Private Equity
Senate Democrats are all back-slaps and giggles today for getting financial reform out of conference, but they also managed to bungle the carried interest taxation issue. As a client alert from law firm Weil Gotshal sums up the situation: On June 24, 2010, the Senate failed for a third time to pass a procedural vote which would have sent the proposed carried interest legislation (H.R. 4213) to the Senate for a full vote on the bill. Senate Majority Leader Harry Reid (D-Nev.) has announced that the Senate is moving on to other matters. Although no further action is currently pending in the Senate on the proposed carried interest legislation, it is possible (and perhaps likely) that the legislation will be re-introduced into the Senate in the not too distant future. We will continue to apprise you of any further developments in this area. The legislation didn't die because of carried interest, mind you, but because Harry Reid and company chose to lump it in with a "Jobs Extenders" bill that ran into unbreakable Republican opposition ("no bailouts when we're not in charge").
2 min read · 25 June 2010
I'm loathe to lead a blog post by admitting ignorance, but here goes: I don't know if the financial reform bill that emerged today would ban banks from sponsoring in-house private equity funds. The original House and Senate language included such a ban, under the Volcker Rule rubric. The result likely would have been that banks like Goldman Sachs, Merrill Lynch and J.P. Morgan would have been required to divest existing operations (probably via a combination of management spinouts and secondary sales). But it's being suggested that the restrictions was stripped from the amended bill, which doesn't seem to yet be publicly available (thus my ignorance). Instead, the only relevant language may be that banks -- or certain banks, thanks to some weight-throwing by State Street lobbyist Sen. Scott Brown -- can't invest more than 3% of their capital into PE or hedge funds.
2 min read · 25 June 2010
The last time I spoke with Jeff Rosenkranz was March 2008, just after he stepped down as head of mid-market banking with Piper Jaffray. Pretty good timing, and Rosenkranz enjoyed semi-retirement while the economy burned. Now he's back, launching a new mid-market investment bank called Metronome Partners. "I loved the time I had with my family over the last couple of years, but I began to get an itch to get back into the business last winter," Rosenkranz told me this afternoon. "I thought long and hard about whether to join a bigger firm or do something on my own, and ultimately decided to do it on my own. I think it's the relationships that matter the most, and wanted to do it in a way that can really focus on the quality of advice, rather than the quantity."
1 min read · 25 June 2010
Private equity activity is on the rise, according to preliminary Q2 data released today by Thomson Reuters (publisher of peHUB). Global PE-backed deal volume hit $43 billion last quarter, which is up 54% from Q1 and a whopping 148% from the second quarter of 2009. The numbers were even better for PE-backed deals targeting U.S. companies, where $25 billion marked the richest quarter in two years. European deal volume dropped 26% from Q1, but year-to-date activity is up 110% from the first half of 2009. Asia-Pacific volume also increased substantially. It's important to note that these numbers include "announced" deals that have not yet closed, which is why the largest transaction of 2010 is the $3.9 billion buyout of hotel chain Extended Stay by Centerbridge Partners, Paulson & Co. and others. Also worth noting that while these numbers were produced by my corporate overlords, I've already spotted a few problems. For example, Healthscope is listed on a list of top deals. Actually, it's listed twice -- once with KKR as sponsor, once with Blackstone. Maybe that's because the two firms are still competing in an auction... Well, I guess that's why the data is "preliminary."
1 min read · 25 June 2010
This summer was supposed to represent a regulatory tipping point for private equity, as U.S. and European legislators pledged to close tax loopholes and reduce perceived systemic risk. Private equity firms would have to register their funds, and provide additional disclosures. Carried interest would be taxed as ordinary income. U.S. banks would be required to divest private equity holdings, while European institutions would effectively be banned from serving as limited partners in North American or Asian funds. It was almost as if regulators had discovered a speck of residual shine on private equity's Golden Age, and were determined to dull it down. But a funny thing happened on the way to the reckoning: Many of the proposed changes -- including some that many PE pros have accepted as fait accompli -- are being watered down, postponed or abandoned.
3 min read · 24 June 2010
Late last year, The Carlyle Group signed a 35-year public/private partnership with the State of Connecticut, whereby the firm agreed to redevelop, operate and maintain the state’s 23 highway service areas. Among the improvements, Carlyle said that it would supplement the McDonald’s drive-thrus at the I-95 rest stops with Subway and Dunkin’ Donuts drive-thrus (Subway’s parent company was a partner on the deal). This transaction was a landmark for public-private partnerships in the U.S., which has lagged behind other industiralized nations in putting investment shops like Carlyle in operational control of its toll roads, bridges, ports, etc. For those of us who drive regularly between Boston and New York City, however, it was about finally having some better food options (and, hopefully, cleaner facilities). Our collective arteries applauded the news.
2 min read · 23 June 2010
Bloomberg reported this morning that KKR may postpone its planned $500 million flotation on the New York Stock Exchange, due to market volatility. Makes sense, given general market volatility and the particularly harsh treatment of Blackstone and Fortress shares (trading at around $10 and $3 per share, respectively). What is worth noting, however, is that a share sale postponement has absolutely no impact on KKR's larger plans to list itself on the New York Stock Exchange (Bloomberg got this correct in its story, but some emailers appear to have stopped after the headline).
1 min read · 23 June 2010
I keep hearing talk that some top-tier PE/VC funds have “legislation triggers,” or clauses that give GPs the option to alter fund terms due to the passage of . The most obvious trigger would be a change to carried interest tax treatment, but it is not the only one (could a new term be "MALs" -- material adverse laws?) I’m looking for some specific examples, so please drop me a (confidential) note if you know of any....
1 min read · 22 June 2010
My weekly small biz video for Reuters was about legislation that would eliminate capital gains taxes on investment in small businesses. Per usual, filming just a few paces away from the home office (and yes, I really need a haircut):
1 min read · 22 June 2010
Noubar Afeyan, managing partner and CEO of Flagship Ventures, was in Washington D.C. yesterday, to pick up an honor on behalf of portfolio company LS9. It's called the Presidential Green Chemistry Challenge Award, and LS9 won the "small business" category for its technology to produce hydrocarbon-based biofuels and chemicals. I spent a few minutes on the phone with Afeyan, just after the ceremony wrapped up: peHUB: What, from a business prespective, did this award mean to LS9? Afeyan: Well, the award is recognizing substanstial innovation in making a greener version of chemicals and fuels. From a business standpoint, that's precisely what LS9 has enabled -- allowing our partners to use sugar as the starting raw materials for fuels rather than petroleum.
2 min read · 22 June 2010
