PitchBook PE Breakdown 2013

PitchBook

Bet ter Data. Bet ter Decisions.PitchBook

Breakdown

2013 Annual

Sponsored by

’13

Private Equity

PE firms invest $102B in 4Q 2012, most since 2010

Exit activity spikes in 4Q, setting record for capital exited

Deal �ow and capital invested fall in 2012

Exits: Secondary buyouts e

xceed corporate acquisiti

ons

Exits: Secondary buyouts e

xceed corporate acquisiti

ons

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The 2013 Annual Private Equity Breakdown [email protected]

Table of Contents

COPYRIGHT © 2013 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means – graphic, elec-

tronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems – without the express written permission of

PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Noth-

ing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy

any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as

such or used in substitution for the exercise of independent judgment.

Introduction

Overview

Investments by Deal Size

Investments by Industry

Investments by Region

Buyout Multiples

Investment Trends

Exits

Fundraising

League Tables

Methodology

2

3

4-5

6-10

11

12

13-14

15-16

17-18

19-20

21


Introduction

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The outlook for private equity (PE) investment in the U.S. was promising heading into 2012. Deal flow and capital invested had increased for two consecutive years, PE firms were sitting on more than $450 billion in dry powder, and debt financing was finally becoming easier to procure. The U.S. economy appeared primed for recovery and the political stage seemed set for an industry veteran to take the White House. A look at the 2012 macroeconomic statistics—dropping unemployment, rising GDP, and double-digit gains in the stock market—would even lead one to believe that 2012 was a solid year for PE investment.

However, a myriad of factors—including political and regulatory uncertainty, the ongoing Eurozone crisis, and a dearth of quality deal opportunities—resulted in a significant downturn in both deal flow and capital invested in 2012. Activity declined through the first three quarters of the year and only reversed course in 4Q when the threat of tax rate increases in the New Year became imminent. One bright spot that emerged was exit activity, which increased for the third consecutive year in both volume and capital exited. Still, the inventory of U.S.-based, PE-owned companies has continued to grow and now sits at more than 6,500 as the median holding time for a portfolio company has crept above five years for the first time.

As we enter 2013, it seems that the PE industry is experiencing a sort of paradigm shift. For the first time, the power has seemingly shifted from the general partners (GPs) to the limited partners (LPs), and the gatekeepers of capital are now demanding more exposure to the inner workings of the PE firms they deal with. LPs have gained the upperhand in the post-crisis era as fundraising has become more difficult, with PE firms raising smaller funds and taking more time to do so. Smaller fund sizes have in turn resulted in smaller deals and a heightened focus on operational enhancements, as opposed to financial engineering and multiple arbitrage.

Another fundamental change in PE investing has been the prominence of secondary buyouts, not only as an exit strategy but also as a deal-sourcing opportunity. In 2012, PE firms exited more companies via secondary buyouts than corporate acquisitions—the first time this has ever happened. Furthermore, 17% of buyouts executed in 2012 were for companies that already had PE backing, also a record.

Heading into 2013, we expect fundraising to continue to be a difficult prospect for all but the upper echelon of PE firms. To that end, firms will have to differentiate themselves not only with strong performance and a proven track record, but also a clear and compelling investment thesis in order to garner commitments. Secondary buyouts will continue to be a major trend in 2013 and beyond as PE firms are under increasing pressure to realize aging investments and put capital to work.

“It will be interesting to see how PE firms continue to adapt to the new realities of the evolving investing environment in 2013,” said Richard A. Martin, Jr., Senior Director at Merrill DataSite. “While 2012 was far from a banner year, it seems that many PE firms have effectively weathered the storm and subsequent fallout from the financial crisis and are now taking the necessary steps to survive and thrive in the new world of PE.”

2


OverviewDeal Flow by Quarter

Deal Flow by YearDespite projections from PE professionals and industry analysts that the rebound from the investing depths of 2009 would continue in 2012, both deal flow and capital invested reversed course, falling by 14% and 13%, respectively. Deal-making declined throughout the year before the much-predicted December buying spree ensued ahead of impending tax rate hikes. In fact, deal-making jumped 79% from November to December and quarterly deal-making accelerated for the first time in a year during 4Q despite November being the slowest month for deal-making in all of 2012.

Investors were particularly keen to complete large deals with the threat of increased taxes, as there were 19 transactions of $1 billion or more in the final quarter of the year. These large deals helped push the total capital invested in 4Q 2012 to $102 billion, the second highest quarterly total in the last four years. While changes to the tax code undoubtedly compelled some investors to close deals before January 1, it is interesting to note that the fourth quarter has been the most active period for deal-making by both volume and capital invested in each of the last four years.

The first quarter of the year has traditionally seen a slowdown in deal-making and that may be even more

pronounced in 2013 as the robust deal activity in 4Q 2012 was undoubtedly the result of investors pushing to execute deals that would have closed in early 2013 under a normal deal timeline. However, as we have been saying for several quarters, the swelling inventory of PE-backed companies and stash of latent capital should compel action eventually.

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1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2008 2009 2010 2011 2012

Capital Invested ($B) # of Deals Closed Source: PitchBook

Source: PitchBook

$492 $831 $354 $151 $352 $359 $313

2,604

3,098

2,302

1,450

1,9852,106

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2006 2007 2008 2009 2010 2011 2012

Capital Invested ($B) # of Deals Closed


Investments by Deal SizeInvestments (count) by Deal SizeInvestors continued to focus their

attention on the middle market in 2012, as the $25 million to $100 million size bracket emerged as the sweet spot for PE investing. These deals escalated from 24% of deal flow in 2011 to 29% in 2012, as the slightly larger $100 million to $500 million size bucket fell from 28% to 24% during the same period.

With smaller deals now en vogue, transactions of less than $500 million increased their proportion of total PE capital invested to 49%, the second highest total since 2005.

As the chart below shows, median buyout sizes have been fluctuating widely in recent years. After dropping substantially following the financial crisis, median buyout sizes surprisingly revered to their pre-crisis levels in 2010 and 2011. However, in 2012 median buyout sizes once again sank to $100 million, experiencing a significant 23% decline from 2011 levels.

As we will touch on later, valuation-to-EBITDA multiples dropped substantially as well, which should make the market more attractive for deal-making.

The trend has certainly been towards smaller transactions in recent years, but investors appeared more willing to execute large deals as the year progressed. Looking at the quarterly breakdown by deal size, transactions of $500 million or more steadily increased from 4% of deal flow in 1Q to 18% in 4Q.

Deal flow for transactions of $1 billion or more remained consistent with 2011 thanks in large part to the plethora of deals that closed in 4Q

2012. PE firms completed 19 deals of $1 billion or more in 4Q 2012—more than the rest of the year combined and the highest quarterly total since the heady investing witnessed in 2007. To that end, 55% of the $67 billion invested in deals of $1 billion or more during 2012 came in 4Q. It will be interesting to see if PE firms continue to have an appetite for large deals in the New Year once there is no

Median Deal Size

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Buyouts (excluding add-ons) PE Growth

201220112010200920082007($M)Source: PitchBook

Source: PitchBook

Continued on Pg. 5 >>

0%

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2012201120102009200820072006

>$2.5B

$1B-$2.5B

$500M-$1B

$100M-$500M

$25M-$100M

<$25M


Investments by Deal SizeInvestments (amount) by Deal Size

Median Buyout Size by Industry

impetus to close transactions due to concerns over tax rate increases.

While there was significant activity in the $1 billion to $2.5 billion size bracket, the number of mega deals of $2.5 billion or more remained muted in 2012. In fact, these deals only represented 8% of capital invested in 2012, which is the lowest proportion since 2004 and a far cry from the 42% they accounted for just five years ago in 2007.

Even though the median buyout size across all of PE fell substantially in 2012, the median buyout size only declined in two industries: Consumer Products & Services (B2C) and Energy. With the B2C industry accounting for 20% of all PE deals, much of the overall

downtick in median buyout sizes can be attributed to the industry, where the median buyout dropped a substantial 31%. The Energy industry also played a major role in driving down buyout sizes, as the industry’s median buyout size plummeted from $260 million in 2011 to $36.5 million in 2012.

In Business Products & Services (B2B), the most active industry for PE investing, the median buyout size nudged up a modest 8% from 2011 to 2012. IT saw the most pronounced jump in median deal sizes—from $197.1 million in 2011 to $295.0 million in 2012. Much of the increase in IT can be attributed to 10 deals of $1 billion or more that closed in 2012, including the $6.6 billion secondary buyout of Suddenlink Communications.

Source: PitchBook

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Source: PitchBook

>> From Pg. 4

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Investments by IndustryInvestments (amount) by Industry

Investments (count) by Industry

With deal volume falling 14% in 2012, nearly every industry saw a contraction in completed deals compared to 2011. The lone exception was Information Technology (IT), which experienced a negligible uptick of less than 1%. A similar trend emerged when looking at capital invested, which also fell in virtually every industry in 2012. IT was once again an exception; although the amount invested in the industry was comparable to 2011, IT expanded from 15% of capital invested in 2011 to 18% in 2012.

The only other industry to attract more money in 2012 than 2011 was Materials & Resources, as every other industry saw its capital invested fall by at least 10% compared to 2011.

The most significant contraction was in Energy, where capital invested dropped by 46% as the industry contracted from 16% of total PE capital invested in 2011 to 10% in 2012.

The distribution of PE deals by

Source: PitchBook

Source: PitchBook

industry rarely changes drastically on a year-to-year basis, but there have been some notable shifts that have developed in the past few years. For example, investment in the B2B industry waned following the financial

downturn, as the industry fell from 36% of deal flow in 2007 to 30% in 2009. B2B deal-making has expanded every year since and represented 34% of activity in 2012.

Another significant development in PE investing over the last several years has been the dwindling number of deals in the B2C space. PE firms executed just 364 B2C deals in 2012—the second lowest total in the last decade. Furthermore, B2C has contracted from 31% of deal flow in 2002 to just 20% in 2012.

Heading into 2013, many investors are optimistic about continuing opportunities in the B2B space as corporations are flush with cash and in need of upgrading technology and making capital expenditures that were eschewed due to the trying economic climate. Now that there is some clarity regarding healthcare laws and regulations, expect to see a few more Healthcare investments in 2013 after several quarters of declining deal flow.

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2012201120102009200820072006

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2012201120102009200820072006

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IT




While the total number of B2B deals fell by 11% year-over-year, the industry remains the bedrock of PE investing and actually expanded as a percentage of overall PE deal-making. Investment in Commercial Products,

which dipped below 40% of B2B deal flow from 2007 to 2010, rebounded in 2011 and remained strong at 43% of B2B deals in 2012. Despite the drop in overall B2B deal-making, the Transportation industry experienced a modest uptick of 19% from 2011, driving its share of B2B activity up from 5% in 2011 to 7% in 2012.

The rush to close large deals before year-end was particularly evident in the B2B space, as all seven of the industry’s transactions of more than $1 billion in 2012 were completed in the final quarter of the year.

2012 Deals by Sector

As we touched on previously and the graph above depicts, B2C deal-making has been dwindling both in aggregate deal volume and as a percentage of overall PE activity. Aside from the abysmal activity seen in 2009, the

364 B2C deals completed in 2012 was the lowest yearly total in the last decade. Of course, certain sectors are being hit harder than others. PE firms have been shying away from Consumer Non-Durables, Services, and Transportation, all of which experienced their slowest year in deal-making in the last decade.

The Restaurants, Hotels, & Leisure sector has emerged as a bright spot, with deal volume increasing 19% from 2011. Investment in Retail was also relatively strong, as the sector expanded from 18% of B2C capital invested in 2011 to 30% in 2012.


OtherTransportation

Products

Services

Source: PitchBook

Other

Restaurants, Hotels & Leisure

Durables

Non-Durables

Apparel &Accessories

Retail

Services

Transportation

Media

Source: PitchBook

B2B

B2C

Since 2002, the B2B industry has expanded from 32% to 34% of all PE investments. Over the same period, the B2C industry has seen its share of PE activity steadily contract from 31% to 20%.

B2B & B2C Deals as % of Total PE Investment

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Source: PitchBook



The IT industry has the distinct honor of being the only industry to experience an uptick in deal flow in 2012—albeit of less than 1%. Capital invested also saw a negligible improvement in 2012, continuing a four-year upward trend for the industry. As the chart above shows, capital invested in IT has more than tripled since 2008 as the industry has spiked from 4% of total PE capital invested in 2008 to 18% in 2012.

Deal-making in the Software sector, which has represented


Energy $1 Billion+ Energy Dealsin 2012

The Energy industry saw a considerable 22% drop in deal volume from 2011 to 2012, and despite several acquisitions of more than $1 billion, the total amount of Source: PitchBook

Source: PitchBook

Source: PitchBook

more than 50% of IT deals in the last two years, contracted somewhat as the Services and Computer Hardware sectors each grew their share of IT activity by nearly 5%. Investment in Communications & Networking businesses has been in decline over the last decade and hit a new low in 2012. From 2002 to 2012, the sector has fallen from 43% of IT deals to just 15%. Ironically, the two biggest IT deals of the year (buyouts of Suddenlink Communications and AboveNet Communications) both came from the Communications & Networking sector.

Information Technology

capital invested in the Energy industry fell 46% over the same period. Six of the eight largest deals in the Energy industry came from the Exploration, Production, & Refining sector, including a $7.15 billion buyout of El Paso and a $2 billion PIPE deal with Cheniere Energy. Thanks to these mega deals, the sector expanded from 45% of capital invested in Energy deals in 2011 to 58% in 2012.

With the overabundance of energy resources in the South, well over half (62%) of all Energy deals in were in Texas, Oklahoma, and Louisiana.

IT Capital Invested

El Paso Exploration & Production$7.15B

Buyout

Communications & Networking

Hardware

Software

Semiconductors

Services

Cheniere Energy Partners

Chesapeake Energy (CHK Cleveland Tonkawa)

LLOG Exploration

Venari Resources

PIPE$2.0B

Buyout$1.8B

Kinder Morgan Energy Partners (Midstream Assets)

PE Growth$1.25B

$1.2BPE Growth

$1.13BPE Growth

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2008 2009 2010 2011 2012

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HealthcareAs the chart below shows, the passage of the Patient Protection and Affordable Care Act (PPACA) led to a flurry of Healthcare deal-making in late 2010 and early 2011.

However, regulatory uncertainty surrounding the constitutionality of the legislation, as well as its possible repeal under a Romney presidency, effectively stifled PE deal-making in the Healthcare space throughout the year. Even though the PPACA has now been upheld, questions about the details of the legislation and how it will be implemented continue to deter dealmakers in the space.

Most of the recent downturn in Healthcare investment can be attributed to the Services sector, where

Capital Invested in Technology Systems

Source: PitchBook

Deal activity experienced a short-term boost after the PPACA passed, but uncertainty surrounding its constitutionality and possible repeal has limited additional investment.

Healthcare Deal Flow by Quarter:

March 23, 2010: President Obama signs ACA into law

June 28, 2012: Supreme Court upholds “individual mandate”

portion of healthcare law

Nov. 14, 2011: Supreme Court agrees to hear case

40

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4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q

2010 2011 2012

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71 7166

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201220112010($B)

deal-making fell by 21% from 2011 to 2012. Once current source of attractive Healthcare investment opportunities is Technology Systems, which can automate and streamline back office processes to enhance efficiency and reduce costs. To that end, there were a record-breaking 38 deals and $8.5 billion invested in the Technology Systems sector in 2012.


Deal-making in the Materials & Resources industry has been on a downward trajectory since reaching a zenith in 2007. The 85 deals completed in 2012 is the second

lowest total since 2005. Most of the recent decline in deal volume can be attributed to the Metals, Minerals, & Mining sector, where deal-making fell by more than 50% in 2012.

There is some reason for optimism, however, as the two cornerstones of the Materials & Resources industry—Chemicals & Gases and Containers & Packaging—both saw increased activity in 2012. The Chemicals & Gases sector has been particularly hot as of late, with deal volume increasing for three consecutive years. And while deal volume is down in the Materials & Resources industry, capital invested reached an all-time high of $30.6 billion in 2012, buoyed by several

sizable transactions in the Chemical & Gases sector.

Deal Flow & Capital Invested

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Largest Deal by Industry in 2012Industry Company Investor(s) Deal Size ($B)

B2B

B2C

Healthcare

IT

Energy

BC PartnersThe Carlyle Group

The Carlyle Group

Veritas Capital

BC PartnersCPP Investment Board

Apollo Global Management Riverstone HoldingsAccess IndustriesKorea National Oil Corporation

$3.46

$3.3

$1.25

$6.6

$7.15

Neodyne Industrial (carve-out from Hamilton Sundstrand)

Getty Images

Truven Health Analytics

Suddenlink Communications

El Paso Exploration & ProductionSource: PitchBook

Investment in the Financial Services industry has been sporadic in recent years and it seems that the industry has once again fallen out of favor with PE investors, as there were just 111 deals in 2012—the lowest total since 2005. The downturn is even more pronounced when looking at

Financial Services

Source: PitchBook

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the amount of capital invested, which has plummeted 67% since 2010. Additionally, Financial Services has slipped from 11% of all PE deals in 2010 to 6% in 2012.

Deal-making fell in every sector of the Financial Services industry in

2012, with deals for Capital Markets/Institutions and Commercial Banks falling by more than half. The drastic reductions in investment in these sectors has resulted in the Insurance sector jumping from 22% of Financial Services deals in 2010 to 41% in 2012.

Financial Services Deal Flow & Capital Invested

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2008 2009 2010 2011 20122007

Mid-Atlantic


Investments by RegionSouth

Mid-Atlantic

Midwest

Deal Counts for Other Regions

2011 Deal Count: 3882012 Deal Count: 285

No industry was immune to the downturn in deal-making in the Mid-Atlantic as every industry saw its deal count fall by at least 20% in 2012. B2B and B2C, the most active Mid-Atlantic industries, each declined by more than one-third. The hardest hit industry was Energy, where deal volume contracted by 53%.



While the increase was modest, the Midwest was the sole region to see an uptick in deal activity in 2012. Even more impressive, capital invested in the Midwest nearly doubled from $4.3 billion in 2011 to $8.3 billion in 2012. The main driver of the growth was the B2C industry, where deal flow expanded by 55%.

West Coast Great Lakes New England Southeast Mountain

20112012

320

295

474

471

135

124

288

275

146

141

Deal-making in the South dropped a substantial 27% in 2012, mainly due to significant decreases in B2B and B2C investment. As we touched on earlier, the South is the primary driver of PE investment in the Energy industry. And while the number of Energy deals in the South was down slightly from 2011, the region still accounted for 63% of all Energy deals in 2012. Materials & Resources was the only industry in the South to see an uptick in deals in 2012 and also experienced a 227% spike in capital invested.


Buyout Multiples

Median Debt % in Buyouts

For the last several years, the general consensus among PE professionals has been that there is too much capital chasing too few deals. The exponential expansion of the PE industry over the last decade has resulted in hundreds of new firms and a flood of available capital while investment has dropped in half from peak levels and does not appear ready to revert anytime soon. Heightened competition has kept purchase

price multiples elevated, which is one reason why deal-making remains well below peak levels.

Fortunately, the market is beginning to show signs of health. The median valuation-to-EBITDA multiple remained stubbornly high around 8x in 2010 and 2011 despite a sluggish deal-making environment, but valuations have finally come back down a bit. The median valuation-to-EBITDA multiple dipped to 7.3x in 2012—the lowest level since 2004. This should create a more conducive atmosphere for deal-making in the coming quarters.

Another positive sign for the industry is that debt levels rebounded considerably in 2012. Tighter lending standards drove the average debt percentage used in buyouts to a decade-low of 50% in 2011. That story changed in 2012 as many PE firms have experienced easier access to debt in recent months. As PE professionals are well aware, leverage is a valuable tool to facilitate deal flow and generate returns—two traits that have been lacking in PE in recent years.

It is interesting to note that while the median amount of debt used in buyouts rose by 7% from 2011 to 2012, the debt-to-EBITDA multiple held steady. As such, the median equity-to-EBITDA multiple fell to 3.2x in 2012—its

Buyout Purchase Price Multiples

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Debt / EBITDA Equity / EBITDA Valuation / EBITDA Source: PitchBook

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20122011201020092008200720062005Source: PitchBook



Investment Trends

Secondary Buyouts as % of Total Buyouts

Add-on Activity

lowest level since 2006. If valuations remain at their current levels, expect to see increased deal-making in the year ahead as PE firms look to take advantage of some of the most attractive pricing in the last decade.

Heightened competition for deals has led many PE firms to explore new avenues for sourcing deals, including one another. As the chart on the upper right shows, PE-backed companies accounted for 17% of the buyouts in 2012, compared to just 4% in 2009. This trend should continue in 2013 and the years ahead as PE firms need to both achieve liquidity for the more than 6,500 companies they own and find viable investments for their more than $400 billion of dry powder.

By nature, a strategic acquirer tends to be willing to pay a premium for a business that will create synergies and complement its current business model. The shift towards more deal-making between financially-minded parties may be one of the reasons purchase price multiples are finally beginning to come down.

Add-on deals continued to play a significant role in buyout activity, accounting for 48% of all buyouts. In the post-crisis era, many PE firms have been espousing a buy-and-build strategy, so it is not surprising to find that the proportion of add-on deals has increased steadily in recent years. While the percentage of add-ons dropped slightly in 2012, much of this contraction can be attributed to 4Q, when only 42% of buyouts were add-ons. We suspect this may be an anomaly as investors focused their attention on completing large platform acquisitions before the New Year.

Source: PitchBook

>> From Pg. 12

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20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

Add-on Non Add-on Add-on % of BuyoutSource: PitchBook

0%

5%

10%

15%

20%

20122011201020092008200720062005


Investment Trends% of Buyouts by Foreign PE Firms The economic outlook in the U.S. is far

from rosy, but when contrasted with an ongoing Eurozone crisis, a significant slowdown in China, manifold issues in India, and instability in the Middle East, things don’t seem so bad. Several recent reports and surveys have shown that investors view the U.S. as one of the more attractive regions for PE investment, and the data corroborates that sentiment as an increasing proportion of U.S.-based buyout deals have been executed by foreign-based PE firms. The percentage may seem small, but in 2012 a record-breaking 7.6% of deals were completed by foreign-based firms—and this trend should only continue in coming years.Source: PitchBook

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2%

3%

4%

5%

6%

7%

8%

20122011201020092008200720062005200420032002

1Q 2013 PE & VC

BenchmarkingReport

PitchBook

Top Foreign Investors in 2012Investor Country No. of U.S. DealsInvestcorpVision CapitalAlpInvest PartnersOMERS Private EquityQuilvest Private EquityCaledonia InvestmentsCVC Capital PartnersNova Capital ManagementTeachers’ Private Capital

United KingdomUnited KingdomNetherlandsCanadaLuxembourgUnited KingdomUnited KingdomUnited KingdomCanada

1287765555

Source: PitchBook

http://pitchbook.com/Subscribe_to_Publications.html


$137 $141 $71 $40 $107 $115 $128

486566

368

217

479513

587

0

100

200

300

400

500

600

700

$0

$20

$40

$60

$80

$100

$120

$140

$160

2006 2007 2008 2009 2010 2011 2012

Capital Exited ($B) # of Exits

Exits OverviewExits by Quarter

Exits by Year

The continually expanding inventory of PE-backed companies, which now sits at 6,538 and has nearly doubled since 2006, has been a hot topic for industry professionals in recent quarters. As we highlighted in our 4Q 2012 Company Inventory Report, PE firms are beginning to take the necessary steps to mitigate the growth of the company inventory by bringing the ratio of buyouts to exits down

from the 5x-to-6x range during the boom years to below 3x in every quarter of 2012. To that end, exit activity has now increased for three consecutive years, and 2012 was the best year on record in terms of exit volume.

Many predicted an uptick in exit activity throughout the year due to the threat of higher tax rates in 2013, but that simply was not the case as exit volume declined in each of the first three quarters of 2012. However, we saw a significant spike in exit activity in 4Q 2012, particularly in terms of exit volume. PE firms realized 172 investments during 4Q 2012, the second most ever and an increase of 39% over the previous quarter. More significantly, the amount of capital exited skyrocketed 165% in 4Q to a record-breaking $53 billion as investors showed a commitment to realizing their larger investments before the New Year. The race to exit companies in 4Q 2012 will inevitably have ramifications on exit activity in the near term, however, so do not be surprised if there is a noticeable dip in exit activity early in 2013.

It is no secret that deal sizes ballooned during the years leading up to the financial crisis, and it appears that PE firms are finally finding opportunities for liquidity events


$30 $34 $27 $49 $20 $11 $36 $5 $13 $4 $6 $17 $17 $25 $25 $41 $22 $34 $26 $34 $27 $28 $20 $53

149 143 139 135

114

81

116

57

4554

42

76

89104

108

178

95

131 135

152 150141

124

172

0

20

40

60

80

100

120

140

160

180

200

$0

$10

$20

$30

$40

$50

$60

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2007 2008 2009 2010 2011 2012

Capital Exited ($B) # of Exits Source: PitchBook

Source: PitchBook


Exit Breakdown

Exits by Industry Median Holding Time Median Exit Size

Secondary Buyouts Surpass Acquisitions for First Time

from those large investments. PE firms executed 43 exits of $1 billion or more in 2012—a new record. Interestingly, 19 of those exits came in the 4Q 2012—also a new record. Expect large exits to be a continued trend in 2013 and the years ahead as PE firms work to realize their large investments from the pre-crisis era.

The distribution of exits by industry in 2012 was virtually identical to 2011; in fact, no industry saw its proportion of exit volume change by more than 3%. However, there were some considerable shifts in terms of capital exited. The B2C industry saw its capital exited more than double from $11 billion in 2011 to $25 billion in 2012. There was a similar surge in IT, where capital exited jumped from

$16 billion to $30 billion during the same period. Despite there being more Energy exits in 2012 than 2011, the amount of capital exited fell from $28 billion to $16 billion.

Exit volume held relatively steady for both corporate acquisitions and IPOs, but the amount of capital exited declined. On the other hand, capital exited through secondary buyouts more than doubled to $47 billion in 2012.

B2B

B2C

Energy

Financial Services

Healthcare

IT


0%

20%

40%

60%

80%

100%

2011 2012

Source: PitchBookSource: PitchBook Source: PitchBook

One of the developing stories that PitchBook has been highlighting throughout the year is the increasing prevalence of secondary buyouts, and 2012 may mark a sea change in how PE firms source deals and realize investments. There were a record-breaking 275 secondary buyouts in 2012, and it was the first year that secondary buyouts exceeded corporate acquisitions as an exit strategy. Amazingly, just three years ago secondary buyouts represented only one quarter (25%) of exits; they now account for nearly half (47%).

>> From Pg. 15

$0

$50

$100

$150

$200

$250

20122011201020092008($M)

$217M

0

50

100

150

200

250

300

350

20122011201020092008200720062005

Corporate Acquisition IPO Secondary BuyoutSource: PitchBook

3

4

5

6

20122011201020092008

5.37 years

Year

s


$86 $71 $66 $42 $81 $73 $63 $35 $71 $36 $11 $30 $18 $17 $7 $9 $44 $20 $15 $21 $19 $37 $30 $27

132

51

55

55

115

5341

38

52

29

11

29

4029

2229

45

31 2734 30

36

23 22

0

20

40

60

80

100

120

140

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2007 2008 2009 2010 2011 2012

Capital Raised ($B) # of Funds Closed

Fundraising OverviewFundraising by Quarter

Heading into 2013, much of the discussion in the PE community has centered on the topic of fundraising—particularly the fact that securing commitments will likely be an uphill battle in the coming quarters as many LPs are already at or above their target allocations for PE. The data from 2012 reflect the trying fundraising environment, with investors closing just 111 funds—the lowest total in more than a decade.

Despite there being fewer funds closed than in recent years, the aggregate amount of capital raised increased 13% as PE firms exhibited more success in raising larger vehicles. Four mega funds of $5 billion or more closed in 2012, compared to just one in 2010 and 2011 combined. In addition, there are a handful firms on the road with target fund sizes in excess of $2.5 billion, including KKR and Apollo Global Management.

However, the recent difficulty in raising large pools of capital has led many of the preeminent PE firms to target the $1 billion to $5 billion fund size during their most recent fundraising efforts. There were more funds raised in this size bracket during 2012 (28) than any year since 2008, which also pushed the average fund size above $1 billion for the first time since 2009.

As investors have been more willing to return to bigger

funds, there has been a noticeable contraction in the number of small funds, with only 77 vehicles of less than $1 billion closing in 2012—the lowest total in more than a decade. To that end, the proportion of funds with less than $1 billion has fallen from 89% in 2010 to 71% in 2012. Accordingly, vehicles of $1 billion to $5 billion expanded to 26% of all

Source: PitchBook

$204 $266 $252 $147 $51 $100 $113

247

293

247

121

120137

111

0

50

100

150

200

250

300

350

$0

$50

$100

$150

$200

$250

$300

2006 2007 2008 2009 2010 2011 2012

Capital Raised ($B) # of Funds ClosedSource: PitchBook


Fundraising by Year


Fundraising Overviewfunds raised in 2012—the most ever.

While 2012 certainly was not a banner year for fundraising, activity has been consistent on a quarter-to-quarter basis looking back at the last three years—albeit at relatively depressed levels compared to the pre-crisis era. The bottom line: most PE firms have to dedicate more time and resources to fundraising than in the past, but the top performers have still been able to reach a final close. Look for comprehensive data of recent fundraising activity and in-depth analysis of current trends in our upcoming Fundraising Report, which will be released January 22.

Fund (count) by Fund Size

Largest 2012 Vintage Funds

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Source: PitchBook

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Capital OverhangReport

0

30

60

90

120

150

20122011201020092008200720062005200420032002

$0-$250M $250-$1B >$1B

>> From Pg. 15

FirmAdvent InternationalLeonard Green & PartnersAres Private Equity GroupGSO Capital PartnersMount Kellett Capital ManagementAmerican SecuritiesNatural Gas PartnersVista Equity PartnersDenham Capital ManagementSummit Partners

FundAdvent Global Private Equity VII

Green Equity Investors VIAres Corporate Opportunities Fund IV

GSO Capital Opportunities Fund IIMount Kellett Capital Partners IIAmerican Securities Partners VI

NGP Natural Resources XVista Equity Partners Fund IV

Denham Commodity Partners Fund VISummit Partners Growth Equity Fund VIII

Fund Target Size ($B)$8.50$6.25$4.70$4.00$4.00$3.64$3.59$3.50$3.00$2.70

Fund TypeBuyoutBuyoutBuyout

MezzanineBuyoutBuyoutBuyoutBuyoutBuyoutBuyout

18

Source: PitchBook

http://pitchbook.com/Subscribe_to_Publications.html


2012 League TablesMost Active Investors

Most Active Lenders Most Active Advisors Most Active Law Firms

The Riverside CompanyThe Blackstone GroupABRY PartnersGenstar CapitalBabson Capital ManagementGTCR Golder RaunerAudax GroupGoldman Sachs Capital PartnersTriangle CapitalThe Carlyle GroupH.I.G. CapitalInvestcorpOdyssey Investment PartnersThoma BravoNorthstar Capital

Ridgemont Equity PartnersWarburg PincusSun Capital PartnersBaird Capital PartnersBB&T Capital PartnersBush O’DonnellCharlesbank Capital PartnersExcellere PartnersGrey Mountain PartnersHarbourVest PartnersKelso & Co.Platinum EquityThe Gores GroupThomas H. Lee PartnersVista Equity Partners

Waud Capital PartnersAEA InvestorsAltamont Capital PartnersCatterton PartnersClayton Dubilier & RiceEnergy Capital PartnersFrancisco PartnersKohlberg Kravis RobertsMarlin Equity PartnersMoelis Capital PartnersNorwest Equity PartnersOaktree Capital ManagementThe Comvest GroupTPG CapitalVision Capital

GE CapitalPNC Financial Services GroupBofA Merrill LynchRBC Capital MarketsTriangle CapitalMadison Capital FundingCredit SuisseNXT CapitalFifth Street FinanceBabson Capital ManagementMorgan StanleyDeutsche BankWells FargoFifth Third BankGoldman SachsGolub CapitalSumitomo Mitsui BankingU.S. BancorpJP MorganNewStar FinancialProspect CapitalUBS

242120191818171717161512121211

111110

999999999999

988888888888888

41272623232320191817161616161515141411111110

Harris Williams & Co.Houlihan LokeyLincoln InternationalGoldman SachsWilliam Blair & CompanyJefferies & CompanyBofA Merrill LynchRBC Capital MarketsCredit SuisseBarclays CapitalBB&T Capital MarketsRobert W BairdMorgan StanleyJP MorganMoelis & CompanyDeutsche BankAlvarez & MarsalCitigroupRaymond James & AssociatesLazardPiper JaffrayLazard Middle MarketDuff & Phelps

433832292920191917161615141414131312121110

99

Kirkland & EllisJones DayLatham & WatkinsWeil Gotshal & MangesPaul Weiss Rifkind Wharton & GarrisonGoodwin ProcterSimpson Thacher & BartlettVinson & ElkinsRopes & GrayMorgan Lewis & BockiusSkadden Arps Slate Meagher & FlomPaul HastingsShearman & SterlingWillkie Farr & GallagherDLA PiperBlank RomeGibson Dunn & CrutcherFried Frank Harris Shriver & JacobsonSullivan & Cromwell

11174462625

242320201716

16151512111010

8

Source: PitchBook

Source: PitchBook Source: PitchBook Source: PitchBook


Selected 2012 DealsInvestments

Exits

Company

Suddenlink Communications

Getty Images

AboveNet Communications

Cheniere Energy Partners

Chesapeake Energy (CHK Cleveland

Tonkawa)

Cunningham Lindsey

U.S. Renal Care

Investor(s)

BC Partners; CPP Investment Board

The Carlyle Group

Zayo Group; Charlesbank Capital Partners; Morgan Stanley Alternative Investment Partners; Battery Ventures; Centennial

Ventures; Columbia Capital; M/C Venture Partners; Oak Investment Partners

Blackstone Capital; Cheniere Energy

GSO Capital Partners; TPG Capital; Magnetar Capital; EIG Global Energy Partners

CVC Capital Partners; Allied World Financial; Fairfax Financial

Leonard Green Partners

Notes

Largest secondary buyout ever

Largest non-club deal of 2012

Largest add-on and public-to-private deal

of 2012

Largest PIPE investment since 2008

Largest PE growth investment of 2012

Largest deal without a domestic investor in 2012

Largest buyout of a private VC-backed company in 2012

Deal Size ($M)

$6,600

$3,300

$2,181

$2,000

$1,250

$934

$565

Deal Type

Secondary Buyout

Secondary Buyout

Add-on

PIPE

PE Growth

Secondary Buyout

Management Buyout

Company

Goodman Global Group

AMC Entertainment

Realogy Holdings

Seller(s)

Hellman & Friedman; AlpInvest Partners

Apollo Global Management; CCMP Capital Advisors; Bain Capital; Spectrum Equity

Investors; et. al.

Apollo Global Management; Partners Group Global Opportunities

Notes

Largest exit via corporate acquisition in 2012

Second largest Restaurants, Hotels, &

Leisure exit ever

Largest PE-backed IPO of the year

Deal Size ($M)

$3,700

$2,600

$1,080

Deal Type

Corporate Acquisition

Corporate Acquisition

IPO

Source: PitchBook

Source: PitchBook


MethodologyPrivate Equity Deals

The report includes all PE investments (buyout, growth, PIPE, recapitalization, and add-on), excluding real estate investments, made into target companies headquartered in the United States. Only investments made directly by private equity firms or their portfolio companies are counted.

Buyout deals are defined as transactions in which the PE investor receives a controlling ownership stake in the target company. Growth deals are defined as minority investments in target companies. Add-on deals are defined as acquisitions by companies with private equity backing.

Total Capital Investment Total amount of equity and debt used in the investment

Ex. $10 million of equity and $20 million of debt = $30 million of total capital investment

PitchBook’s total capital invested figures include deal amounts that were not collected by PitchBook but have been estimated using a multi-dimensional substitution and estimation matrix, which takes into account year of investment, deal type, platform v. add-on, industry, and sector. Some data sets will include these extrapolated numbers while others will be compiled using only data collected directly by PitchBook; this explains any potential discrepancies that may be noticed.

FundraisingThe following fund types are included in PitchBook’s PE fundraising data: buyout, co-investment, mezzanine, energy, and PE growth/expansion. This report only includes funds that have held their final close.

ExitsThe report includes both full and partial exits via corporate acquisition, secondary private equity buyout, and IPO. Dividend recapitalizations are not taken into account in the report.

RegionsPitchBook has recently reconfigured the regions used in our reports to better represent the geographical makeup of the country. The regions are:

West Coast: Alaska, California, Hawaii, Oregon, WashingtonMountain: Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, WyomingMidwest: Iowa, Kansas, Missouri, Nebraska, North Dakota, South DakotaGreat Lakes: Illinois, Indiana, Michigan, Minnesota, Ohio, WisconsinNew England: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, VermontMid-Atlantic: Delaware, D.C., Maryland, New Jersey, New York, Pennsylvania, Virginia, West VirginiaSouth: Arkansas, Kentucky, Louisiana, Oklahoma, Tennessee, TexasSoutheast: Alabama, Florida, Georgia, Mississippi, North Carolina, Puerto Rico, South Carolina

League TablesAll League Tables are compiled using deal count. For example, the Most Active Lenders League Table shows the number of deals that a firm advised on during the year, regardless of size.

PitchBook tracks more Private Equity and Venture Capital data than anyone.

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Private Deal Comps

Targeted Business Development

Sourcing New Deals

Targeted Buyers Lists

Benchmarking Funds & IRR

Public Company Fundamentals

92,695 24,282

17,264

58,110

6,640 8,698

Limited Partners

Investors

Funds

Companies

Deals

Service Providers

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PitchBook PE Breakdown 2013

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