Highlights:

– Brexit Volatility: “The Oxygen of PE Investing”
– Bellwether Harbourvest “Asserts Allegiance” to London
– The Views of GPs Supporting Brexit
– Startups Highlight Profitability
– Activist Elliott Moves Into PE
– PE KeyTrends Quick Question Results



“VOLATILITY IS THE OXYGEN OF PE INVESTING,”
says William Jackson, managing partner at UK-headquartered general partner Bridgepoint in a Financial News article. The story’s thesis is that the “turbulence unleashed by the UK’s poll-defying vote to leave the EU” creates opportunities to “snap up companies at lower prices.” Deal volume may drop, but private equity managers in Europe with real operational expertise, battle-tested skills in complex regulatory environments and international networks should thrive as companies seek to grow revenues and profits amidst the uncertainties thrown up by Brexit. Turbulence in stocks, slow global growth, low interest rates and an unprecedented number of investors increasing relative allocations to PE this year should also keep fundraising strong in Europe.

FINANCIAL NEWS



BELLWETHER HARBOURVEST “ASSERTS ALLEGIANCE” TO LONDON,
notes Private Equity International. The global fund-of-fund group explains in a statement that it will not be moving its headquarters for Europe, the Middle East and Africa from London – it’s largest office outside its home base in Boston – in the wake of Brexit. The firm, in an implicit nod to PE’s relative imperviousness to short-term volatility writes that in uncertain times, “it is worth looking at events through a longer-term, historical perspective.” Harbourvest “moved into new premises in Jermyn Street and signed a long-term lease in 2015 with the full knowledge” that a Brexit referendum was likely to occur shortly. The firm adds: “Harbourvest has adapted to many changes in European regulation” and is “confident” it has “the necessary in-house expertise to handle” what it asserts will be its own “seamless transition” to “new rules” in the UK and in Europe. Watch for similar industry statements.

HARBOURVEST
PRIVATE EQUITY INTERNATIONAL



FOR THE VIEWS OF GPs WHO ACTUALLY SUPPORT BREXIT GO HERE.
Private Equity International highlights the views of several prominent general partners – including Better Capital’s Jon Moulton and Duke Street founder Edi Truell – who believe Britain’s exit from the European Union will free the nation from over-regulation. Definitely in the minority among Britain’s PE professionals, they claim – as Edi Truell says – that the UK will be freed from a “stranglehold of directives, blizzards of rules and costly regulation.” Truell adds that “the transient fall in the pound will usher in a new era of growth in a free world.”

PRIVATE EQUITY INTERNATIONAL



SILICON VALLEY FIRMLY TURNS ATTENTION TO PROFITS FROM REVENUES,
or so it would appear, writes the Financial Times in a 2,100-word opus on the changing atmosphere in the global tech startup capital. “The region’s VC-funded innovation machine has always judged rising stars on the strength of their revenue growth rates. Suddenly, however, even the most high-profile unicorns – startups valued at more than $1 billion – have started to obsess about a different metric: profits.” Even ride-hailing service Uber, “whose valuation of $62.5 billion makes it the most well funded startup in Silicon Valley history,” now touts its profitability, “at least on a significantly adjusted measure that leaves out costs like interest, taxes and employee stock benefits, and before heavy losses in China and other developing markets.” Despite the spotlight on profit metrics, “there are simply too many startups fighting for market share” and “carving solid businesses out of the most bloated of the unicorns may be easier said than done.”

FINANCIAL TIMES



ACTIVIST STOCK INVESTOR ELLIOTT MOVES INTO PE INVESTMENT.
A half-dozen times or more Elliott has used minority stakes in underperforming, publicly-listed companies to successfully agitate for private equity firms to purchase the companies outright. Now Elliott, one of the largest and most prominent activist investors in the world, is moving into private equity in a big way, notes the New York Times. The firm recently announced that it would be partnering with PE manager Francisco Partners to purchase Dell’s software business for what’s widely believed to be more than $2 billion. “Dell had looked to sell the business in part to help raise cash to support its debt-heavy takeover of EMC Software.” As a minority investor in its listed stock, Elliott “helped prod EMC into selling itself to Dell in the first place” and “knew that Dell was interested in selling its software division.” Watch for further large, activist investors to tap the synergies between activism and private equity.

NEW YORK TIMES


AND NOW THE RESULTS OF SOME OF OUR RECENT KEYTRENDS QUICK QUESTIONS:

  • 62 percent of respondents say China doesn’t offer venture capital investors better potential long-term returns than California’s Silicon Valley.
  • 58 percent of respondents expect 2016 to set a new post-financial crisis fundraising record.
  • 56 percent of respondents say will there be a significant uptick in fund manager M&A over the next five years, given PE’s growing competitive pressures.