and tight trade
links with the EU means that dedicated expertise for the country
provides a different angle than a pan-regional fund can offer. LPs are
quick to stress it is not an “either or” option.
“The larger European funds will still play a role in terms of helping to
back larger deals so there will be a combined role,” William Gilmore
comments.
For emerging markets though, the pool of GPs is not as deep. The US,
for instance, has about two and a half times more GPs than Europe
and that figure is drastically smaller for less-developed private equity
centres.
“Capital Dynamics has always had country fund exposure but the
general market is moving in that direction now as well,” Gripton
concurs. “It is easy for an LP to find their way to an international
large LBO fund, but finding a good fund in places such as Italy or
Turkey can prove a lot harder.”
The chances of accessing quality GPs become limited depending on
which markets the LP is focusing on. This means providing a spread
of investments than can balance the risk of less developed markets
but also help deliver optimum distributions.
“LPs consider balanced exposure,” Guen remarks. “They will want a
couple of GPs at large, international funds, a couple in pan-European
funds and then a selection of sub-regional or country-based GPs.”
ethical call
While these investment priorities hone in on GP performance, there is
a separate issue affecting the selection process: environmental, social
and governance (ESG) matters. ESG has been gaining importance
– questionnaires are now often passed to managers as part of the
investment process – but some LPs believe the concept of responsible
investment is something GPs have been slow in understanding.
“There is a growing desire – especially from LPs – not just for capital
to be invested but for those investments to be in companies
that operate with ethical, environmental and appropriate
social responsibility,” Mackay says. “In the future, private equity
managers will not just need to be good at understanding financial
performance but also corporate responsibility.”
For GPs, who have long been focused on economic and regional
dynamics, it will be a fresh challenge. The growing expectation
is to extend expertise into ethical standards. It would be folly to
suggest ethics is not an existing consideration. Few managers
knowingly invest in companies that deliberately flout international
expectations, such as dumping toxic waste or acts of bribery, but
in the current climate of corporate governance and corporate
legislation, LPs are wary of negative exposure to perceived
unethical practises.
In addition, ethical criteria vary across markets, whether it is the
US, Europe, Africa or Asia. The cultural differences – the school
leaving age in Rwanda is 12, for example – means that accusations
of child labour could be made by UK lobbyists while for local
workers it would be a normal societal expectation.
Gilmore believes that the ESG concept is still in its early stages and
a lot of educating needs to be done, both for LPs and GPs. The
concept is much better understood in listed companies whereas
private equity investors still attempt to select the best managers
based mainly on financial performance. The danger is, for LPs,
that too much red tape or dictation could ultimately lead the GPs
themselves being more selective about investors.
“Even so, LPs like the freedom to invest so have to be careful about
not being are too vocal about ESG to managers as it could prompt
the GPs to source capital elsewhere,” Gilmore warns.
Gripton says that EGS is a complex area and key issues differ with
geography and investment style so LPs and GPs need to take a
“sensible approach”.
“It is a fine line though between tying the hands of GPs and allowing
them the trust and freedom to make appropriate investment
decisions. I am not certain that sending a 30-page questionnaire
is really the best approach.”
The mounting scrutiny – financial and ethical – may prove
disheartening for some managers but LPs are still committed to
private equity and conscious not overwhelm GPs to the point of
souring the relationship.
In future though, GPs may have to become accustomed to even
more detailed inspection by LPs if they are to continue to attract
the biggest investments. n
Autumn 2011 BVCA Briefing 11

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23 November 2011
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Country
Profile
Looking for the
growth markets
of the future
Sarah e. Alexander, President and CEO of the Emerging Markets Private Equity Association (EMPEA)
Emerging markets private equity has become and will remain core
to investor portfolios. Investors recognize the simple truth that
faster-growing emerging markets hold greater return potential
than developed markets.
Improvements in fiscal and monetary policies, rapid economic
growth, growing middle classes accustomed to rising standards
of living, and the emergence of sophisticated local private
equity fund managers have all contributed to emerging markets’
ascendance within the PE landscape. From only 4% of total global
PE fundraising in 2004, emerging markets’ share tripled to almost
12% in 2010. EMPEA’s annual LP surveys indicate that emerging
markets’ share of allocations will keep growing, with 2011 survey
respondents predicting a rise from 11-15% today to 16-20% by
2013. Fundraising for emerging markets-dedicated funds is likely
to exceed US$40bn this year, a 75% increase over 2010, compared
to a 15% projected rise year-on-year in the US.
But not all emerging economies have benefited equally from the
growing appetite for private equity in these markets. PE investment
is increasingly concentrated in China, India and Brazil. In 2010,
75% of the private equity capital invested in emerging economies
went to these three countries, up from 50% in the years from
2007-2009. China’s share in particular is swelling; China-dedicated
funds represented 45% of all capital raised for emerging marketsfocused
funds through mid-2011.
Year after year, our annual survey of LPs points to investors’ desire
for greater exposure to high-growth markets as the number one
reason behind emerging markets’ rising share within allocations.
While China, Brazil and India consistently sit atop our survey’s list
of most attractive markets for near term GP investment, LPs also
express growing interest in diversifying into Latin America beyond
Brazil, Southeast Asia and Sub-Saharan Africa.
Beyond the macroeconomic
fundamentals, there is a subtle
combination of both demand- and
supply-side factors that work in concert
to draw LP capital to certain markets
Why, then, do such a small number of markets command so much
of the capital?
The reality is that no single country can claim the winning formula
for building a PE market, and no single factor – growth rate,
population size, past returns, number of managers, regulatory
environment – determines LP decision-making. If growth rates were
all that mattered, Qatar, Ghana and Mongolia would be the top
three destinations for LP PE capital in 2011. If population size were
the answer, then Indonesia, which boasts the world’s fourth largest
population, would have drawn investor attention long before 2011.
Pakistan, Nigeria, and Russia in sixth, eighth and ninth place in the
population rankings respectively, would also be priorities.
Instead, beyond the macroeconomic fundamentals, there is a
subtle combination of both demand- and supply-side factors that
work in concert to draw LP capital to certain markets. Enabling
factors include the domestic regulatory architecture and legal
system, the degree of participation from domestic sources
of institutional capital as well as the existence of an active and
organized domestic practitioner community.
EMPEA works at all of these levels in our efforts to help develop the
PE industry across all emerging and developing economies, without
a bias toward destination. We do this at the local market level, for
example, by engaging on regulatory issues – in both developed and
emerging markets – in favor of policies that support the industry’s
growth or at least do no material harm, and by supporting the
local organization of the industry.
We also produce analysis for the
global investor and private equity
community that goes beyond
the headlines – not only putting
China, India and Brazil into
the global context, but also
highlighting the dozens of other
economies where private equity
can play a uniquely valuable
role in financing
economic development
while providing superior
returns to investors
that discover those
opportunities. n
Autumn 2011 BVCA Briefing 13

Country
Profile
14 Autumn 2011 BVCA Briefing
europe needs
private equity
Dörte Höppner, Secretary-General, European Private Equity and Venture Capital Association (EVCA)
Our industry has come a long way in recent years. From modest
beginnings in the 1980s, private equity and venture capital is now
a major part of the corporate landscape, with 26,000 investee
companies across Europe. We have also come a long way in
terms of our engagement with stakeholders, our international coordination
and an awareness of our civic duties.
In terms of industry co-ordination, our industry’s Public Affairs
Executive brings together the EVCA, the BVCA and other national
associations to agree on the most important decisions affecting
the whole industry at EU-level. This model has been a great
success, affording flexibility to national associations to lobby on
home turf and still be co-ordinated in our messaging in Brussels.
There is also more informal co-operation, such as a joint project
between the BVCA and EVCA to refine the language we use to
describe the industry.
Such co-ordination is essential at a time when we face a raft of
new and proposed regulation. Much of it affects our investor
base. There is a general trend for regulation aimed at institutional
investors that encourages short-term investment behaviours, by
prejudicing illiquid assets and pandering to the fetish for instant
access and regular valuations. Pension funds and insurance
companies in Europe have combined assets of some US$40trn,
representing 10% of the financial system. Rules that change their
behaviours will have a massive impact on Europe’s capital flows.
A recent report by the Committee on the Global Financial System
found that the combined impact of a raft of new rules “could
make it more difficult for insurance companies and pension funds
to play their traditional role as global providers of long-term risk
capital and accelerate the shifting of risks to households”.
For insurers, there is Solvency II that will introduce a risk-based
approach to capital requirements that prejudices illiquid assets
including private equity. A similar route may be taken by the
forthcoming revisions to the Pension Fund Directive.
This runs contrary to the broader political goals of increasing
long-term investment in the European economy, eradicating
systemic risk and supporting stable sources of finance for Europe’s
economies and SMEs.
We are working hard at EU level to air these concerns with
policymakers in the same constructive manner that saw the AIFM
Directive voted into law in far better shape than we once feared.
I believe we face a major opportunity to position our industry as a
constructive agent in building Europe’s future. After all, more than
80% of these are SMEs. As such, we have a very important role to
play in the revival of Europe’s fortunes.
This cannot be achieved by trade bodies alone. It cannot be a
top down approach. The whole industry must get engaged, with
integrated stakeholder communications built into the fundraising
and investment process.
Nobody needs reminding of the terrible state Europe finds itself in.
Europe needs political courage to get out of this mess. But after that
it will need a strategy for the future: for growth, productivity and
competitiveness. This won’t come from state bail-outs or hand-outs.
It will come from entrepreneurial activity supported by sources of
committed capital, such as private equity and venture capital.
Parts of our industry didn’t have the greatest reputation going
into the financial crisis, but if you look at our track record through
the downturn, it is clear our model has been not just vindicated
but passed with flying colours. The default rate for private equitybacked
companies is running at around 2%, way below the 6% or
more for the rest of the corporate world.
We have a proven and stress tested investment model that has
a huge amount to offer a Europe and a world in need. Now we
need to spread that message even wider. We at EVCA look forward
to working alongside the BVCA and other national private equity
associations over the coming year to do just that. n

Country
Profile
The role of private
equity in the economic
development of india
Mahendra Swarup, President of the Indian Venture Capital Association (IVCA)
To measure the role of private equity (PE) and venture capital
(VC) funds in driving economic development and fostering
entrepreneurship, we need to first understand the avenues into
which PE and VC firms invest. Deals in India can be broadly classified
into the following six types: early/seed stage; growth stage; late stage;
pre-IPO; investment in public companies (PIPE deals); and buyouts.
Late stage and PIPE deals have predominantly accounted for almost
half of the total deal value flowing into India. We are however
seeing significant activity in the early and growth stage space, which
indicate that investors are warming up to the idea of investing in
businesses much earlier in the lifecycle than before and thus helping
to strengthen the entrepreneurial framework in India.
PE and VC funds have invested more than US$58bn into the
economy over the last five years. While this amounts to less than
1% of Indian GDP on average, the compounding effect that PE/VC
capital has on businesses is unparalleled.
Over 2,000 firms in India have benefited directly from PE/
VC funding. Consider the listing of Makemytrip last August on
NASDAQ for example. This was a landmark deal in India’s startup
history and is touted as the game changer for online travel
portals and e-commerce businesses in India. The capital invested
in Makemytrip by SAIF Partners, Helion Venture Partners and Sierra
Ventures has catapulted the company and Indian ecommerce
portals onto the global arena.
Bharti Airtel is an example from the previous decade where
funding played a critical role in its success. In 1999, Warburg Pincus
invested US$300m in Bharti and helped build it into India’s largest
telecom player. There are numerous such success stories across
businesses in India if you analyse the deal space over last ten years.
In addition to monetary benefits, companies that receive PE/VC
capital also see an improvement in their corporate governance,
operational performance, financial decision making, strategy and
growth thought process, adoption of best practices and access to
marquee customers. The upward trend seen in PE/VC investments
in India is an encouraging sign for businesses and entrepreneurs
across the subcontinent.
We are also seeing a gradual shift in the fundamental mindset
of the average Indian with regard to entrepreneurship. India is
moving away from an era where businesses were predominantly
run by families over several generations. Today, first generation
entrepreneurs, with little or no financial backing, are venturing
out to implement business ideas. Even though only a few ideas
manage to get funds from a VC, there is a stronger support system
developing as a result of constant interaction between PE/VC and
entrepreneur communities, and as a result we are seeing higher
quality entrepreneurs and business ideas emerge.
Large business houses that do not have access to low interest
debt capital are also reaching out to PE firms to cover short-term
and long-term fund requirements through late stage or expansion
funding vehicles.
All of the factors mentioned above directly affect the economic
development of India. While there are no tangible yardsticks yet
to measure direct economic contribution of PE/VC funds, the
performance of PE/VC-backed firms and fund exits over the next
decade will help us measure the value that these funds have been
able to create in the Indian economy. n
2006 2007 2008 2009 2010
Indian GDP (in US$bn) 951 1242 1216 1377 1624
PE VC Ivestments (in US$bn) 9 21 15 3 10
PE VC Investments as % of GDP 0.9 1.7 1.2 0.2 0.6
Source: World Bank, RBI
January 2011 BVCA Briefing 15

Sponsored
Article
Private equity firms investing in businesses with global aspirations have a wider and more complex
range of factors to consider when selecting funding and banking partners, according to richard
roach, managing director of UK financial sponsors at RBS.
With the speed and trajectory of economic recovery remaining
uncertain, UK-based private equity investors are increasingly subjecting
potential funding and banking partners to a greater degree of scrutiny
than might have been the case prior to the financial crisis. The principles
they apply typically broaden when the target company is already a
global player, or if it has ambitious plans for international growth.
This adds a new dimension to the selection procedure. Investors
naturally want reassurance that finance will be made available on
reasonable terms. But beyond that, many of those supporting
buyouts of international organisations want a suite of ongoing
banking services in place, wherever they do business. And they want
access to the same range and quality of services they already receive
in the UK. With new opportunities opening up at an accelerated
pace in Asia Pacific and elsewhere, investors can’t afford to lose
competitive advantage as a result of other private equity firms and
their customers being quicker off the mark.
Case in point: A-gas going (even more) global
Earlier this year, RBS co-led a banking club, supporting a £70m buyout
of A-Gas International by leading mid-market private equity house
LDC, together with the A-Gas management team. The approach
we took, together with our partners at LDC, amply demonstrates
the advantages of a seamless connection between financing an
initial transaction and supporting long-term strategic objectives with
ongoing banking services.
Based in Bristol, A-Gas distributes speciality gases and chemicals for
industrial use in refrigeration, air conditioning, insulation, solvents,
manufacturing and medical sectors, with each business unit enjoying
a strong market position. Since launching in 1993, the company
now has more than 120 staff, based in the UK, Australia and South
Africa, with a growing presence in Asia Pacific and North America –
an attractive proposition for private equity investors. For our part,
A-Gas represented a business that had already been performing
impressively, and looked well-placed for future growth, building on a
well-invested asset base.
16 Autumn 2011 BVCA Briefing
Beyond the horizon
Security may be required. Product fees may apply.
On the same page
The RBS structured finance team has a strong track record of working
with global businesses in the industrial and chemicals industries,
something which appealed to Ian Podmore, investment director
at LDC: “It was also a top priority for the deal to be structured in a
way that aligned with our long-term objectives, and those of the
management team at A-Gas,” he says. “Securing funding on this
scale depends on much more than banks just grasping where a
target business sits in its current market. It’s also critical that they can
envisage the same future, and as far ahead as we can.”
Continual changes to already tightening environmental and health
and safety regulations mean businesses like A-Gas are poised to
capitalise on a growing demand for their products and services,
including a rapidly expanding service of reclamation and recycling of
used product. It added up to a smart investment proposition for LDC,
and one for which, having subsequently satisfied our due diligence
criteria, we were happy to scope out debt funding.
Asking the right questions
For buyout transactions to take place smoothly and effectively, it’s
essential for the parties involved to enjoy a relationship of absolute
trust and confidence in each other’s field of expertise. RBS and A-Gas’s
senior executives have a professional relationship that goes back
some 10 years, during which we’ve developed a sound understanding
of their business and the markets in which they operate. The
knowledge we’ve built up over that time informed and underpinned
our debt appetite, ultimately giving LDC and A-Gas management
greater confidence that we’d be able to deliver for them.
Depending on the nature of the business being targeted, investors
at private equity firms might ask what experience potential finance
providers have of:
• Supporting PE-backed companies in similar industry sectors
• Supporting companies of similar turnovers or volumes of business
• Supporting companies operating in similar overseas locations
Any PrOPerTy uSed AS SeCuriTy, whiCh MAy inCLude yOur hOMe, MAy Be rePOSSeSSed
if yOu dO nOT KeeP uP rePAyMenTS On A MOrTgAge Or OTher deBT SeCured On iT.

• Managing cash in countries where the target company operates
or trades
• Leading or working in club deals with other banks on similar
transactions
Thinking long-range, there are often many considerations beyond
any initial private equity-backed deal. In this case, A-Gas, whose
executives have big plans for international expansion, required a
platform for global cash management that would safeguard liquidity,
even in countries with starkly contrasting banking systems.
Successful structured finance deals largely depend on everyone
asking the right questions from the outset, so that expectations can
be managed. For RBS and LDC, we asked:
• Does the company wish to grow organically or by acquisition,
or both?
• Looking even further ahead, what and when might senior
management and LDC require by way of funded debt to exploit
new opportunities?
• Is there sufficient headroom in the facility we’ve provided?
• How quickly can funds be drawn down?
The nature of many private equity transactions – not to mention
the personalities involved – means that businesses are obliged to hit
the ground running, often driven by a reinvigorated management
team, eager to implement plans they may have been nurturing
for some time, and in no mood to be held back. In the case of
A-Gas, it was crucial that leverage finance could be provided
throughout the investment cycle, in parallel with an international
cash management capability.
deliverability is key
As most private equity investment directors and investment managers
will testify, every transaction has its own unique combination of
influencing (and sometimes) game-changing factors. But what
they all share is a relentless focus on deliverability. It’s typically the
aspect of a deal that’s most likely to keep its stakeholders awake at
night. Will finance ultimately come through? If it does, will it be as
accommodating as I wanted, or as I’d been promised? Although
deals are seldom permanently scuppered at the last minute, if some
of the parties involved have few options at their disposal for rustling
up more capital or giving up more equity, the consequences of
deliverability hold-ups for the shape or timing of the transaction can
be complex and drawn-out.
In the present economic climate – and probably the months lying
ahead – there’s an understandably heightened focus on deliverability
risk amongst potential MBO teams and their private equity backers.
That’s why what might occasionally appear to be unusually
penetrating questions on the part of a bank represents a positive sign.
It was critical for our colleagues at LDC to be reassured that, for A-Gas,
they could rely on senior debt being delivered, on top of the addedvalue
commercial and market intelligence they could safely assume
we’d provide. Now, working closely with the A-Gas management
team, LDC is set to embark on a global growth strategy, with a focus
on Asia-Pacific and the Americas – and supported by the provision of
funding by RBS.
For further information, contact Richard Roach, Managing Director
(Financial Sponsors UK), RBS. Email: richard.roach@rbs.com. n
A cross-border checklist
The increasingly global nature and reach of the UK’s private equity industry,
and wider adoption of its investment model beyond its traditional UK and
US heartlands, have served to underline the importance of integrated
cross-border banking services for private equity investors.
In readiness for a growing pipeline of international investment
opportunities, a number of private equity houses are recognising that
now is the time to re-evaluate their existing global cash management and
trade finance arrangements:
• Firms considering stakes in businesses whose future value rests largely
on long-term global expansion strategies
• Firms whose current investment portfolios include businesses which
are set to make the move from trading with international customers
to setting up sales units, operations or plant overseas
• Firms backing companies which must shift more towards international
supply chains for goods or components in order to stay competitive
and retain their investment value for equity-holders
The speed at which private equity firms (and the businesses they
back) must frequently move requires a joined-up but flexible approach
to banking, including the ability to overcome hurdles presented by
time zones or local regulations governing repatriation of cash. A solid
understanding of local and national idiosyncrasies within different
countries’ banking systems may represent a reassuring added extra – but
what can firms do to assess their current international banking facility?
CFOs and heads of treasury might usefully ask themselves some of
the following:
1. How well-represented is our bank internationally – in the countries
where we want to do business?
2. How valuable are the insights our bank gives us on country-specific
economic or industrial trends and trading conditions, especially where
we’re only just starting out?
3. Will our country managers have someone from the bank on the
ground they can talk to when they need – just as we can here in the
UK?
4. If not, does our bank’s UK team have people available to talk to our
people overseas – even outside core UK working hours?
5. How can our people leverage our bankers’ connections with local
businesses?
6. How can a global bank ensure we maximise return on our cash –
regardless of where it’s deposited – but without diminishing access?
7. To what extent are the products and services offered by our bank in
the UK also available in the countries where we operate or trade? What
special or one-off arrangements might we need in specific countries
from time to time – and how prepared is our bank to respond?
8. How familiar will our bank’s overseas representatives – or their local
partners – be with private equity investment models? Will they ‘get it’
consistently across different countries?
9. If we decided to move our main corporate global banking
arrangements, what reassurance do we have that the process will be
made as painless as possible?
10. If geopolitical factors prompt us to immediately withdraw from a
specific country, where do we stand if circumstances beyond our
control – and our bank’s – prevent us accessing assets held in that
country?
January 2011 BVCA Briefing 17

Country
Profile
Toshihisa Adachi, Chairman of the Japan Venture Capital Association (JVCA)
The Japan Venture Capital Association (JVCA) was established in
2002 as Japan’s first and only organization with the specific aim
of assisting venture capital firms and venture business supporters.
JVCA’s mission is to promote the interests and development of its
members while contributing to innovation in Japan and the global
community. The association’s general partners total over 50, and
the association is supplemented by a commensurate number
from related areas such as accounting firms, legal counsel, and
corporate venture capital.
Over the past decade, and especially since the peak in 2006, both
investment and exit through IPOs have been declining, and Japan’s
venture capital houses are faced with a severely unfavorable market.
As a result of the slump in the IPO market and the concurrent
financial crisis, institutional investors are wary of investing in
VC funds which has made fundraising difficult. Under such an
environment, some general partners have been forced to close
their funds. The drop in IPOs and sluggish markets have also
caused a lowering in the valuation and return expectations for
existing portfolios managed by both general and limited partners.
Entrepreneurs are also faced with challenging situations that
include not only the invisible exit through IPOs but also costly
listing requirements. The recent movement towards strengthening
compliance and regulations will likely increase the burden on
entrepreneurs and start-up companies which thrive on a high
speed of activity yet do not have sufficient management resources.
As a result of this recent trend, an increasing number of
entrepreneurs are starting companies with the aim of setting them
up as joint ventures with, or selling them to, attractive alliance
partners, rather than aiming to be public companies.
There is some good news however. The sluggish economy could
be creating favorable opportunities. Past recessions have given
birth to a number of entrepreneurs and new companies, many of
which are successful today. Japan historically lacks labour mobility,
but severe economic conditions may force liquidity in human
resources, and that is a good chance for venture companies to
hire talented individuals.
Some public blue chip companies, from the electronics,
telecommunications, pharmaceutical and chemical industries
for example, have developed internal venture capital capabilities
in order to acquire synergies and complementary technologies
18 Autumn 2011 BVCA Briefing
Japan
Waiting for the sunrise
and services. Those corporate venture capital units are expected
to play an important role in the VC market and could solve
many problems. For such companies, the most attractive sector
currently is clean-tech, especially in the areas of energy-saving.
They are quite irreplaceable technologies particularly after the
3.11 disaster. Other areas of interest include telecommunication
components, next generation internet platforms, and life sciences,
with a particular emphasis on preventive healthcare technologies
for Japan’s aging society.
With the absence of an exit market in Japan, venture capital
houses and their investee companies have been developing
businesses and exploring markets that lend themselves to crossborder
partnerships. Japan is historically a nation of technologies
and recently has developed a reputation for services. Investments
into businesses with a competitive edge on a global scale are in
great demand.
Entrepreneurs and venture capital firms need to develop a global
point of view. The same goes for venture capital associations.
Collaborations and enlightenments within associations are
expected as never before. For the JVCA, an alliance with
neighboring Asian societies is important, but there must also be an
alliance with the UK, Europe and the US who preceded the JVCA
in the history of associations. These relationships are essential for
the future of the VC industry in Japan. The night has fallen after the
sunset, but the Sun will rise again for sure. n

Country
Profile
Jeanette Lepper, Manager at the MENA Private Equity Association
Private equity in the Middle East and North Africa (MENA) has
begun to emerge from the global financial crisis and the Arab
Spring as a leaner, more focused and determined industry. Fund
managers that administered multi-billion dollar vehicles during the
peak years of 2007 and 2008 are reevaluating their investment
models. Many GPs are going back to basics – focusing on growth
plays and portfolio company development. Venture capital and
SME investing have surfaced as the new stars, offering more
opportunity, better valuations, and a chance for PE investors to
fuel the job creation and economic growth needed to stabilise
MENA’s dynamic social and political scene.
“Today you see fund managers focusing on SMEs, which is
the majority of the private economy in the region,” says Imad
Ghandour, founder and managing partner at CedarBridge
Partners. “It is where people need the money, where the lucrative
opportunities are, and where the growth is.”
Following the global crisis, large MENA-focused buyout funds have
struggled to deploy capital, with deal sizes shrinking significantly.
Transactions for 2010 totalled US$692m, down from US$895m in
2009. While fundraising was up in 2010, it remains far below precrisis
levels. The decline in activity comes largely due to waning
liquidity, weakened public markets that have limited IPO prospects,
longer lead times for deal origination, and mismatched buyer-seller
expectations. Although the large cap segment of the market will
continue to be challenging for most, there is an increasing sense
that deal flow can be generated by managers with existing track
records focusing on SME and venture capital opportunities.
MENA’s venture capital and SME space presents a relatively exciting
picture. Valuations are reasonable, quality targets are increasing,
growth is high, and GPs face little competition from other lenders.
The number of VC deals closed in MENA for 2009-2010 was nearly
treble the total for the two years prior. This growth is expected
to continue apace. In support of this positive trend, the recently
founded MENA Private Equity Association has focused its early
MenA
Building a sustainable market
efforts on VC promotion. The Association offers a free online VC
directory and guide to the industry for companies in search of
early stage funding. Venture capitalists have also used the group as
a platform to discuss ideas and interact with industry stakeholders.
Mid-market growth will also be supported by governments keen
to spur job creation and improve social infrastructure. “We are
primarily looking at growth sectors that benefit from the positive
demographic trends that this region is facing,” says Faisal Al Hamad,
executive director at NBK Capital’s Alternative Investment Group.
“With effective government support, the youth bulge in the region
will continue to drive activity in sectors related to discretionary
consumer spending, in addition to defensive growth sectors such
as education, healthcare, and infrastructure services, all of which
are sectors that should see increased PE activity.”
Going forward, observers can expect to see mid-sized funds in
the US$100-350m range, many with a sector focus on healthcare,
power, and other non-cyclical growth areas. Fundraising will
be difficult from both local and international sources, and GPs
may have to consider creative deal-by-deal solutions. Private
fundraising and investment activity in the near term will focus
on the Gulf, as countries in North Africa and the Levant continue
to sort out their domestic politics. The UAE and Saudi Arabia
will remain top attractions. Governments in these countries and
Qatar will continue to push for better business and fund-friendly
regulations, despite short-term distractions posed by turmoil in
neighbouring states. And while the IPO craze is over, exits will still
be possible for high quality assets through the public markets, as
well as strategic sales.
PE professionals may be excused for feeling slightly deflated by the
steep fall in fundraising and investment totals. However, MENA’s is
a young industry that grew up perhaps too quickly. Its new face
– sober, streamlined, building on more significant track records –
will certainly be more sustainable, and more in tune with regional
economic needs. n
Venture capital and SME investing have surfaced as the new stars, offering
more opportunity, better valuations, and a chance for PE investors to fuel
the job creation and economic growth needed to stabilise MENA’s dynamic
social and political scene
Autumn 2011 BVCA Briefing 19

Sponsored
Article
rory O’Sullivan, head of European M&A at BVCA Year of Venture campaign sponsor Canaccord
Genuity, reflects on the technology M&A environment and drivers for the future
As we enter the final quarter of 2011, we can find some solace in
these uncertain economic times in the healthy M&A environment
surrounding the European technology sector. Deal drivers continue to
support activity across a variety of segments. Some of these drivers
include robust corporate cash balance sheets and tax considerations
around repatriation of this cash for US acquirers in particular.
More important in supporting deal activity, in our view, are the
twin drivers of entrepreneurial activity and the accelerating
pace of product and business model innovation. European
entrepreneurship and innovation continues to generate
considerable value for their venture and other investors on both
these counts.
Having reined in their research and development, cut costs and
restructured, ICT companies are coming out of the recession with
more cash on their balance sheets and are seeking acquisitions for
growth. As at Q2 2011, the sector’s top 25 companies grew their
cash pile to US$591bn representing an 18% year-on-year increase
from US$499bn at the end of Q2 2010.
Transformations of technology companies are fuelling multibilliondollar
mergers and acquisitions and divestitures, as the industry
consolidates and develops new businesses to compete for
corporate IT budgets. Google’s US$12.5bn purchase of Motorola
Mobility, and Hewlett-Packard’s decision to acquire UK software
maker Autonomy for US$10.3bn, and considering to divest their
PC business, are the latest examples of the change in products
and services that are reshaping the industry. Additionally, major
private equity funds that raised capital before the recession still
have substantial resources for acquisition, made evident by the
large number of PE-backed deals in Q2.
While value creation and business model disruption continue
apace online, and an ever growing and increasingly engaged online
audience drives advertising and commerce revenues for many
leaders, it may be instructive to refresh some of the other trends
which give us at Canaccord Genuity confidence in continued
secular activity in European technology M&A.
The emergence of cloud computing, together with the growing
adoption of SaaS/on demand services, virtualisation and open
20 Autumn 2011 BVCA Briefing
Checking the scorecard
for technology M&A
in 2011
source software continue to disrupt the previous, established
ecosystem. Mobility is a tremendous driver which is having a
profound impact on the technology landscape and food chain,
while the increasing degree of vertical integration in the mobile
sector, amongst others, is another recent trend still having an
impact on consolidation in the sector.
The broad reach of these trends in terms of deal drivers is
evidenced by the breadth of some of our M&A activity in 2011
to date. Canaccord Genuity has announced or completed in the
last three quarters transactions in sectors spanning enterprise
software, IP licensing, local advertising, mobile marketing, online
video, price comparison, security software, power electronics,
semiconductors, and solar power.
While economic uncertainty and stock market volatility is clearly
impacting boardroom confidence in bold, transformational deals,
we do see continued and robust activity at the growth-driven,
incremental/bolt-on acquisition level that represents the bread
and butter of technology M&A.
While any pretense at crystal ball gazing in the current volatile
economic environment should be treated with caution, the broad
and deep roots of these technology M&A drivers do fill us with
optimism in our outlook for 2012. n

Sponsored
Article
Operational improvement remains key driver of value creation, writes Sachin Date, EMEIA Private
Equity Leader at Ernst & Young
Our latest annual study, How do private equity investors create
value?, is an exploration of 2010 exits showing that private equity
(PE) exit activity returned in 2010. PE proved itself far better able
to weather the storm than anyone had anticipated back in 2008
and, for the last five years of our analysis, has outperformed public
company benchmarks.
However, despite the robustness of the PE model, the absence of
corporates from the M&A market presents a formidable challenge
to the PE market recovery. Given the importance of trade sales as an
exit route, the market will not completely recover until corporates
return in full force. Even though exit activity has improved, the
uncertainty in the economy — with threats of a double-dip
recession and volatility in the public markets — challenges whether
this increase in activity can continue.
The recovery in exits was evident in 2010. There were 57 exits in
Europe, a sharp rise from the lows of 2008 and 2009, when just over
30 exits were completed each year. UK exit activity, representing 32%
of the overall European portfolio, continued to improve as PE buyers
returned with confidence to the market. The UK has continued to
deliver returns level with the European average, despite the downturn
and greater maturity of the PE market.
The return of initial public offerings (IPOs) was one of the most notable
drivers of exit activity, as a total of 11 portfolio companies exited via
IPO across Europe – the highest number since 2006. Exits via IPO also
accounted for some of the largest companies in PE portfolios by entry
enterprise value (EV): 19% of exits by number were by IPO, while 56%
by entry EV were by IPO. Contrary to the rest of Europe, there were no
UK IPOs of PE-backed businesses of any size.
The average entry EV for exits by IPO in 2010, at over €2.5b in Europe,
is almost double the previous high of 2007. This demonstrates that
the public markets have been a key route to realizing large portfolio
companies, with 2010 a particularly strong year for this.
Exits and returns
up in 2010
However, despite the improvement in 2010, the difficult conditions
over the past three years have resulted in a further aging of portfolios
(4.2 years in December 2010).
For European exits, 2010 returns were positive, with EBITDA (earnings
before interest, taxes, depreciation and amortization) growth through
operational improvement remaining the most important driver of
PE’s value creation, rather than multiple expansion and leverage.
The most striking finding is that, within operational improvement,
organic revenue growth is proportionally the largest contributor. This
accounts for 46% of profit growth across the period. Cost reduction
also drove a significant amount of the value created in PE portfolios
over the long and short term.
PE houses have proven their capabilities by working more closely with
their portfolio companies and management for the best returns.
Based on exits achieved during the study period, the report found
that replacing management during the investment adds up to 1.6
years to the average holding period, and reduces returns by 40%.
Failing to have the right team at the beginning of a deal can prove
costly to businesses, especially during these difficult economic times.
Our research also found that PE has increased the use of operating
partners to work with management teams to drive additional
business improvement.
Even though exit activity has improved, the uncertainty in
the economy challenges whether this increase in activity can
continue. Corporates have not staged a major comeback on the
M&A market, despite having built up significant cash reserves and,
until confidence in the market reappears, a return to normalized
conditions will be difficult.
The PE model remains robust and will continue to evolve despite the
current challenging conditions. While a return to the boom years is
on hold for now, there is no doubt that PE will continue to thrive. n
PE houses have proven their capabilities by working more
closely with their portfolio companies and management
for the best returns.
Autumn 2011 BVCA Briefing 21

new
Expert training solutions,
for Portfolio Companies
In Spring 2012, the BVCA is launching an innovative portfolio of specialised training courses, specifically
designed for private equity and venture capital–backed companies. Help your Portfolio Company
management teams develop the skills and leadership potential they need for next stage investment and
sustainable, long–term growth.
forthcoming 2012 courses:
Approaches to Cost Management & reduction 24 April 2012, 15 November 2012
Assertivess & influencing Techniques 26 April 2012, 27 November 2012
effective forecasting & Budgeting 8 March 2012, 19 September 2012
effective Leadership 27 June 2012, 28 November 2012
finance for the non–financial Manager 20–21 March 2012, 24–25 October 2012
Pitch Perfect Presentations 29 March 2012, 16 October 2012
Professional networking Masterclass 3 July 2012, 4 December 2012
Skills of negotiating 21–23 February 2012, 19–21 June 2012
The independent ned 7–8 February 2012, 30–31 October 2012
The newly Appointed Manager 16–17 May 2012, 30–31 October 2012
Visit www.bvca.co.uk/training to book
or contact the BVCA Training team:
training@bvca.co.uk
+44 (0)20 7420 1800
22 Autumn 2011 BVCA Briefing

Country
Profile
Luis Antonio Marquez Heine, Director General of Amexcap, the Mexican private equity association
The private equity market in Mexico has been in continuous
growth since its formal beginning one decade ago and still holds
great potential. With a stable economy, a robust legal framework,
little competition from other funds and a lot of companies to
invest in, several private equity houses are taking advantage of
the conditions.
There are currently 50 GPs investing in Mexico - 40% domestic and
60% international. According to a Deloitte study it is estimated
that the combined resources of private equity funds in Mexico will
increase from US$5.8bn dollars in 2010 to US$6.5bn in 2011, an
increase of 14%. Additionally, the amount invested will grow from
US$789m to US$1.6bn, an increase of 104%.
Private equity funds directed their investment to the following
sectors in 2010:
• Financial services: 36%
• Real estate: 31%
• Agriculture: 14%
• Automotive, health and telecommunications: 3% each
• Consumer goods, hotels, manufacturing, information
technology and others: 2% each.
By stage:
• Start-ups: 6%
• Early stage: 20%
• Growth stage: 57%
• Mature stage: 17%
According to the last economic census, there are more than 5
million companies in Mexico, with 220,000 classed as small, more
than 15,000 medium and more than 10,000 large, and the rest
microenterprises. Clearly there is much opportunity for investors with
many niches to be exploited across a range of industry sectors and
at all stages of a company’s life. In the start up and early-stage space
for example federal and local governments have extensive programs
designed to drive the development of innovative, technology and
exporting industries. And whilst the Mexican Stock Market isn´t yet
the most feasible exit for the great majority of companies, there is a
dynamic merger and acquisition pipeline.
Several international investors, both GPs and LPs, are already
invested in Mexico. Indeed, international LPs are responsible for
approximately 83% of all capital raised by Mexican focused private
equity funds, 42% of which came from the US and Canada, 20%
Private equity in
Mexico
from Europe and the rest from Asia, Latin America and other
regions like the Middle East.
Turning to legal matters, although the Mexican environment is not
perfect, it works properly. Limited partnerships are allowed under
Mexican law, and, since 2009, Mexican pension funds, named
Afores, can invest in private capital vehicles, thus accelerating the
development of the sector. To date, Afores have invested more
than US$2bn in private equity funds, including real state and
infrastructure.
In relation to the economic environment, several private analysts in
their most recent forecasts have estimated that the GDP in Mexico
will grow at a rate of 3.6% during 2012, retaining its status as the
second biggest economy in Latin America. Other facts speak for
themselves, like rising from 62nd to 35th as the best place in the world
to do business according to Doing Business, putting Mexico above
all of the BRICs and Latin America countries. Mexican universities
produce 90,000 more engineers and specialized technicians than
Brazil in areas such as aerospace, renewable energies and automotive
industries, and there are more than 90 million cell phones, covering
85% of the population. Mexico has proven resilient in the face of
the global economic and financial crisis, which is largely due to
appropriate public finances and macroeconomic management that
will surely prevail in the long run. n
Autumn 2011 BVCA Briefing 23

Sponsored
Article
Private equity needs to better understand the changing nature of pension funds at their investee
companies, writes David Collinson, co-head of business origination at Pension Corporation
Pricing a new acquisition takes many operational assumptions into
account, both at company level and market level. Increasingly,
pricing will look much more closely at any associated defined
benefit pension fund. Yet as pension funds move into run off, as they
are closed to new members and future accrual, it is vital that GPs
really understand the changing dynamics and size of the plentiful,
potential pension black holes that can open up. If pension risks are
not carefully analysed, that assumed IRR of 25% over four years
could very well be wiped out.
The obvious costs, which are generally factored into price
calculations, are the ongoing contributions employers are obliged to
make, as well as ongoing administration expenses. Over the lifetime
of a typical pension fund the management expenses could represent
over 15% of the liabilities.
Yet perhaps less well understood are a raft of additional expenses
and costs, which in recent years have made up the bulk of the
ongoing burden on the employer of a defined benefit pension plan.
These include the costs of legislation, funding poor investment
performance, and the opportunity cost of being responsible for a
pension plan. And I’m not sure that prior to an acquisition many GP’s
factor into their assumptions that the trustees of a defined benefit
pension plan effectively hold a long term equity put option that they
can exercise against the GP’s portfolio company, a put option that
could potentially wipe out some or all of the GP’s assumed 25% IRR.
Take, for example, a portfolio company a GP is looking to acquire
which, for the sake of argument, is unlevered and has a free cash
flow of £30m per annum. The Net Present Value (NPV) of the cash
flow over the next 15 years, at a Weighted Average Cost of Capital
(WACC) of 10%, is £230m.
However, this portfolio company happens to be the sponsor of a
defined benefit pension plan.
Prudent assumptions
The associated pension fund has liabilities of £180m, at a discount
rate of 6%, with only £130m of assets with an expected return of 7%
– leaving a deficit of £50m and no chance of making good the hole
by themselves. The trustees and employer have therefore agreed a
standard 10-year recovery plan, which will see the employer injecting
an additional £5.2m contribution per annum, with an assumed
investment return of 7%.
24 Autumn 2011 BVCA Briefing
The pensions risk
According to the Pensions Regulator, the standard actuarial valuation
of the pension fund, known as Technical Provisions (TPs), should be
“based on prudent assumptions, in relation to their assessment of
the employer covenant”.
However, “prudent assumptions” are entirely subjective and depend
very much on the relative strength of the employer.
The four year time horizon the GP is looking at for its IRR will
almost certainly conflict one way or the other with the timescale
the trustees work to. They will generally have a long-term horizon,
at least as long as their employer is healthy and solvent, which in this
case it appears to be.
However, if the employer weakens significantly or becomes insolvent,
their timescale considerably shortens. In the latter scenario they
become forced sellers of equities and risk assets (probably at the
bottom of the market, as this is when insolvencies occur) and forced
buyers of insurance/interest rates and inflation rates (either to the
PPF or to the insurance market). The trustees are therefore highly
suspicious of anything which can weaken the corporate covenant,
as we shall see.
Strategic investment
Partly based on the existing recovery plan, the GP decides to move
ahead and acquire the company. At this point, management decides
on a new strategic investment – intended to generate a 15% return,
to be financed through the raising of £100m of senior debt, secured
and financed by the Opco, at a cost of 7% per annum.
Post-strategic investment, the Opco throws off £23m per annum –
the original £30m minus the £7m required to pay the yield on the
senior debt – plus the additional £15m per annum generated by the
investment, giving a total of £38m per annum. The new 15 year NPV
therefore (at the same WACC) is £290m, up from £230m before
restructuring.
On the face of it this is a strong investment, placing the Opco at
the forefront of its industry and with options for future growth. All
of which one might have thought would strengthen the corporate
covenant and put the pension plan on a more secure footing.
However, the trustees, relying on “prudent assumptions”, don’t like
the £100m of senior debt, which in their view weakens the covenant.
They therefore switch out of equities and into gilts.

Yet this investment strategy generates a lower return and the
trustees are now only able to count on a return of 4%. In turn, this
pushes out liabilities, under TPs, from £180m to £230m.
Given that, in their view, the corporate covenant has weakened, the
trustees now want to shorten the duration of the recovery plan and
extract maximum value. This means that company contributions
shoot up to £22m over five years, rather than the relatively
manageable £5m for 10 years.
The trustees have had a huge, unforeseen, impact on the assumed
25% IRR.
If the impact of the trustee’s view of Opco leverage and change
in investment strategy had been taken into account prior to
acquisition, then it is possible that the GP would have taken the
strategic decision not to acquire the Opco in the first place, precisely
to avoid this ramping up of essentially open-ended pension
contributions. Alternatively, prior to taking on the leverage, the
GP might have looked at its options and passed the pension fund
to a third party, usually an FSA authorised and regulated insurance
company, through a pension insurance buyout or buy-in.
If they retain the pension fund, the bad news for management
is that they could face even higher contribution rates at the next
valuation – as will many of the sponsors of the c.40% of pension
funds which had their triennial valuation in March 2009, with the
next one due in March 2012.
In 2010, over £29bn in contributions were paid by the private sector
to defined benefit pension funds and a recent survey of trustees
carried out by Pension Corporation found that 55% of them expect
employer contributions to go up by more than 10% after the next
valuation.
So post the restructuring and the pension plan renegotiation, the
GP now receives £6m per annum for five years from the existing
business, increasing to £28m from year six onwards. At the same
WACC, the NPV of company’s cash flow is now only £235m.
Without the burden of the pension plan, the GP at this point would
have been better off to the tune of £55m.
Legislation risk
There can be no doubt that defined benefit pensions funds have
been steadily rising in terms of cost of management time, running
expenses, and increasingly in the need to make good deficits.
Deficits have increased due to several factors, including
underperformance of risk assets, increased liabilities that have not
been matched by hedging assets such as bonds and swaps, benefit
uplifts granted in the 1980s and 1990s - such as enhanced early
retirement - and of course ever-increasing longevity, something
which has only lately been recognised by pension fund actuaries.
There has however been another factor at work, which has
significantly increased costs: legislation. In fact, we estimate that
four pieces of legislation alone have added approximately 44%
to the cost of running a pension fund over the past 30-40 years:
making pension increases guaranteed rather than an intention
added 12% to the cost of running a pension fund; requiring the
prefunding of technical provisions with a prudent margin added
8%; the removal of ACT for equity dividends added 12%; and
the PPF levy and compliance with the Pensions Act 1995 added
another 12%.
These additional costs have all been borne by the employer, and in
the case of private equity, the GP, heavily impacting IRRs.
Relative to the costs of securing the pension liabilities with an
insurance company pension fund investments are in general
significantly misaligned.
Pension funds have been hit again and again by the double whammy
of stock market crashes reducing asset levels, whilst collapsing gilt
yields push up liabilities. During July and August 2011 alone we
estimate that UK private sector pension funds collectively lost in
excess of £200bn relative to their liabilities.
When they were less mature, pension funds had good reason to
invest in equities. From 1974-2000 the average annual real return
on UK equities was 13%. Given the high returns experienced in
the equity markets, and the tax incentives of operating defined
benefit pension funds, operating a pension plan was historically cost
efficient for the employer.
However, as pension funds move to run off, this position has in
many cases changed.
Take for example for a pension fund with £100m of assets and
£130m of liabilities, which, under its existing recovery plan, is to
invest 100% in equities. If the trustees don’t hedge the interest rate/
inflation exposures, which most do not, there are some potentially
severe consequences for the employer. In effect, the employer has
granted a put option to the Trustee on 10 year equity performance
and real interest rates at durations in excess of 10 years; the
employer is therefore liable to meet the underperformance of the
equities against the projected returns – in this case the extent to
which £100m of equities fails to grow to £197m over 10 years.
If the pension fund assets outperform, the outperformance will be
of little value to the employer; surplus generated will be used by the
trustees to de-risk or be held in the fund as a buffer. The equity risk
is one way for the employer.
The trustees therefore effectively have a 10 year put option on
equity market performance which starts off £97m in the money. The
cost of the same put option, if it were to be bought in the market,
would be £63m.
Given the complexity of a pension fund and the power the trustees
can wield, it is unsurprising that increasing numbers of GPs have
been transferring these substantial, open-ended risks to insurance
companies. The employer benefits by divesting itself of any future
responsibility, financial or otherwise, for a known and pre-agreed
amount paid as premium. The pension fund members benefit as
the insurance regulatory regime ensures their benefits are secure,
backed by shareholder capital. In effect, this is a demonstrable
strengthening of the covenant supporting the liabilities and can be a
considerably cheaper option for the employer. n
Autumn 2011 BVCA Briefing 25

Research
Colin ellis, the BVCA’s Chief Economist, looks at the changing views of private equity to
responsible investing
With the scars from the financial crisis taking a long time to heal
in developed economies, the role that business plays in influencing
broader social developments, as opposed to just economic progress,
has remained firmly in the spotlight. But while the huge negative
banking externalities – most notably high unemployment and weak
wage growth for those still in work – are still at the forefront of many
people’s minds, the broader agenda of sustainability is an important
issue for all companies. This is particularly true in the case of private
equity, where a past lack of transparency and often large deal values
mean that the industry needs to tackle sustainability head-on.
Sustainability, in this context, implies businesses actively addressing
and managing environmental, social and governance (ESG) issues, in
particular to ensure that meeting present demands does not limit the
ability of others to meet their own needs in the future. Sustainable
growth and development must take into account long-term issues
and risks as well as short-term pressures. Businesses must address
potential negative environmental and social impacts, while at the
same time also meeting their shareholders’ requirements.
Private equity and venture capital should be uniquely well-placed
in managing these long-term issues. While public entities can be
distracted by frequent reporting requirements and short-term
share price movements, fund managers in our industry deliver their
best returns by genuinely maximising the enterprise value of their
investee companies. And that enterprise value, in turn, reflects not
just the profits or cost savings that company managers and General
Partners (GPs) can deliver this year, but expected profits over the
lifetime of the investee company: a share or equity stake in a firm is
a claim on all future profits as well as today’s bottom line.
The active management model of PE/VC lends itself very well
to this sort of long-term transformational approach, with funds
often investing substantial additional capital, over and above the
acquisition funding, in order to modernise, expand or improve an
investee company’s production process.
At the same time, this long-term focus means that the brands and
reputations of investee companies really matter. If a company’s
activities prove unpalatable to its current or potential customers –
for instance, a production plant pollutes the local environment or
working conditions in overseas factories are deemed unacceptable
– then its brand will be damaged, and future revenues and economic
value may be permanently lower as a result.
26 Autumn 2011 BVCA Briefing
Sustainability
matters
Surveying the land
All told, the theoretical structures suggest that sustainability should
be a key issue for GPs. But what happens in practice?
In order to gauge BVCA members’ attitudes to sustainability, the
BVCA Responsible Investment Advisory Board (RIAB) commissioned
a survey of members back in 2009, and the results were subsequently
published online. With two years having passed since that initial
exercise, the RIAB decided to conduct a similar survey in August
2011, to see if attitudes had changed.
The 2011 survey garnered a total of 80 responses from BVCA
members, broadly comparable with the previous 2009 exercise. And,
overall, the new results suggest that there is a growing awareness of the
role and importance of sustainability within the private equity (PE) and
venture capital (VC) community. As with the 2009 survey, a minority
of respondents did not think that sustainability (as defined above) was
appropriate for the PE/VC community. However, that minority shrank
from 39% in 2009 to just 24% in the most recent survey.
At the same time, the importance of sustainability for potential and
current investee companies is also more widely recognised. Sixty
four percent of respondents thought that active management of
sustainability issues made a company more attractive to investors,
compared with just 44% in 2009. Seventy seven percent of
respondents thought that actively managing sustainability issues
demonstrated that a company was adopting a long-term strategy,
compared with just 46% two years ago. And in terms of the cost
of sustainability, just 10% of respondents thought that companies
managing these issues were incurring unnecessary costs, down from
19% in the previous survey (Chart 1). The growing recognition of the
importance of sustainability was also evident in the extent to which
PE/VC firms consider ESG risks in managing investee companies,
and the general importance respondents place on those companies
acting in a sustainable manner.
investor interest
In part, the growing awareness of sustainability issues appears to
have been driven by investors as well as fund managers. Fifty-six
percent of respondents reported that their firm had been asked
to respond to investor questions that were focused specifically
on sustainability or ESG issues in the past two years. Where PE/
VC firms invest in emerging market economies, sustainability is

often a key priority, not least because the investors in those funds
can be important public entities such as the World Bank. In many
developing markets in particular, established PE investors from
abroad can lead best practice in the area of sustainability. But with
companies also increasingly concerned with how they manage their
pension funds and financial assets, sustainability is also important for
PE/VC investors in established markets.
However, there also appears to be a growing realisation that
sustainability matters not just because of its potential direct
reputational impact, but also how that can then affect company
performance and ultimately fund returns. Fifty-four percent of
survey respondents agreed that sustainability management would
generate greater shareholder value over the long term, up nine
percentage points (ppts) from the 2009 survey (Chart 2). And 45%
of respondents said that sustainability management did impact on
their investment decisions, an increase of 7ppts from two years ago.
There are also signs that company managers themselves are taking
more of a lead in this area, with around half of respondents agreeing
that management teams are increasingly interested in sustainability
issues as a means to reduce risks and create additional value; fewer
than 20% of respondents disagreed.
Perhaps the biggest change in the past two years, however, has been
the widespread implementation of institutional measures to embed
sustainability into PE/VC processes. Fully 63% of those survey noted
that their firm already had a policy or set of principles setting out the
firm’s approach to sustainability issues in place, up from just 24% in
2009. And only a fifth of respondents had no plan to implement such
a policy in the future, down from 51% two years ago. Yet while GPs
genuinely do seem to be addressing these issues internally, much
ChArT 1 ChArT 2
% of respondents
70
60
50
40
30
20
10
0
Companies managing
sustainability are incurring
unnecessary costs
19
10
37
64
Agree Disagree Neither/don’t know
44
2011
26 2009
more remains to be done. Just 20% of GPs acknowledged regular
formal reporting or communication of their firm’s sustainability
activities internally, with 44% having no plans to implement any such
communication going forwards. While that is an improvement on
two years ago (when just 12% of GPs had internal reporting), it also
represents a missed opportunity. By ensuring that all staff are aware
of the high profile and importance of managing sustainability issues,
PE/VC firms can really take up the mantle of responsible investors
and lead best practice across the corporate sector as a whole.
While GPs do genuinely seem to be devoting more time to these
important issues – and 71% of respondents expected their firm to
do more to incorporate sustainability risks and opportunities into
investment strategies over the next two to three years – all too often
the good work that they already do is left unacknowledged. One of
our goals at the BVCA is to put private equity and venture capital
firmly in the economic mainstream, to make them a regular part of
business and industrial life.
Our members have numerous examples of long-term value creation
through sustainable engagement on issues such as energy efficiency,
focus on supply chains, and reducing waste and carbon impact. We
would like these to become more widespread, and to be used as
industry benchmarks, to help change the outdated perceptions
and fears around the industry. At their best, PE/VC managers and
their investee companies can be outstanding corporate citizens. By
continuing to concentrate and on these important long-term issues,
not only can GPs genuinely maximise the value of their investments,
they can also show the outside world that private equity and venture
capital genuinely seek to build better and sustainable businesses that
endure for the long term. n
% of respondents
60
50
40
30
20
10
0
45
54
Sustainability management
generates greater long-term
shareholder value
14
11
Agree Disagree Neither/don’t know
40
2011
35 2009
Autumn 2011 BVCA Briefing 27

Sponsored
Article
edmund Tyler and William Holder, partners in SJ Berwin’s corporate practice, look at changes to the
UK Takeover Code
Last month the Takeover Panel - the body that regulates offers for
publicly quoted companies in the UK - made wide-ranging reforms
to the Takeover Code. Despite reassuring noises from the Panel
that the changes are not aimed at the private equity industry, their
effect may be felt most keenly by financial bidders.
For private equity and other financial bidders, the changes that
are likely to have the most impact are those relating to the bid
timetable and process, and the prohibition on “break fees” and
deal protection measures.
The key change to bid timetables is that all potential bidders must
now be named if a target makes an announcement that a bid
is in prospect, and there are just four weeks from that date for
each named bidder to “put up or shut up”. If a prospective bidder
chooses to “shut up” – i.e., to announce that it is not proceeding
with its bid – it cannot bid for the target again for another six
months (unless, for example, there is another bid, or the target
consents).
A target must usually make an announcement if there is a leak
that it is in talks about a possible bid. However, bidders were
rarely identified in these announcements in the past, and financial
bidders in particular may have reputational concerns with being
identified with a series of bids that do not proceed because they
are made public prematurely. To address these concerns, the Panel
may allow a potential bidder to withdraw before it is identified, but
a prospective bidder who chooses this option will not be permitted
to re-approach the target for another six months (except in limited
circumstances – e.g., if another bidder emerges).
For the financial bidder who intends instead to “put up” and
proceed with its bid, but has yet to secure its bid finance, four
Despite reassuring noises from
the Panel that the changes are
not aimed at the private equity
industry, their effect may be felt
most keenly by financial bidders
28 Autumn 2011 BVCA Briefing
Strengthening
the target’s hand
weeks will rarely be enough. Although the Panel has the discretion
to grant an extension to the four week period, it will usually only do
so if the target is willing to seek the extension (so getting the target
board on side at an early stage is critical). The Panel will only give its
decision whether or not to grant an extension shortly before the
four week deadline is due to expire, causing further uncertainty for
any bidder.
To avoid these new timetable pressures, bidders will be heavily
reliant on bid confidentiality being maintained by all parties during
the due diligence and bid financing negotiations. Where this can
be achieved – see for example HG Capital’s bid for Group NBT
plc announced shortly after the new rules came in – the bidder’s
position is much improved.
The other major change that is likely to impact particularly on
private equity firms is the ban on inducement (break) fees, work
fees and all other deal protection measures provided by the target,
with only very limited carve-outs. In the past, these arrangements
provided an element of protection for a prospective bidder where
a competing bid materialised. Their abolition makes bids more
risky for a financial bidder, even in cases where an approach is
actively encouraged by the target. Bidders will need to consider
other ways to protect themselves from the costs of failure, such
as stake-building.
On top of these changes, bidders will have to publicly disclose
more detailed information on debt finance terms and the full
content of financing documentation (although details of the
equity structure will not usually need to be disclosed). Bidders must
also give a complete breakdown of offer-related fees, more detail
on the bidder’s intentions for the target company (and bidders will
be held to their stated intentions for at least a year, if they don’t
specify a timeframe), and provide more opportunity for employee
representatives to make their views known.
How far all this will impact on the ability of private equity houses to
do deals still remains to be seen. The Panel has said (acknowledging
the significance of the changes) that, depending on levels of
bid activity, it plans to review the amended rules at least a year
after implementation, so industry participants should use this
opportunity to feed back their experiences of how the changes
are operating in practice. n

Country
Profile
As global private equity investment in China continues to grow, neal greer speaks to those who
have taken the plunge and operate in this intriguing emerging market
Rarely has a country captivated the collective economic consciousness
of so many people as China does at present. To some, the Chinese are
potential white-knights delivering much needed financing to many
struggling European companies starved of capital. It seems no matter
where you go, what you read or who you ask, there is commentary
and opinion keenly debating when the “C” part of the BRIC’s buoyant
economy will leave the Western world for dust.
Clearly the country has also become a destination for private
equity investment. According to Thomson Reuters, the first half of
the year saw £2.6bn of global private equity investment into China,
encompassing 57 deals. This represents a considerable increase in
terms of deal value of 265% and an increase of 23 deals on the
same period in 2010.
This growth can be partially attributed to the lure of such an
exciting emerging market as traditionally pan-European and
US-focussed firms look beyond their conventional investment
strategy. Apax Partners certainly fall into that category. The Jermyn
Street-based outfit opened an office in Hong Kong in 2005 and set
up another office in Shanghai four years later.
As they close in on their third transaction in China, partner Richard
Zhang spoke candidly about the firm’s evolving strategy. He said:
“We continue to see a wide range of investment opportunities
across Europe and the US and are committed to these markets.
There are also huge opportunities to combine this proven
investment strategy and global sector expertise with a dedicated
local presence in the rapidly growing markets of Asia. As the
sectors in which Apax invests become increasingly global in nature,
so it is that the source of long term supportive capital should also
become global. There are clearly opportunities for a firm such as
Apax with a deep knowledge of sector expertise to assist Western
companies as they expand into China and vice versa.”
For those not familiar with the territory, the notion of investing
in China is something not to take lightly as Shanghai-based
Ben Wootliff, Head of Corporate Investigation at Control Risks,
explained. “There are fantastic opportunities in China,” he said.
“But investors often don’t realise that it is also a highly opaque
environment, with a relatively high level of corruption”. Control
Risks work on the ground in China advising potential investors
of the considerable risks. Colleague and senior consultant Will
The Chinese
challenge
Tang added: “Limited access to reliable information and a weak
contractual enforcement process make it a place where deals
can easily go wrong and where problems can’t be easily resolved
through the courts. Foreign arbitral awards are also rarely enforced
in China so firms have little recourse when it comes to dispute
resolution. Unlike in the US and UK, investors cannot always rely
on the representations made by target companies; rather foreign
investors need to understand how the personal relationships of
business partners may increase the risk of fraud and corruption
and violation of the FCPA and UKBA.”
UK entrepreneur Matt Slater wholly echoed Wootliff’s and
Tang’s guarded approach. Mechanical engineer Slater founded a
consultancy ‘Senlinx’ in Shanghai earlier this year. He said: “Doing
business in China is a somewhat daunting task that regularly tests
your patience and commitment, it is no small undertaking, so
understand what you are getting yourself into first.”
“The lack of clarity from the regulatory and bureaucratic system
makes seeking good advice of key importance - small decisions
which seem inconsequential at the time, can often come back to
haunt you”. Slater continued. “Local knowledge is critical in order
to get things done efficiently - language and cultural differences
are always challenges when doing business overseas, but in China
these differences are amplified.”
Despite the risks, which are part and parcel of any investment
in any geography, Zhang was pleased with how things have
progressed so far. “We will invest in China again when we see the
right opportunities. Operationally we have had no problems at
all. Our team in China is now well established within China while
enjoying very strong connectivity with the global firm, especially
the sector teams. The seamless operation between our sectors
and our geographies is a core strength of Apax, which has enabled
successful and innovative deals to be completed in emerging
markets like China”.
No one really knows when China will become the world’s leading
superpower, nor does anyone indeed really know what the future
holds for both current and prospective private equity investments
in the country. What is certain however, is that China offers a
myriad of opportunity for private equity. A chance of unlimited
reward but balanced with considerable risk. n
Autumn 2011 BVCA Briefing 29

Q&A
As the new CeO of AVCA, what are your immediate/
short-term priorities?
AVCA aims to become the principal knowledge centre and service
provider for the African private equity and venture capital industry.
In time, we will be known as the pre-eminent advocate for the
industry and a catalyst for private sector growth on the continent.
As CEO, my number one priority is to deliver for our members
through advocacy, training, conferences, research, industry news
and seminars on topical events.
In the short term, my first task is to revitalise the association and
build it to become a successful and self-sustaining organisation. This
process includes a number of key initiatives:
• Building on the recent restructuring of our leadership and
governance structure to rebuild our membership base and
establish AVCA as the leading source of quality information on
all matters related to private equity in Africa. Our board was
recently strengthened with two high level appointments: Runa
Alam (founding partner and CEO for Development Partners
International) as Co-Chair and Simon Walker (Director-General
for the Institute of Directors and ex-CEO of the BVCA) as Special
Advisor. Runa and Simon are invaluable contributors to AVCA,
bringing a wealth of experience in private equity and corporate
reorganisation, deep connections in Africa and a demonstrated
commitment to Africa’s private sector growth.
• Establishing an affiliate of the Secretariat in London, giving
AVCA greater connectivity with London-based African GPs who
currently represent more than 50% of funds under management
across the continent.
• Developing peer-to-peer networks and negotiating collaboration
agreements with international, regional and national associations
such as EMPEA, SAVCA and others. We have recently signed a
Memorandum of Understanding in Lagos, Nigeria with the BVCA
which will provide administrative support for the Secretariat,
assistance in event organisation and training, as well as guidance
on governance, amongst other areas of cooperation.
• Embarking on a major recapitalisation initiative to ensure that
AVCA can adequately deliver on its goals.
• Communicating with our members, informing them of our new
leadership structure, our goals and projects, and generally what
we’re planning to do to better support them. Incidentally, I want
to take this opportunity to announce that on 22-24 of April 2012,
AVCA will hold its first annual conference in Accra, Ghana after a
two-year hiatus.
30 Autumn 2011 BVCA Briefing
with
Michelle Kathryn Essomé
CEO, African Private equity & Venture Capital
Association (AVCA)
And what about the longer term plans for the
organisation?
We are hearing from our members that there’s a need for greater
Africa-specific data. In our first year, AVCA has already begun
to undertake an investment activity report, launching the first
performance benchmarks for Africa and will roll-out Africa-specific
case studies for our training programmes, developmental impact
and ESG studies.
we have had two large funds targeting Africa raised this
year from Carlyle and helios, but why now? what makes
Africa an attractive investment destination?
Quite simply, LPs are constantly seeking greater diversification,
minimal positive correlation and attractive returns over traditional
assets. Africa private equity is a new asset class that can deliver high
returns, particularly in a very low interest rate environment such as
the one prevailing today.
In the 2011 Coller Capital/EMPEA survey, about 45% of LPs surveyed
now viewed Sub-Saharan Africa (SSA) as an attractive market,
compared to 21% of respondents last year.
African countries have experienced average growth rates of 4.9%,
positioning the continent as one of the fastest growing regions in
the world. Six of the world’s ten fastest-growing economies were in
SSA over the past decade according to the Economist.
We also are now seeing strong growth rates in companies operating
in the financial services, agriculture and manufacturing sectors
whereas historically Africa was largely a commodities play.
In addition, Africa has a population of approximately 1 billion people,
many of whom are becoming a burgeoning middle-class consumer
base.
When you look at all of these facts, Africa definitely needs to be a
part of an emerging market portfolio. It is natural that global buyout
firms are now looking to Africa with new eyes.
what sort of impact has private equity had so far on
African companies and economies?
The role of impact investing - which seeks to make an impact be
that social or environmental ‘beyond a positive financial return’
– has been and continues to be a way that private investors and
foundations such as Heirs Holdings, the Rockefeller Foundation just
to name a few, can effect catalytic changes in African economies.
AVCA is actively working to partner on these initiatives.

what countries and industry sectors offer the best
opportunities for private equity investors?
I think each GP would give you a different answer to this question!
I personally would say Nigeria, Ghana, Kenya, Uganda and most of
southern Africa would feature highly on the list.
African GPs are looking for companies with strong management
teams which can develop to become key regional players, as well as
established companies with a leadership position in their market and
are in need for funding for expansion.
what are the main challenges to private equity
investment in Africa?
For global LPs, I would say the biggest challenge is the gap between
perception and reality. Promoting successful portfolio companies
will definitely go a long way to correcting these views.
For GPs, many portfolio companies may not necessarily be attuned
to the level of management reporting required by private investors, a
dearth of industry data as cited earlier and limited exit opportunities.
Patience is essential.
is there such a thing as ‘African private equity’ or can the
market be broken down into specific countries/regions?
Definitely, although the African private equity market is still relatively
young, in addition to pan-African funds, we’re also seeing regional
and country-specific funds and sector plays - financial services,
healthcare, fmcg, infrastructure, agriculture, telecommunications
and natural resources, to name a few.
Key to the growth of any private equity market is the
involvement of domestic LPs. Are we seeing an increased
appetite from local players across Africa?
London
10 November
2011
British Library
Conference Centre
Kings Cross St Pancras
Sponsored by
The only technical private equity and venture
capital conference to be devised, delivered
and hosted by industry experts.
Over the past year, AVCA has held a series of private equity
pension fund roundtables in conjunction with the Commonwealth
Secretariat in Accra, Nairobi, Lagos and Gaborone with the express
goal of educating local LPs.
These investors can play vital role as they have local knowledge and
a more intimate understanding of domestic firms. In addition, it’s
important for global investors to see domestic commitment. In
addition, there may be co-investment opportunities and, in some
countries, regulations are supporting greater investment in private
equity. Local LPs play a key role in the development of African
private equity.
if you had just one minute to explain the benefits of
private equity, what would you say?
There are huge advantages to private equity investment: an extensive
due diligence process, a facility to stress test management’s business
plan and forecast, an ability to exercise significant influence on
management and a company’s strategy, interests are aligned, a
optimal level of gearing can be achieved and a knowledge exchange
which can enable companies to grow. n
Biography
Michelle Kathryn Essomé is the new CEO for the African Private Equity & Venture
Capital Association.
She has nearly 20 years of investment banking experience covering a wide range
of marketing and origination roles in equities, fixed income and investment
management with Merrill Lynch, Goldman Sachs, JPMorgan, Lehman Brothers
and Nomura.
Michelle has an MBA in Finance from Columbia Business School, where she was
a Robert F. Toigo fellow, and a BBA in Finance from Howard University. She has
worked in the US, UK and France and is fluent in French. In addition, she has lived
in Niger, travelled throughout Africa and is married to a Cameroonian financier.
TAX, Legal and
Regulatory Conference
For further information Please contact Tommy Nguyen at tnguyen@bvca.co.uk T: 020 7420 1852
TLR-half ad Jul11.indd 1 04/10/2011 14:26
Autumn 2011 BVCA Briefing 31

Comment
On the eve of the next G20 Summit in France, shadow banking is set to be high on the agenda.
Simon Horner looks how private equity can make its voice heard
In October 1973, Syria and Egypt launched a surprise attack on
Israel. The US, determined to protect a fledgling democracy,
appropriated US$2bn in arms and aid. OPEC responded in turn with
an oil embargo, and crisis and global recession followed. World
leaders began regular gatherings in 1974 in the library of the White
House to agree a response. In 1975, French President Valéry Giscard
d’Estaing suggested a more formal, annual arrangement and the G6
was born, comprising the UK, US, France, Italy, Germany and Japan.
A year later, Canada joined to make the G7 and finally Russia in 1997
to make the G8. During that time the group had proved an effective
forum on anything from global conflict to international aid.
But come the financial crisis in 2008, the G8 had lost its lustre.
That it was the banks of the US and Europe that had brought the
world economy to its knees meant the G8 was not in a position to
dictate solutions for themselves or the rest of the world. In one
fell swoop the G8 became the G20, admitting the BRICs and other
strong emerging market powers.
The G20 actually first met in 1999 as a group of finance ministers,
but 2008 was the first time they came together as world leaders.
This group was de facto charged with responding to the financial
maelstrom that was fast gathering pace. The London Summit of
2009 was the peak of activity with billions of new money made
available for IMF bailouts and plans for global rebalancing laid out.
In that febrile context, the sight of global leaders coming together
and agreeing to pull in the same direction was a far cry from 1930s
style beggar-thy-neighbour protectionism. But outside of global
emergency what has become of the G20, what lies ahead and
what does it mean for private equity and venture capital?
Firstly, the G20 is here to stay. The system of rotating presidencies
gives it a sense of perpetual motion with each new country
determined to make its mark – indeed current holders France even
have a special Eiffel Tower themed G20 logo. In terms of content
we can be sure that whilst it will be steered to some extent by the
whims of the presidency, it will be financial in focus (we already
have the UN to stop wars and disease).
Thus far, banks have copped most of the flak, just as they have
domestically and in Europe. But there are clear signs that attention
is drifting the way of alternative asset management, driven in
part by the urging of bankers themselves. Shadow banking, a
32 Autumn 2011 BVCA Briefing
Private equity
and the g20
somewhat emotive term, will be the subject of much discussion
at this Autumn’s meeting. This is where private equity must sit up
and listen.
To some, notably in Brussels, shadow banking means anything
financial that is not a bank. Thankfully to others, in particular the
Financial Stability Board (FSB, effectively serving as the G20’s
financial brain) it means something more nuanced. In April they
released a scoping document that talked of credit intermediation
and maturity and liquidity transformation – in other words, banking.
We have long campaigned that private equity is not systemically
risky, we do not leverage at the level of the fund and our portfolios
are not cross-collateralised. Where private equity houses do invest
in debt it is not originated by us and as there are no redemption
rights for investors, there can be no maturity mismatch. Our case
is clear but the pertinent question remains how do we present it
and to whom?
The G20 has no permanent secretariat and so the challenge
is to identify the key players in the rotating presidency, in this
case, France. The FSB does have a secretariat but its workings are
relatively opaque. They are conceiving of workstreams as we speak
that will determine the nature and content of discussions at this
Autumn’s meeting.
Tactically we are well placed to plug our arguments into this
process, however ephemeral the protagonists may seem. But
what is really required is a new global strategy to match up to the
regulatory infrastructure that has sprung up around us. This means
a new global public affairs council that matches the reach and the
legitimacy of the G20 itself. Private equity has a huge footprint
in China, Brazil, Mexico, India and increasingly Africa , but world
finance ministers need reminding.
We need to use such a forum to demonstrate the global worth
of our sector and its importance to all G20 member nations. The
BVCA has already signed MOUs with many of these countries,
including Mexico who hold the next presidency. We are building a
coalition to match that of the G20. Whether we need a secretariat
ourselves remains to be seen. But what is clear is that as regulation
goes global, our response must speak to that same constituency.
Private equity is no longer the exclusive preserve of the G6, times
have changed and so must we. n

Public
Policy
update
AifM directive update
The AIFM Directive is currently midway through the Level 2
implementation phase. ESMA, the pan-European regulator,
consulted on the advice that it will provide to the Commission
on implementation measures over the Summer, and the BVCA
responded to this both in its own capacity as well as feeding
into the pan-European industry response. ESMA will now
review the consultation responses and produce a revised set of
implementation advice to the Commission by 16 November. We
will be engaging the Commission over the coming months to
ensure that their final implementation measures are appropriate
and workable for private equity.
The consultation process has taken several months, and there are
a number of areas – such as the requirements as to the type of
professional indemnity insurance (PII) which fund managers will
have to hold – where the BVCA’s input has helped to produce a set
of advice that is workable for private equity and venture capital.
Nevertheless, there remain a number of key areas of concern in
the draft advice, and the Directive will have a significant impact
on the industry.
Key areas that we are still pressing on include:
• The role of depositaries in monitoring the transactions of
the fund – private equity funds will be required to appoint a
depositary, which will have duties including the monitoring of
the cash flows of the fund. Our response makes clear that this
monitoring should be on an ex-post basis, and there should
be no potential for the depositary to exercise ex-ante control
over the fund. We have also argued that the depositary regime
should introduce as few burdens as possible, to avoid onerous
cost burdens on the industry.
• The use of professional indemnity insurance or additional
own capital – the Directive requires funds to hold PII cover or
an additional amount of its own capital to protect investors
against professional negligence. We have worked with ESMA
to ensure that the level of cover to be held is placeable in the
market, whilst still offering the appropriate protection.
• The extent to which leverage undertaken at portfolio company
or SPV can be excluded when calculating restrictions on a fund’s
leverage. We have argued strongly that leverage at the portfolio
company or SPV level should be excluded from any restrictions
of leverage, as per the agreements reached at Level 1.
Corporate governance
Over the Summer, the BVCA’s Legal & Technical Committee
responded to a Green Paper issued by the European Commission
on corporate governance. Our response emphasised the strength
of corporate governance and shareholder engagement in the
private equity sector. A copy of the BVCA response is available here:
http://bit.ly/prP0EL.
Pre-pack sales
Following its recent consultation, to which the BVCA responded,
the Insolvency Service is reconsidering its proposals for changes
to the pre-pack sales rules. Those contained in its proposal met
with some resistance from interested parties and the proposed
implementation date was pushed back to April 2012 at the earliest.
A copy of the BVCA response is available here: http://bit.ly/p4FIo8.
Takeover Code changes
The Takeover Panel published its response statement to the
proposed Code amendments set out in its March consultation
paper on 21 July 2011. The amendments to the Code which were
proposed in PCP 2011/1 were substantially adopted by the Code
Committee. The Takeover Panel published a revised version of the
City Code on 5 September 2011 and the amendments came into
force on 19 September 2011.
european contract law
The BVCA is engaging with a number of interested parties and
government departments on the latest consultation paper issued
by the EU Commission. The proposals for a new pan-European
contract law raise a number of concerns and the BVCA continues
to monitor developments closely. A copy of the green paper can be
found here: http://bit.ly/ql2XWU.
financial reform
HM Treasury published a consultation in June entitled “A new
Approach to the Regulatory System: a blueprint for reform”. This
is the third consultation HM Treasury have published in relation
to proposed regulatory reform and it includes a summary of
responses to its previous papers. It also sets out the draft text of
the Financial Services Bill which makes amendments to existing
legislation – in particular the Financial Services and Markets Act
2000. The BVCA Regulatory Committee has submitted a response
to this consultation focussing on proposals allowing the regulator to
publish warning notices and to impose requirements on unregulated
parent entities of FSA Regulated firms.
Autumn 2011 BVCA Briefing 33

Market
Statistics
Despite a strong start
to 2011, fundraising
in the UK trailed off in
Q3, with £2.1bn raised
compared to more
than £4bn raised in
each of the previous
quarters, according
to data by Thomson
Reuters. It was a similar
picture globally where
just over £25bn was
accumulated, down on
the £38bn+ Q1 and Q2
each racked up.
34 Autumn 2011 BVCA Briefing
fundrAiSing
uK Quarterly Pe fundraising
Amount raised (£bn)
global Quarterly Pe fundraising
Amount raised (£bn)
16
14
12
10
8
6
4
2
0
90
80
70
60
50
40
30
20
10
0
7.3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011
55.6
9.1
66.6
5.0
52.6
11.7
79.4
14.1
85.7
3.0
69.7
3.6
59.3
6.3
49.2
2.8
36.9
1.2
29.2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011
0.2
16.9
0.4
10.7
2.2
32.5
1.0
28.7
1.2
25.8
1.6
27.3
4.0
38.8
4.1
38.9
2.1
Source: Thomson Reuters ThomsonOne
25.7
Source: Thomson Reuters ThomsonOne

2011 Q1–Q3 global Pe fundraising by Stage focus
Net period amount raised (£m)
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
147
44,696
Buyouts Opportunistic Early Energy Generalist Fund of Later
Secondary Turn- Value Core Other Seed
stage
funds stage
funds around/ add
private equity/ stage
Distressed debt
Special situations
Mezzanine
Balanced
stage
stage
inVeSTMenTS
145
14,288
45
7,302
Trends in uK VC investment
Amount invested (£m)
500
400
300
200
100
0
137
316
Q1
2007
455
Q2
2007
135
329
Q3
2007
126
376
Q4
2007
81
5,967
113
446
Q1
2008
109
17
192
5,520
Q2
2008
40
5,129
69
5,102
89 89 90
212
Q3
2008
225
Q4
2008
206
Q1
2009
36
4,466
80
62
173
Q2
2009
38
4,175
247
75
Q3
2009
Net period amount raised (£m) Number of funds
3,320
38
17
79 83
207
Q4
2009
2,741
25
2,349
1,263
12
7
830
200
180
160
140
120
100
80
60
40
20
Source: Thomson Reuters ThomsonOne
Amount invested (£m) Number of deals
323
Q1
2010
360
80
Q2
2010
73
179
Q3
2010
223
Q4
2010
414
Autumn 2011 BVCA Briefing 35
29
484
64 67
52
Q1
2011
223
Q2
2011
0
160
140
120
100
80
60
40
20
0
Number of funds
Number of deals
Source: Dow Jones VentureSource

BVCA launches bespoke
personal insurance facility
with Chubb Insurance
BVCA Insurance Services is delighted to announce the launch of a bespoke personal
insurance facility with Chubb Insurance supported by leading personal lines broker,
Quantum Underwriting Solutions Plc. Chubb have recently been voted “Personal Lines
Insurer of the Year 2010” in the Insurance Times Awards, for the eighth time in eleven
years. Their market-leading Masterpiece policy covers any number of houses, cars and
possessions under one policy, with one renewal date serviced by a dedicated personal
account manager at Quantum.
Individuals within BVCA Member firms can benefit from a free personal consultation, either at home or at work,
to review whether their current insurance arrangements meet their needs and if not, find a better solution.
BVCA Members are also offered the exclusive benefit of interest free credit, regardless of premium amount.
Explaining the reasons behind this initiative Andrew Graham, COO of the BVCA, commented: “Following
the development of BVCA Insurance Services we continue to explore new partnerships with insurance
providers to deliver exclusive benefits to our Members. After carrying out extensive market research and
BVCA Member assisted due diligence, we chose Quantum due to their unwavering commitment to an
advice and service-led proposition.”
Simon Mobey, Chubb European Personal Lines Manager, added: “Chubb Insurance is proud to be partnering
with the BVCA and Quantum on this initiative. Like Quantum, we specialise in serving the insurance needs of
those with more to protect, and for whom standard products are simply inadequate. Chubb’s service has won
an unparalleled number of awards, and therefore our product will be the perfect match for the BVCA members
who rightly demand a bespoke service.”
Quantum was founded in 2004 and deals only with personal insurance for individuals with more to protect.
Quantum are Chubb’s largest privately owned niche broker insuring over 1,500 clients covering collective assets
in excess of £1.5Bn. Quantum is headquartered in Solihull with offices in London and Farnborough. Founding
director, James Wasdell commented: “We are delighted to partner with the BVCA to offer market leading
insurance products from a highly rated insurer”. He added: “We have been meeting new clients for six years and
continue to see wholly inappropriate insurance cover that does not match the client’s lifestyle or asset-base.”
For more information you can visit www.quantumplc.com/bvca.
To book your personal consultation you can email bvca@quantumplc.com
or call Quantum on 0870 402 1900.
Alternatively contact Nathan Sewell, nsewell@bvca.co.uk
36 Autumn 2011 BVCA Briefing
BVCA Insurance Services is authorised and regulated by the Financial Services Authority

The BVCA Transaction Tracker is (a) a list of venture capital and private equity deals involving
UK targets and (b) a record of non-UK deals completed by UK-headquartered firms.
The investments listed below took place between 9 July 2011 and 23 September 2011.
Data provided by Thomson reuters.
uK private equity deals
Company name Location investment
date
Transaction
tracker
Business description investor(s)
Guardian Assurance Lytham St. Annes 16/08/2011 Guardian Assurance is a financial and insurance services provider. Cinven
Eaton Towers London 20/09/2011 Eaton Towers provides telecommunication services. Capital International
Lexicon Partners London 19/08/2011 Lexicon Partners is an investment banking advisory services provider. Evercore Partners
Nexeon Abingdon 03/08/2011 Nexeon is a United Kingdom-based silicon anodes developer. Imperial Innovations
Wireless Logic Marlow 16/08/2011 Wireless Logic is a connectivity aggregator provider. ECI Partners
Dreams High Wycombe 06/08/2011 Dreams is a United Kingdom-based bed retailer and manufacturer. Exponent Private Equity
Brasserie Bar Co. Blisworth 09/09/2011 Brasserie Bar Co. operates within the premium casual drinking in UK. Core Capital
Atlas Genetics Bristol 20/07/2011 Atlas Genetics is a point-of-care diagnostic tests developer. Bellevue Asset Management,Johnson & Johnson Development
Corporation,Life Sciences Partners,Novartis Venture Funds,
Laidlaw Interiors Group Willenhall 26/07/2011 Laidlaw Interiors Group is an interior products supplier and
manufacturer.
Blue Sphere Corporation London 23/08/2011 Blue Sphere Corporation develops Emission Reduction Project
Integrator.
WRG Creative
Communications
Manchester 14/08/2011 WRG Creative Communications is a marketing and events company. LDC
Rutland Partners
Centurion Venture Partners
Horizon Discovery Cambridge 15/09/2011 Horizon Discovery is a personalized medicines developer. DFJ Esprit ,F. Hoffmann-La Roche AG,MVM Life Science Partners
Autifony Therapeutics London 22/08/2011 Autifony Therapeutics is a biotechnology company. Imperial Innovations,SV Life Sciences Advisers
ECO Plastics Hemswell 19/07/2011 ECO Plastics is a plastic bottle recycler. Ludgate Investments,
WorldStores Twickenham 17/07/2011 WorldStores is an online home and garden products retailer. Advent Venture Partners,Balderton Capital Management
Kalvista Pharmaceuticals Southampton 23/08/2011 Kalvista Pharmaceuticals is an ophthalmology company. Novo A/S,SV Life Sciences Advisers
Advanced Plasma Power Swindon 12/09/2011 Advanced Plasma Power is a waste technology developer. Leveraged Green Energy
MISSION Therapeutics Cambridge 25/08/2011 MISSION Therapeutics operates as a pharmaceutical company. F. Hoffmann-La Roche AG,Imperial Innovations,Smith Kline Beecham
Corporation,Sofinnova Partners
Beacon Endoscopic, Inc. Newton 01/08/2011 Beacon Endoscopic, Inc. is a medical device company. MVM Life Science Partners
Stanmore Implants
Worldwide
Elstree 20/07/2011 Stanmore Implants Worldwide engages in the manufacture of
implants.
Imperial Innovations
MediaSift Reading 11/07/2011 MediaSift develops social media tools and platforms. GRP Partners,IA Ventures
Applied Superconductor Blyth 19/07/2011 Applied Superconductor is an electrical networks developer. IP Group,Ocas Ventures BVBA,Octopus Ventures
Base79 London 15/09/2011 Base79 operates as a digital rights management company. MMC Ventures
SupersonicAds London 19/07/2011 SupersonicAds develops social in-game advertising platform. Greylock Partners
NewVoiceMedia Basingstoke 28/07/2011 NewVoiceMedia is a contact center services provider. Eden Ventures,Notion Capital Partners
Hubdub Edinburgh 07/09/2011 Hubdub develops and operates skill games. Pentech Ventures,Scottish Investment Bank
Twin Pines Creations London 20/09/2011 Twin Pines Creations develops website for the latest Top10 news. Accel Partners,Founder Collective,Idealab
Autumn 2011 BVCA Briefing 37

Transaction tracker: uK private equity deals
Company name Location investment
date
38 Autumn 2011 BVCA Briefing
Business description investor(s)
Taptu Cambridge 08/09/2011 Taptu provides search and services for mobile devices. DFJ Esprit,Sofinnova Partners
Lumicity London 19/08/2011 Lumicity owns and operates solar photovoltaic (PV) projects. Ludgate Investments,Novusmodus
PneumaCare Cambridge 02/08/2011 PneumaCare is a United Kingdom-based imaging technology
developer.
Ardenham Energy Aylesbury 12/09/2011 Ardenham Energy is a renewable energy projects developer. Bridges Ventures
Cambridge Angels,Cambridge Capital Group
Atraverda Abertillery 24/08/2011 Atraverda is a power supply technology developer. Espirito Santo Ventures,Finance Wales ,OnPoint Technologies
Seedcamp Investments London 08/09/2011 Seedcamp Investments is a United Kingdom-based fund incubator
company.
Burcote Wind Dunfermline 25/07/2011 Burcote Wind operates as a renewable energy company. Hotbed
Wholebake Corwen 18/08/2011 Wholebake is a United Kingdom-based snack bars manufacturer. Finance Wales
ACT Venture Capital,Bertelsmann Capital,GIMV N.V.,HENQ Invest,Reed
Elsevier Ventures
Endomagnetics London 05/08/2011 Endomagnetics operates as a medical device company. Bloomsbury Bioseed Fund,Sussex Place Ventures
PolyTherics London 07/09/2011 PolyTherics is a United Kingdom-based biopharmaceutical company. Beringea,Longbow Capital,YFM Equity Partners
Lanyrd London 06/09/2011 Lanyrd is a social conference directory provider. Index Ventures,PROfounders Capital
KickSport Peterborough 20/07/2011 KickSport operates as a martial arts equipment retailer. Catapult Venture Managers
Oxford Photovoltaics Yarnton 19/07/2011 Oxford Photovoltaics is a solar cell technology developer. MTI Partners
Gekko Technology Kenilworth 24/08/2011 Gekko Technology is a lighting products manufacturer. Midven
Shire Foods Leamington Spa 29/07/2011 Shire Foods is a United Kingdom-based pastry manufacturer. Dawnay Day Lander
Oxtexs Oxford 01/08/2011 Oxtexs is a United Kingdom-based tissue expanders manufacturer. Isis Innovation
Design LED Products Livingston 19/08/2011 Design LED Products is a light guide structures manufacturer. Braveheart Ventures,Highland Venture Capital,Scottish Investment
Bank
CamStent Cambridge 02/08/2011 CamStent is a United Kingdom-based polymer coatings developer. Undisclosed investor
4i Security Blackburn 14/07/2011 4i Security is a United Kingdom-based security systems provider. Undisclosed investor
wireWAX London 19/07/2011 wireWAX is a United Kingdom-based taggable video tool provider. Passion Capital Investments
Continuous Retorts Newcastle Upon Tyne 26/07/2011 Continuous Retorts is a United Kingdom-based machinery
manufacturer.
Top Technology Ventures
Rock Networks Warrington 20/07/2011 Rock Networks is a communication services provider. Undisclosed investor
Whatusersdo Ashington 30/08/2011 Operates as an online user experience research service. North East Finance
Anvil Semiconductors Coventry 09/07/2011 Anvil Semiconductors is a power converter devices developer. Midven
Scour Prevention Systems Lowestoft 03/08/2011 Scour Prevention Systems is an erosion prevention services provider. London Business Angels
Audacious Middlesbrough 12/07/2011 Audacious develops an application for the Internet. North East Finance
Marchtown Associates Chester-le-Street 04/08/2011 n Associates is a search engine optimization software developer. North East Finance
Future Medical Technologies Manchester 03/08/2011 Future Medical Technologies is a polymeric hydrogels developer. Undisclosed investor
Alchemy Healthcare West Bradford 03/08/2011 Alchemy Healthcare is a drug delivery platforms developer. Undisclosed investor
Med ePad Liverpool 24/08/2011 Med ePad is a United Kingdom-based mobile Internet device
developer.
Undisclosed investor
Lifeways Community Care London 08/09/2011 Lifeways Community Care is a specialist care services provider. August Equity
Logic Group Holdings, The Fleet 14/07/2011 Logic Group Holdings, The, is a transactions service provider. Susquehanna Growth Equity
MeetingZone Thame 01/08/2011 MeetingZone provides automated conferencing services. GMT Communications Partners
Motorclean Basildon 11/07/2011 Motorclean is a United Kingdom-based car valeting service provider. Matrix Private Equity Partners
MSD Cranes & Equipment Darlington 25/07/2011 MSD Cranes & Equipment is a crane services provider. Undisclosed investor
ParkatmyHouse.com - 14/07/2011 ParkatmyHouse.com is an online parking marketplace provider. BMW i Ventures
Pattonair Derby 01/08/2011 Pattonair is a United Kingdom-based outsourcing services provider. Exponent Private Equity
Original Additions (Beauty
Products)
Gas Measurement
Instruments
Hampson Industries - Shim
Business
Hayes 19/07/2011 Original Additions (Beauty Products) distributes beauty products. LDC
Renfrew 03/08/2011 Gas Measurement Instruments is a detection instruments
manufacturer.
London 26/08/2011 Hampson Industries - Shim Business is a shim components
manufacturer.
Battery Ventures
Bridgepoint Capital
HB International London 24/08/2011 HB International operates as a global executive search company. Hamilton Bradshaw
Evgen Liverpool 13/09/2011 Evgen is a United Kingdom-based cancer therapeutics developer. Enterprise Ventures,SPARK Venture Management
Fairline Boats Oundle 12/07/2011 Fairline Boats is a United Kingdom-based powerboats manufacturer. Better Capital
Fishawack Communications Knutsford 20/07/2011 Fishawack Communications operates group of healthcare companies. YFM Equity Partners

Transaction tracker: uK private equity deals
Company name Location investment
date
Flexspace Industrial
Buildings
Business description investor(s)
London 17/08/2011 Owns and operates industrial buildings. Europa Capital Partners
Funeral Services Partnership Nottingham 14/09/2011 Funeral Services Partnership provides funeral services. August Equity
Kent Solar Plant (4.9MW) Sevenoaks 16/08/2011 Kent Solar Plant (4.9MW) operates as a photovoltaic power plant. Foresight Group
Indicus Advisors London 08/08/2011 Indicus Advisors is an alternative investment manager. Ares Management
Inpartnership Manchester 15/08/2011 Inpartnership is an asset management and advisory services provider. Sigma Capital Group
Amor Group Renfrew 11/07/2011 Amor Group provides information technology support. Growth Capital Partners
Angel Springs Wolverhampton 20/07/2011 Angel Springs is a United Kingdom-based water cooler company. LDC
ACHICA Cheltenham 30/07/2011 ACHICA is a United Kingdom-based online shopping store. Balderton Capital Management
Advanced Childcare Stockport 01/09/2011 Advanced Childcare is a United Kingdom-based care services provider. Global Innovation Partners
Ark Home Healthcare London 20/09/2011 Ark Home Healthcare provides home healthcare services. Core Capital,Core Capital Partners
Attenda Staines 24/08/2011 Attenda is a United Kingdom-based managed services provider. Darwin Private Equity
Azullo Lancaster 01/08/2011 Azullo is an online advertising platform developer and provider. AXM Venture Capital
BACTEC International Rochester 17/08/2011 BACTEC International is an explosive ordnance disposal company. Perusa
Bagel Nash Leeds 03/08/2011 Bagel Nash is a bagel fast food chain of restaurants. YFM Equity Partners
BBC Magazines London 16/08/2011 BBC Magazines is a print and online publishing company. Exponent Private Equity
Edge Public Solutions Sale 19/07/2011 Edge Public Solutions is a transformation services provider. Undisclosed investor
CapQuest Group London 17/08/2011 CapQuest Group provides financial services. TowerBrook Capital Partners
Card Factory Wakefield 14/07/2011 Card Factory owns and operates greeting card and gift stores Charterhouse Capital Partners
City & County Healthcare Wembley 14/07/2011 City and County Healthcare provides social care services. Sovereign Capital
Climate Energy Witham 29/07/2011 Climate Energy is a United Kingdom-based energy advice provider. Climate Change Capital
By Design UK London 11/09/2011 By Design UK is an interior design aggregation Website provider. eVenture Capital Partners
Cambridge Semiconductor Cambridge 21/07/2011 Cambridge Semiconductor is a power management developer and
supplier.
Clydesdale Bank
Brintons Kidderminster 08/08/2011 Brintons is a United Kingdom-based carpet manufacturer. Carlyle Group, The
Beepl London 20/07/2011 Beepl helps users seek opinions and product recommendations. Credo Ventures as
Benchmark Scaffolding London 27/07/2011 Benchmark Scaffolding is a modular system and hoists provider. RCapital Partners
Bezier London 22/08/2011 Bezier is a United Kingdom-based retail media provider. H.I.G. Capital
RedKite Financial Markets London 26/07/2011 RedKite Financial Markets is a surveillance services provider. DFJ Esprit
SeeSaw Online London 14/07/2011 SeeSaw Online is an online video content provider. Undisclosed investor
Select Living Options Gloucester 14/07/2011 Select Living Options provides support living services. Sovereign Capital
Teaching Personnel Welwyn Garden City 15/08/2011 Teaching Personnel is a personnel recruitment services provider. Graphite Capital Management
Tinopolis Group Llanelli 09/08/2011 Tinopolis Group is a media production services provider. Vitruvian Partners
Verdant Leisure Dunbar 25/07/2011 Dunham Leisure owns and operates holiday home parks. RJD Partners
Vickers Electronics - 22/07/2011 Vickers Electronics manufactures energy management system. Enterprise Ventures,PHD Equity Partners
Virgin Active Central Milton Keynes 20/08/2011 Virgin Active owns and operates a chain of health and fitness centres. CVC Capital Partners
we7 Oxford 26/07/2011 we7 operates an online music website. Eden Ventures,Pentech Ventures,Qualcomm Ventures
WTG Technologies London 22/08/2011 WTG Technologies is an applications platform developer. Undisclosed investor
Zulu Beauty London 04/08/2011 Zulu Beauty is a United Kingdom-based online cosmetics retailer. Undisclosed investor
Community Pharmacy London 06/09/2011 Community Pharmacy operates as a chain of pharmacies. Beringea
Pro Bono Bio Reading 12/09/2011 Pro Bono Bio operates as a healthcare company. GK Rossiyskaya Korporatsiya Nanotekhnologiy, OAO
Unipart Automotive Oxford 16/09/2011 Unipart Automotive is a United Kingdom-based car parts supplier. H2 Equity Partners
Ark Home Healthcare London 20/09/2011 Ark Home Healthcare is a domiciliary care services provider. Core Capital
Spa Future Thinking Oxford 22/09/2011 Spa Future Thinking is a market research company. Next Wave Partners
beJig London 12/09/2011 beJig is a United Kingdom-based social gaming platform provider. Undisclosed investor
City Inn London 16/09/2011 City Inn offers modern luxury hotels. Blackstone Group
Autumn 2011 BVCA Briefing 39

non-uK private equity deals by uK firms
Company name Location investment
date
40 Autumn 2011 BVCA Briefing
Business description investor(s)
Garmz Austria 06/08/2011 Garmz is an Austria-based fashion portal operator. Eden Ventures,Kima Ventures
Wilkinson Steel and Metals Canada 07/08/2011 Wilkinson Steel and Metals is a steel and metal distributor. HarbourVest Partners ,Headway Capital Partners ,HSBC Capital
(Canada),Morgan Stanley Alternative Investment Partners,Nova
Capital Management,Parish Capital Advisors
National Concrete
Accessories
Canada 07/08/2011 National Concrete Accessories is a hardware manufacturer and
distributor.
HarbourVest Partners ,Headway Capital Partners ,HSBC Capital
(Canada),Morgan Stanley Alternative Investment Partners,Nova
Capital Management,Parish Capital Advisors
Debro Chemicals Canada 07/08/2011 Debro Chemicals, Inc. is a Specialty Chemical Distribution company. HarbourVest Partners ,Headway Capital Partners ,HSBC Capital
(Canada),Morgan Stanley Alternative Investment Partners,Nova
Capital Management,Parish Capital Advisors
Exchanger Industries Canada 07/08/2011 Exchanger Industries designs and manufactures heat transfer
equipment.
HarbourVest Partners ,Headway Capital Partners ,HSBC Capital
(Canada),Morgan Stanley Alternative Investment Partners,Nova
Capital Management,Parish Capital Advisors
Golden Jaguar Group China 26/07/2011 Golden Jaguar Group operates buffet restaurant chains. Apax Partners Worldwide
Qosmos France 08/09/2011 Develops and sells Network Intelligence/DPI technology solutions. Alven Capital Partners SA,DFJ Esprit
Orege France 12/07/2011 Orege SA is active in the environmental sector. Climate Change Capital
PhotoBox France 25/07/2011 Photobox SAS provides online digital photography services. Greenspring Associates,HarbourVest Partners ,Highland Capital
Partners ,Index Ventures,Insight Venture Partners,Quilvest Capital
Ateliers LR Etanco SAS France 05/09/2011 Manufactures and distributes building fasteners and fixing systems. 3i Group
Foncia Groupe France 26/07/2011 Provides property management services. Bridgepoint Capital,EURAZEO
Losberger Germany 06/09/2011 Losberger provides solution for construction of tents and halls. H.I.G. Capital
Novem Car Interior Design Germany 18/08/2011 Manufactures automobile interior trim components. Bregal Capital
tausendkind Germany 23/08/2011 tausendkind operates an online store with products for children. Gatcombe Park Ventures,IBB Beteiligungsgesellschaft
Green Building Group Germany 21/07/2011 Green Building Group manufactures prefabricated construction. H.I.G. Capital,Solidus Partners
EyeEm Mobile Germany 04/08/2011 Offers photo sharing application for computers. Passion Capital Investments,Wellington Partners
IN tIME Express Logistik Germany 12/08/2011 IN tIME Express Logistik provides freight transportation services. Barclays Private Equity
PYI Corporation Hong Kong 21/08/2011 PYI Corporation, Ltd manufactures and installs marble and granite
products.
AID Partners Capital
Brandtone Ireland 21/08/2011 Brandtone is an Ireland-based mobile marketing company. Enterprise Ireland,Unilever Ventures,Verlinvest ,Vision Capital
Igobubble Ireland 20/09/2011 Igobubble provides a mobile application. Black Pearl Capital
Mintigo Israel 19/09/2011 Serves as an automated acquisition solution. Giza Venture Capital,Sequoia Capital
Mentor Development
Partners
Kenya 22/08/2011 Offers consulting services in the area of real estate development Actis Capital
Rift Valley Railways Kenya 11/09/2011 Rift Valley Railways provides railway transportation services. BIO,International Finance Corporation,KfW,Netherlands Development
Finance Company
Raet Holding Netherlands 24/08/2011 Raet Holding BV provides services for payroll and personnel
administration.
CVC Capital Partners
Doedijns International Netherlands 10/08/2011 Doedijns International BV is an engineering services provider. IK Investment Partners
Bureau van Dijk Electronic
Publishing
Rizal Commercial Banking
Corporation
Emerging Markets
Payments Holdings
Netherlands 22/07/2011 Bureau van Dijk Electronic Publishing B.V. publishes business
information.
Charterhouse Capital Partners
Philippines 15/07/2011 Rizal Commercial Banking Corporation operates as a commercial bank. CVC Capital Partners
South Africa 16/08/2011 Emerging Markets Payments Holdings is a payment services provider. Actis Capital
Com Hem Sweden 21/07/2011 Com Hem AB provides television, telephone and Internet services. BC Partners
Docu Group Deutsche
Holding
Switzerland 09/08/2011 Docu Group Deutsche Holding provides information services. GMT Communications Partners
Infront Sports & Media Switzerland 02/09/2011 Infront Sports & Media provides marketing services and sport services. Bridgepoint Capital
Kinetic Concepts United States 13/07/2011 Kinetic Concepts, Inc. is a medical technology company. Apax Partners Worldwide
BakerCorp United States 31/07/2011 Supplies containment rental equipment in the United States. Permira Advisers
Valeritas United States 12/09/2011 Valeritas, Inc. operates as a medical technology company. Abingworth Management,Advanced Technology Ventures,CHL
Medical Partners,HLM Venture Partners,Kaiser Permanente
Ventures,MPM Capital,ONSET Ventures,Pitango Venture Capital,Welsh,
Carson, Anderson & Stowe
TouchTunes Music
Corporation
United States 17/08/2011 TouchTunes Interactive Networks provides entertainment services. 3i Group,VantagePoint Capital Partners
AccuVein United States 28/07/2011 Manufactures and sales medical devices for health care industry. Bessemer Venture Partners,MVM Life Science Partners
Quid United States 25/07/2011 Quid, Inc. develops data collection software. Atomico Ventures,Endeavour Vision,Founders Fund, Infocomm
Investments
Beacon Endoscopic United States 01/08/2011 Beacon Endoscopic, Inc. is a medical device company. MVM Life Science Partners
Advanced Cardiac United States 08/09/2011 Advanced Cardiac Therapeutics, Inc. develops cardiac ablation NBGI Private Equity
Therapeutics
catheters.
Personalis United States 12/08/2011 Personalis, Inc. operates as a biotechnolgy company. Abingworth Management,Lightspeed Venture Partners,Mohr Davidow
Ventures
Covestor United States 31/08/2011 Covestor, Inc. provides online portfolio-sharing services. Amadeus Capital Partners,Episode-1 Partners,Spark Capital,Union
Square Ventures
Fingerprint Digital United States 08/09/2011 Operates as a kid's learning and entertainment platform. Reed Elsevier Ventures,Undisclosed Investor
M86 Security United States 28/07/2011 Develops security solutions for Internet-based communication HarbourVest Partners ,Kelso Place Asset Management ,Updata
streams.
Partners,Vora Ventures
Echoecho Media United States 08/09/2011 Echoecho Media, Inc. provides mobile software. Google Ventures,PROfounders Capital
UTEC Survey United States 22/07/2011 UTEC Survey, Inc. provides survey and geotechnical services. Kelso Place Asset Management ,Lime Rock Partners
Peregrine Midstream United States 03/08/2011 Peregrine Midstream Partners operates as oil and natural gas EQT
Partners
company.
BNY ConvergEx Group United States 20/07/2011 BNY ConvergEx Group provides investment technology solutions. CVC Capital Partners
Dealer.com United States 25/08/2011 Dealer.com, Inc. provides online marketing solutions services. Accel Partners,Apax Partners Worldwide
Martini Media Network United States 11/07/2011 Martini Media Network operates online content and advertising
networks.
Granite Ventures ,Reed Elsevier Ventures,Venrock Associates
HUB International United States 18/07/2011 HUB International provides insurance services. Apax Partners Worldwide ,Morgan Stanley Private Equity

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