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Private Equity Investments in North America

  • February 2014
  • -
  • Frost & Sullivan
  • -
  • 64 pages

Private Placement Activity to Remain Muted in 2014

Executive Summary

•Private equity (PE) industry performance has declined for multiple reasons, including lack of funding sources, a huge amount of dry powder, limited avenues for investment and exits, and delayed payment of returns to investors.
•Private placements (PP) in North America witnessed a decline of approximately xx% and recorded a total of xx transactions and a total investment of $xxbillion in 2013.
oVenture capital (VC) deals dominated PP activity and accounted for xx% of all deals. PE accounted for xx% of total investment, while xx% was in VC funding.
oThe rest was invested in private investment in public equity (PIPE) deals.
•Fundraising remained tight as a result of declining performance in the PE sector and financial and regulatory pressure on institutional investors.
•Exit opportunities also remained a challenge in 2013, with slow pickup in merger and public offering activities. Sponsor-to-sponsor-backed exits were the major exit route for most PE firms.
•Healthcare, information technology (IT), and financials continued to attract PE investment in 2013. In addition, the materials sector attracted PIPE deals to cope with declining profitability in 2013.
oVC deals were focused on Internet software and services, biotechnology, clean energy, and other innovation-driven industries, as has been the case historically.
•The industry is expected to record improved performance on the back of improving investor confidence, the business landscape, the macroeconomic situation, and the availability of exit opportunities when compared to previous performance, since 2009.

Key study objectives include:

To analyse the private placement trends in North America across all sectors
To identify the key trends in the industry based on deals across sectors and the nature of buyers
To conduct a financial analysis of the deals with respect to investment characteristics
To identify, compare, and assess sectors that are current and potential hubs for private equity venture capital (PEVC) activity
To arrive at strategic conclusions based on the key trends observed

Who Will Benefit?

•PE and VC investors
•Fund managers
•Retail investors
•Sovereign wealth funds
•Hedge funds
•Other members in the investing community

Industry Definitions
- Private Equity (PE) is risk capital provided in a wide variety of situations. It can be financing provided to business startups and large, mature quoted companies. Buyouts are examples of PE investments in which investors and a management team pool their own money, usually together with borrowed money (in which case they are called leveraged buyouts, or LBOs), to buy shares in a business from its owners. Private placement transactions include the following 3 investment types:
- Growth Capital/PE: This is a private placement transaction in which an investment is made in a mature-stage or middle-market-stage company with the purpose of aiding its growth.
- Private Investment in Public Equity (PIPE): PIPEs are private investments in PE and refer to a private issuance of securities or equity-linked investments by a public company made to select individuals or a group of accredited equity investors. Such investors can be any individuals or institutions that meet certain net worth and income tests pursuant to Securities Exchange Commission (SEC) Regulation D. PIPEs are used by public companies to raise capital. The investors enter into a purchase agreement committing them to purchase securities, and the issuer is required to file a resale registration statement covering the resale of the securities from time to time.
- Venture Capital (VC): These private placement transactions involve an investment in an incubation or start-up or in an early, mid-, late-, or emerging-stage company.
- The General Partner (GP) is a company owned by the investment manager. The GP has unlimited liability for the liabilities of the PE fund. However, the individual partners cap their potential liability by investing through a limited company. In addition, individual partners of the PE fund manager are required by limited partners (LPs) to invest their own money directly in the fund.
- External investors are limited partners (LPs) because they have limited their total liability to the amount of committed equity capital they have invested. LPs themselves may be structured as corporations, funds, or partnerships. The legal agreements between LPs and GPs are designed to align their interests.

Table Of Contents

Private Equity Investments in North America
Executive Summary
Scope of the Study
Private Equity Industry in North America
PE Life Cycle—PE Fundraising in North America
PE Life Cycle—PE Investment Statistics in North America
PE Investments—Sector Overview
PE Life Cycle—PE Exits
The Frost and Sullivan Story

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