PitchBook PE Breakdown 2013

PitchBook 2013 Annual
Breakdown
Bet ter Data. Bet ter Decisions.
Private Equity
PitchBook
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M E R R I L L
D A T A S I T E
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Table of Contents
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
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The 2013 Annual Private Equity Breakdown
demo@pitchbook.com www.pitchbook.com
Introduction
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 statisticsdropping unemployment, rising GDP, and double-digit gains in the stock marketwould even lead one to believe that 2012 was a solid year for PE investment. However, a myriad of factorsincluding political and regulatory uncertainty, the ongoing Eurozone crisis, and a dearth of quality deal opportunitiesresulted 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 acquisitionsthe 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.
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Overview
Deal Flow by Quarter
$140 $120 $100 $80 $60 $40 $20 $0 $119 $74 $115 $46 $49 $24 $28 $50 $70 $85 $71 $127 $88 $80 $91 $101 $69 $76 $66 $102 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 538 407 365 343 329 413 745 612 473 618 519 531 527 449 445 529 479 444 433 451 800 700 600 500 400 300 200 100 0
2008
2009
2010
2011 # of Deals Closed
2012
Source: PitchBook
Capital Invested ($B)
Despite 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
Deal Flow by Year

$900 $750 $600 $450 $300 $150 $0 1,450 $492 $831 $354 $151 $352 $359 $313 2006 2007 2008 2009 2010 2011 2012 Capital Invested ($B) # of Deals Closed
Source: PitchBook
3,098 2,604 2,302 1,985 2,106 1,807
3,500 3,000 2,500 2,000 1,500 1,000 500 0
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.
Investments by Deal Size

Investors 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, valuationto-EBITDA multiples dropped substantially as well, which should make the market more attractive for deal-making.
Investments (count) by Deal Size

100% 80% 60% 40% 20% 0%
>$2.5B $1B-$2.5B $500M-$1B $100M-$500M $25M-$100M <$25M
2006
2007
2008
2009
2010
2011
2012
Source: PitchBook
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 2012more 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
Continued on Pg. 5 >>
Median Deal Size

150 120 90 60 30 0
($M)
2007
2008
2009 Buyouts (excluding add-ons)
2010
2011 PE Growth
2012
Source: PitchBook
Investments by Deal Size

Investments (amount) by Deal Size
100% 80% 60% 40% 20% 0%
Median Buyout Size by Industry

1
THE UNITED STATES OF AMERICA
1
1
>$2.5B $1B-$2.5B $500M-$1B $100M-$500M $25M-$100M <$25M 11 2006 2007 2008 2009 2010 2011 2012
Source: PitchBook
= $100 million
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B2B
2011 2012
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1
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>> From Pg. 4

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 industrys 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 sizesfrom $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.
Energy
11 12
1
1
1
1
1
1
1
1
1
1
1
1
ONE DOLLAR
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1
1
1
1
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Financial Services
11 12
1
1
1
1
1
1
1
1
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1
1
1
1
1
1
1
1
1
1
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1
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Healthcare
11 12
1
1
1
1
1
1
1
1
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1
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1
1
1
1
1
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Information Technology
11 12
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1
1
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1
1
1
1
1
1
1
1
1
1
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ONE DOLLAR
Source: PitchBook
Investments 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
Investments (amount) by Industry

100% 80% 60% 40% 20% 0% B2B B2C Energy Financial Services Healthcare IT Materials & Resources 2006 2007 2008 2009 2010 2011 2012
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
Investments (count) by Industry

100% 80% 60% 40% 20% 0% B2B B2C Energy Financial Services Healthcare IT Materials & Resources 2006 2007 2008 2009 2010 2011 2012
Source: PitchBook
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 2012the 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.
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 industrys transactions of more than $1 billion in 2012 were completed in the final quarter of the year.
2012 Deals by Sector

Transportation Other
B2B
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,
Products Services
Source: PitchBook
B2B & B2C Deals as % of Total PE Investment

40% 35% 30% 25% 20% 15% 10% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
32% 31%
34%
B2B
20%
B2C
2012
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%. Source: PitchBook
B2C
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 dealmaking 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.

Transportation Apparel & Accessories
Services Durables Retail Restaurants, Hotels & Leisure Media Other Non-Durables
Source: PitchBook
IT Capital Invested
$60 $50 $40 $30 $20
18% 13% 9% 4% $16 2008 $19 2009 $33 2010 $55 2011 $55 2012 15%
20% 15% 10% 5% 0%
Information Technology
The IT industry has the distinct honor of being the only industry to experience an uptick in deal flow in 2012albeit 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
$10 $0
% of Total PE Capital Invested

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. 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.
Software
Services
Communications & Networking Hardware
Semiconductors
Source: PitchBook
Energy
$1 Billion+ Energy Deals in 2012

Buyout El Paso Exploration & $7.15B Production PIPE $2.0B Cheniere Energy Partners
Buyout Kinder Morgan Energy $1.8B Partners (Midstream Assets) PE Growth Chesapeake Energy $1.25B (CHK Cleveland Tonkawa) PE Growth $1.2B LLOG Exploration
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
PE Growth Venari Resources $1.13B
Source: PitchBook
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
Nov. 14, 2011: Supreme Court agrees to hear case 71 62 49
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Healthcare
As the chart below shows, the passage of the Patient Protection and Affordable Care Act (PPACA) led to a flurry of Healthcare dealmaking in late 2010 and early 2011.
100
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.
Capital Invested in Technology Systems

$10 $8 $6 $4 $2 $0
($B)
March 23, 2010: President Obama signs ACA into law 84 65
June 28, 2012: Supreme Court upholds individual mandate portion of healthcare law 63 70 58 58 45
80 60 40
71
66
4Q
2010
2011
2012
Healthcare Deal Flow by Quarter:
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.
2010
2011
2012
Source: PitchBook
Materials & Resources
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 & Packagingboth 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 9
sizable transactions in the Chemical & Gases sector.
Deal Flow & Capital Invested

$35 $30 $25 $20 $15 $10 $5 $0
2007 2008 2009 2010 2011 2012 Capital Invested ($B) Deal Count
Source: PitchBook
160 140 120 100 80 60 40 20 0
Financial Services
1
1
1
1
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
1
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.
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Financial Services Deal Flow & Capital Invested

$120 $100 250
Jo
206 183 129
218 193
200 150 100
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 2012the lowest total since 2005. The downturn is even more pronounced when looking at
$80 $60 $40 $20 $0
111 $100 2007 $54 2008 $38 2009 $51 2010 $24 2011 Deal Count $17 2012
Source: PitchBook
Largest Deal by Industry in 2012

Industry
B2B
Company
Neodyne Industrial (carve-out from Hamilton Sundstrand)
Investor(s)
BC Partners The Carlyle Group
Deal Size ($B)
$3.46 $3.3 $1.25 $6.6 $7.15

Source: PitchBook
The Carlyle Group
B2C
Getty Images
Veritas Capital
Healthcare
Truven Health Analytics
IT
Suddenlink Communications
BC Partners CPP Investment Board
Energy
El Paso Exploration & Production
Apollo Global Management Riverstone Holdings Access Industries Korea National Oil Corporation
10
Investments by Region
Deal-making in the South dropped a substantial 27% in 2012, mainly due to significant decreases in B2B 2011 Deal Count: 388 and B2C investment. As we touched 2012 Deal Count: 285 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.
South
Mid-Atlantic
2011 Deal Count: 2012 Deal Count:
441 296
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%.
Midwest
2011 Deal Count: 2012 Deal Count:
59 61
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%.
Deal Counts for Other Regions

West Coast 2011 2012
320 295
Great Lakes
474 471
New England
135 124
Southeast
288 275
Mountain
146 141
11
Buyout Multiples
Buyout Purchase Price Multiples
10x 9x 8x 7x 6x 5x 4x 3x 2x 1x 0x 2004 2005 2006 Debt / EBITDA 2007 2008 2009 2010 2011 2012
Source: PitchBook
8.5 7.1 3.2 2.4
9.0
8.5
8.7 7.7 8.0
8.1 7.3
3.2 4.0
3.8 3.5
3.3
4.1
3.2
4.7
5.3
5.8
4.5
4.9
4.2
4.7
4.1
4.1
Equity / EBITDA
Valuation / EBITDA
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
Median Debt % in Buyouts

80% 70% 60% 50% 40%
2005 2006 2007 2008 2009 2010 2011 2012

Source: PitchBook
price multiples elevated, which is one reason why dealmaking 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-toEBITDA multiple dipped to 7.3x in 2012the 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 2012its

12
Investment Trends
>> From Pg. 12
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 dealmaking 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.
Secondary Buyouts as % of Total Buyouts

20%
15%
10%
5%
0%
2005
2006
2007
2008
2009
2010
2011
2012
Source: PitchBook
Add-on Activity
3,000 2,500 2,000 1,500 1,000 500 498 0 2004 2005 Add-on 2006 2007 2008 2009 2010 2011 2012 1015 866 678 857 1102 775 37% 40% 41% 44% 1392 1240 976 529 486 679 794 677 10% 0% 794 798 727 44% 48% 46% 50% 48% 60% 50% 40% 30% 20%
Non Add-on
Add-on % of Buyout
Source: PitchBook
13
Investment Trends
% of Buyouts by Foreign PE Firms
8% 7% 6% 5% 4% 3% 2%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: PitchBook
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 dont 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 firmsand this trend should only continue in coming years.
Top Foreign Investors in 2012

Investor
Investcorp Vision Capital AlpInvest Partners OMERS Private Equity Quilvest Private Equity Caledonia Investments CVC Capital Partners Nova Capital Management Teachers Private Capital
Country
United Kingdom United Kingdom Netherlands Canada Luxembourg United Kingdom United Kingdom United Kingdom Canada
No. of U.S. Deals

12 8 7 7 6 5 5 5 5
Source: PitchBook
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14
Exits Overview
Exits by Quarter
$60 $50 $40 $30 $20 $10 $0 81 57 $30 $34 $27 $49 $20 $11 $36 $5 $13 $4 $6 $17 $17 $25 $25 $41 $22 $34 $26 $34 $27 $28 $20 $53 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2007 2008 2009 Capital Exited ($B) 2010 # of Exits 2011 2012
Source: PitchBook
178 149 143 139 135 114 116 89 76 45 54 42 104 108 124 95 152 150 131 135 141
200 172 180 160 140 120 100 80 60 40 20 0
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
$160 $140 $120 $100 $80 $60 $40 $20 $0 486
Exits by Year
566 479 368 217 513 587
700 600 500 400 300 200 100 0
$137 $141
$71
$40
$107 $115 $128
2006 2007 2008 2009 2010 2011 2012

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

15
Exit Breakdown
Secondary Buyouts Surpass Acquisitions for First Time
350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 IPO 2010 2011 2012
Corporate Acquisition
Secondary Buyout
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

from those large investments. PE firms executed 43 exits of $1 billion or more in 2012a new record. Interestingly, 19 of those exits came in the 4Q 2012also 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.
Exits by Industry
100%
Median Holding Time

6
Median Exit Size

$250 $217M $200 $150 $100 $50
B2B B2C Energy
80% 60% 40% 20% 0%
5.37 years
5 Years 4 3 2008 2009 2010 2011 2012
Source: PitchBook
Financial Services Healthcare IT Materials & Resources

Source: PitchBook
2011
2012
$0
($M) 2008 2009 2010 2011 2012
Source: PitchBook
16
Fundraising Overview
$100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0
51 55 55 41 53 38 52 29 11 40 29 29 22 29 45 132 115
Fundraising by Quarter
140 120 100 80 60

36 31 27 34 30 23 22
40 20 0
$86 $71 $66 $42 $81 $73 $63 $35 $71 $36 $11 $30 $18 $17 $7 $9 $44 $20 $15 $21 $19 $37 $30 $27
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2007 2008 2009 Capital Raised ($B)

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 fundsthe 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
2010
2011
2012
Source: PitchBook
# of Funds Closed
funds, there has been a noticeable contraction in the number of small funds, with only 77 vehicles of less than $1 billion closing in 2012the 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
Fundraising by Year
$300 $250 $200 $150 $100 $50 $0 121 $204 $266 $252 $147 $51 $100 $113 120 137 111 247 293 247 350 300 250 200 150 100 50 0
2006 2007 2008 2009 2010 2011 2012 Capital Raised ($B) # of Funds Closed
Source: PitchBook
17
Fundraising Overview
>> From Pg. 15
funds raised in 2012the most ever. While 2012 certainly was not a banner year for fundraising, activity has been consistent on a quarterto-quarter basis looking back at the last three yearsalbeit 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 indepth analysis of current trends in our upcoming Fundraising Report, which will be released January 22. 150 120 90 60 30 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $0-$250M $250-$1B >$1B
Source: PitchBook
Fund (count) by Fund Size
Largest 2012 Vintage Funds

Firm Advent International Leonard Green & Partners Ares Private Equity Group GSO Capital Partners Mount Kellett Capital Management American Securities Natural Gas Partners Vista Equity Partners Denham Capital Management Summit Partners Fund Advent Global Private Equity VII Green Equity Investors VI Ares Corporate Opportunities Fund IV GSO Capital Opportunities Fund II Mount Kellett Capital Partners II American Securities Partners VI NGP Natural Resources X Vista Equity Partners Fund IV Denham Commodity Partners Fund VI Summit Partners Growth Equity Fund VIII Fund Type Buyout Buyout Buyout Mezzanine Buyout Buyout Buyout Buyout Buyout Buyout Fund Target Size ($B) $8.50 $6.25 $4.70 $4.00 $4.00 $3.64 $3.59 $3.50 $3.00 $2.70
Source: PitchBook
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18
2012 League Tables

Most Active Investors
The Riverside Company The Blackstone Group ABRY Partners Genstar Capital Babson Capital Management GTCR Golder Rauner Audax Group Goldman Sachs Capital Partners Triangle Capital The Carlyle Group H.I.G. Capital Investcorp Odyssey Investment Partners Thoma Bravo Northstar Capital 24 21 20 19 18 18 17 17 17 16 15 12 12 12 11 Ridgemont Equity Partners Warburg Pincus Sun Capital Partners Baird Capital Partners BB&T Capital Partners Bush ODonnell Charlesbank Capital Partners Excellere Partners Grey Mountain Partners HarbourVest Partners Kelso & Co. Platinum Equity The Gores Group Thomas H. Lee Partners Vista Equity Partners 11 11 10 9 9 9 9 9 9 9 9 9 9 9 9 Waud Capital Partners AEA Investors Altamont Capital Partners Catterton Partners Clayton Dubilier & Rice Energy Capital Partners Francisco Partners Kohlberg Kravis Roberts Marlin Equity Partners Moelis Capital Partners Norwest Equity Partners Oaktree Capital Management The Comvest Group TPG Capital Vision Capital
Source: PitchBook
9 8 8 8 8 8 8 8 8 8 8 8 8 8 8
Most Active Lenders

GE Capital PNC Financial Services Group BofA Merrill Lynch RBC Capital Markets Triangle Capital Madison Capital Funding Credit Suisse NXT Capital Fifth Street Finance Babson Capital Management Morgan Stanley Deutsche Bank Wells Fargo Fifth Third Bank Goldman Sachs Golub Capital Sumitomo Mitsui Banking U.S. Bancorp JP Morgan NewStar Financial Prospect Capital UBS 41 27 26 23 23 23 20 19 18 17 16 16 16 16 15 15 14 14 11 11 11 10
Most Active Advisors

Harris Williams & Co. Houlihan Lokey Lincoln International Goldman Sachs William Blair & Company Jefferies & Company BofA Merrill Lynch RBC Capital Markets Credit Suisse Barclays Capital BB&T Capital Markets Robert W Baird Morgan Stanley JP Morgan Moelis & Company Deutsche Bank Alvarez & Marsal Citigroup Raymond James & Associates Lazard Piper Jaffray Lazard Middle Market Duff & Phelps 43 38 32 29 29 20 19 19 17 16 16 15 14 14 14 13 13 12 12 11 10 9 9
Most Active Law Firms

Kirkland & Ellis Jones Day Latham & Watkins Weil Gotshal & Manges Paul Weiss Rifkind Wharton & Garrison Goodwin Procter Simpson Thacher & Bartlett Vinson & Elkins Ropes & Gray Morgan Lewis & Bockius Skadden Arps Slate Meagher & Flom Paul Hastings Shearman & Sterling Willkie Farr & Gallagher DLA Piper Blank Rome Gibson Dunn & Crutcher Fried Frank Harris Shriver & Jacobson Sullivan & Cromwell 111 74 46 26 25 24 23 20 20 17 16 16 15 15 12 11 10 10 8
Source: PitchBook
Source: PitchBook
Source: PitchBook
19
Selected 2012 Deals

Investments
Company Suddenlink Communications Getty Images Investor(s) BC Partners; CPP Investment Board Deal Type Secondary Buyout Deal Size ($M) $6,600 Notes Largest secondary buyout ever Largest non-club deal of 2012 Largest add-on and public-to-private deal of 2012
The Carlyle Group
Secondary Buyout
$3,300
AboveNet Communications
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
Add-on
$2,181
Cheniere Energy Partners
PIPE
$2,000
Largest PIPE investment since 2008 Largest PE growth investment of 2012
Chesapeake Energy GSO Capital Partners; TPG Capital; Magnetar (CHK Cleveland Capital; EIG Global Energy Partners Tonkawa)
PE Growth
$1,250
Cunningham Lindsey CVC Capital Partners; Allied World Financial; Secondary Buyout Fairfax Financial U.S. Renal Care
Source: PitchBook
$934
Largest deal without a domestic investor in 2012 Largest buyout of a private VC-backed company in 2012
Leonard Green Partners
Management Buyout
$565
Exits
Company Goodman Global Group AMC Entertainment Seller(s) Hellman & Friedman; AlpInvest Partners Deal Type Corporate Acquisition Corporate Acquisition Deal Size ($M) $3,700 Notes Largest exit via corporate acquisition in 2012 Second largest Restaurants, Hotels, & Leisure exit ever Largest PE-backed IPO of the year
Apollo Global Management; CCMP Capital Advisors; Bain Capital; Spectrum Equity Investors; et. al. Apollo Global Management; Partners Group Global Opportunities
$2,600
Realogy Holdings
Source: PitchBook
IPO
$1,080
20
Methodology
Private 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 PitchBooks 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.
Fundraising
The following fund types are included in PitchBooks PE fundraising data: buyout, co-investment, mezzanine, energy, and PE growth/expansion. This report only includes funds that have held their final close.
Exits
The 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. PitchBook 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, Washington Mountain: Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming Midwest: Iowa, Kansas, Missouri, Nebraska, North Dakota, South Dakota Great Lakes: Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin New England: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont Mid-Atlantic: Delaware, D.C., Maryland, New Jersey, New York, Pennsylvania, Virginia, West Virginia South: Arkansas, Kentucky, Louisiana, Oklahoma, Tennessee, Texas Southeast: Alabama, Florida, Georgia, Mississippi, North Carolina, Puerto Rico, South Carolina
Regions
League Tables
All 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.
21
92,695 Deals 24,282 Investors 58,110 Companies 8,698 6,640 17,264 Service Providers Limited Partners Funds
All PitchBook data sourced from the PitchBook Platform as of 1/9/2012
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PitchBook PE Breakdown 2013

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PitchBook 2013 Annual

De al ow and cap ital inv est ed

PE rms invest $102B in 4Q 201 2, most since 2010

The 2013 Annual Private Equity Breakdown

2011 # of Deals Closed

Capital Invested ($B)

Deal Flow by Year

3,098 2,604 2,302 1,985 2,106 1,807

3,500 3,000 2,500 2,000 1,500 1,000 500 0

The 2013 Annual Private Equity Breakdown

Investments by Deal Size

Investments (count) by Deal Size

>$2.5B $1B-$2.5B $500M-$1B $100M-$500M $25M-$100M <$25M

Continued on Pg. 5 >>

Median Deal Size

2009 Buyouts (excluding add-ons)

The 2013 Annual Private Equity Breakdown

Investments by Deal Size

Median Buyout Size by Industry

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

>> From Pg. 4

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

THE UNITED STATES OF AMERICA

The 2013 Annual Private Equity Breakdown

Investments (amount) by Industry

Investments (count) by Industry

The 2013 Annual Private Equity Breakdown

2012 Deals by Sector

B2B & B2C Deals as % of Total PE Investment

2012 Deals by Sector

The 2013 Annual Private Equity Breakdown

20% 15% 10% 5% 0%

Capital Invested ($B)

% of Total PE Capital Invested

2012 Deals by Sector

Communications & Networking Hardware

$1 Billion+ Energy Deals in 2012

PE Growth Venari Resources $1.13B

The 2013 Annual Private Equity Breakdown

Capital Invested in Technology Systems

March 23, 2010: President Obama signs ACA into law 84 65

Healthcare Deal Flow by Quarter:

Materials & Resources

sizable transactions in the Chemical & Gases sector.

Deal Flow & Capital Invested

160 140 120 100 80 60 40 20 0

Financial Services Deal Flow & Capital Invested

206 183 129

$80 $60 $40 $20 $0

Capital Invested ($B)