Next LBO Verse, Same As The First?
The New York Times this morning has an article about Simmons Bedding Co., the mattress maker that has agreed to prepackaged bankruptcy that will transfer ownership from one private equity firm (THL Partners) to another (Ares Management). The main thrust is that THL made money on its original investment, in part via a dividend recap that ultimately helped drown Simmons’ balance sheet. Nothing we didn’t already know, but a good reminder that we really need to start discussing what the future of leveraged buyouts will look like in a (somewhat) recovered economy. Have PE pros been sufficiently chastened by past excess, and the intentional removal of “risk” from what used to be a “high-risk” asset class (as Steve Schwarzman once argued)? Will dividend recaps, IPO fees and the like be shunned as greed-driven cannibalism – or will they be emulated as proper tactics for protecting LP returns and ensuring PE firm survival? To begin, let me state that I do not believe there will be massive consolidation in the private equity market. Fund sizes may shrink from 2005-2007 levels – mostly corresponding to decreases in leverage availability – but I do not expect many notable buyout firms to fail. Lots of people point to the number of VC firms that disappeared following the dotcom bust, but few of those were VC firms of any significance (and today’s walking dead were felled by poor investing post-2001). As such
