S&P Global Market Intelligence offers our top picks of global private equity news stories and more published throughout the week.
The third quarter saw a sharp drop-off in the value of investments made in mainland China by US-based private equity and venture capital firms, a signal that the impact of China's troubled economy and new restrictions on outbound investments by US funds are taking a toll on deals.
The aggregate value of investments in mainland China businesses by US-based backers fell 40.9% year over year in the third quarter to $869.5 million, according to S&P Global Market Intelligence data. Deal value has now fallen short of $1 billion in three out of the four most recent quarters, while as recently as 2021 the flow of investment by US-based funds into mainland China was averaging more than $7 billion per quarter.
What has changed since then?
US President Joe Biden in August signed an executive order restricting investment by US firms in several high-tech industries to prevent China from leveraging AI, quantum computing and other cutting-edge technologies to gain an advantage militarily. At the same time, a downturn in China's massive real estate sector is slowing economic growth, an outlook that is likely to give fund managers pause when considering new investments.
Addressing analysts on a second-quarter earnings call back in July — just a few weeks before Biden issued his executive order — Blackstone Inc. President and COO Jonathan Gray was bullish on his firm's prospects in Asia while sounding a note of caution on China.
"China is a little more challenging, as you know, because of the economic headwinds and some of the geopolitical issues," Gray said.
Read more about investment in China by US-based private equity funds in the third quarter, including the largest transactions during the period.
CHART OF THE WEEK: Pension fund-backed M&A slips in Q3 2023
⮞ The value of global pension fund-backed M&A fell 16.5% year over year in the third quarter to $6.08 billion, according to Market Intelligence data.
⮞ Pension fund-backed M&A came to $24.44 billion globally through the first nine months of 2023, putting full-year deal value on track to decline from the $44.47 billion total recorded in 2022.
⮞ Six of the 10 largest pension fund-backed M&A deals in the third quarter included the involvement of a private equity or venture capital firm, with two of such transactions amounting to at least $1 billion.
TOP DEALS AND FUNDRAISING
– A Vista Equity Partners Management LLC affiliate agreed to buy customer engagement software and integrated payment solutions provider EngageSmart Inc. in an all-cash deal valued at about $4 billion.
– Bregal Unternehmerkapital GmbH agreed to sell German electronic test and measurement device company EA Elektro-Automatik Holding GmbH to Fortive Corp. for approximately €1.59 billion.
– OrbiMed Advisors LLC secured more than $4.3 billion for its OrbiMed Private Investments IX LP, OrbiMed Asia Partners V LP and OrbiMed Royalty & Credit Opportunities IV funds. The vehicles focus on investing in the biopharmaceutical, medical device, diagnostic and healthcare services subsectors.
MIDDLE-MARKET HIGHLIGHTS
– An investor group led by lower-middle-market buyout firm FVLCRUM Funds and Channing Johnson acquired advertising agency Burrell Communications Group LLC.
– Lower midmarket private equity firm Renovus Capital Partners sold strategic advisory, deployment and managed services provider Inflow Communications Inc. to a Gemspring Capital Management LLC affiliate. Inflow will be combined with Gemspring's portfolio company, Amplix Inc.
– Incline Management LP acquired private-label communication solutions provider White Label Communications.
FOCUS ON: SOFTWARE AND SERVICES
– Silver Lake Technology Management LLC acquired an additional 5% stake in Software AG from Software AG Foundation. The private equity firm now owns more than 93% of the German software development company's shares.
– Neom Investment Fund invested $100 million in autonomous driving company Pony.ai Inc.
– Hull Street Energy LLC made a strategic investment in software engineering and environmental analysis company Upstream Tech Inc.
For further private equity deals, read our latest In Play report, which looks at potential private equity-backed M&A, including rumored transactions, each week.
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