Private Equity
A new Moody’s default report reveals a troubling paradox: Private equity-sponsored companies are more likely to default, yet they’re also more likely to recover from default. It’s a leveraged catch-22. The argument is that because of private equity’s appetite for leverage and dividends, their portfolio companies are generally at higher risk. No surprise there. Most PE-backed companies receive a B1 corporate family rating after their LBO -- indicating high leverage tolerance and relatively low default rates -- but a number of LBO-backed companies didn’t maintain that B1 rating very deep into the recession. Moody’s data blames half of all corporate defaults in 2009 on private equity. But the report counters that creditors of private equity-backed companies may realize better recoveries than those that lend to strategically owned companies. The idea is that private equity firms are so focused on preserving their equity that they’re more willing to get creative when a portfolio company gets in trouble. That means distressed exchanges and pre-pack bankruptcies.
3 min read · 24 March 2010
Wall Street Hates a Level Playing Field: Andrew Ross Sorkin on the Flyonthewall.com ruling. His lead reminds me of George Siguler's comment that his ideal investment is an "unregulated, life-essential monopoly." (Dealbook) Private Equity Comeback: A blogger that goes by Anal_yst responded to our interview yesterday with Phil Canfield of GTCR, particularly on the matter of the pending rush for deals. The PE market is about to look like the SPAC market of 2009. I think Phil and I agreed with the blogger's sentiment and I may have to elaborate on the point more myself more tomorrow. (Stone Street Advisors) Heidi N. Moore: To the FDIC, small is beautiful. (Big Money) And Felix Salmon digs deeper into the story. (Reuters) Doll Deals: In general dolls kind of creep me out, but apparently buyout firm Gefinor is just fine with them! The firm today acquired a division of Middleton Doll through its company Alexander Doll. (Milwaukee Journal Sentinal) ILPA: The PE guidelines are causing an "outbreak of hives." (Deal Journal)
1 min read · 23 March 2010
Atlantic Street Capital Management today announced the sale of Fleetgistics, an Orlando-based delivery services company, to Harbour Group, a St. Louis private equity firm. The sale, previously reported by peHUB, earned Atlantic Street a 7.7x return and 156.4% IRR on its initial $10.4 million equity investment. Lazard Middle Market and BB&T Capital markets advised the sell side. The deal marks Atlantic Street's first exit from a $45 million fund backed solely by Morgan Stanley Alternative Investments. According to Buyouts magazine, the firm is planning to raise a $100 million follow-up fund. I spoke with Partner Peter Shabecoff on the thesis behind the roll-up, how a $10 million company became a national leader, and why the sale was "painful and bittersweet. peHUB: So you made 7.7 times your money on a $10 million equity investment. What was the total deal value here? Is it safe to say more than $70 million? Peter Shabecoff: We aren't disclosing the total deal value but its safe to say it the value exceeded $70 million.
3 min read · 23 March 2010
Today the FDIC announced what we've known since last week- it held a little meeting with a motley crew of people who care about private equity investments in banks. Strangely, that group only included three private equity pros out of 20 attendees. The rest represented pension funds, private investors, investment managers, advisors, hedge fund managers and "others," all gathered to conduct the much-clamored about six-month review. The GPs include David Coulter of Warburg Pincus, Charles Davis of Stone Point Capital and Randal Quarles of Carlyle Group. The lack of GPs, or perhaps the lack of sympathy to their concerns, likely contributed to the failure to get any of the FDIC's stringent rules relaxed, at least so far. There could be a further announcement as to any policy changes, but the FDIC's press release today doesn't leave much room for optimism.
3 min read · 23 March 2010
The Perks of Being a Goldman Kid: Michelle Leder discovers that children of Lloyd Blankfien , as well as the offspring of Goldman Sachs' general counsel and CFO, received substantial salaries and raises last year. (Dealbook) Retooling strategies: An alternative to alternative investments. (WSJ) Listicle: Top ten lies angels tell, a twist Guy Kawasaki's "Lies VCs Tell". (Social Tech) What If Women Ran Wall Street? On the old cliché-o-meter, this headline ranks up there with "What if God Was One of Us?" but I'm going to trust that New York managed to bring someone new to the table in that whole women-and-testosterone-and-risk-taking conversation. (NY Mag) Layoffs: Remember a year ago around this time, when an Allied Capital bankruptcy was on the table? The firm may have sold itself to Ares Capital but its still experiencing some dark times. The firm is eliminating 91 jobs in D.C. (Washington Biz Journal)
1 min read · 22 March 2010
I recently spoke with Philip Canfield, a principal at GTCR, on M&A bullishness, GTCR's pipeline, why the fundraising market isn't so bad for everyone, GTCR's next fund equity checks on its recent deals, and the healthcare reform bill. What's your outlook for M&A in 2010? We think the year will be robust for M&A activity. It will be fueled by a few things. Number one: a rebound in valuations. A year ago all the buyers wanted to buy cheap, but no sellers were willing to sell. Now it's an environment where buyers think prices are reasonable and sellers agree and there's a crossroad to transact. Number two, you have a fair bit of liquidity in the market. On the financing side, starting early last summer you saw a big rebound in high yield markets. That has continued and led to a rebound in other credit markets, like the bank loan and CLO markets. The other component is that you have a trillion dollars of cash on the balance sheets of S&P 500 companies, and in private equity, you have half a trillion of committed but uncalled capital. That money starts going away by next year and is gone by 2013-- Can you clarify that? It expires. Most funds have a five year commitment period for new investments, and much of that half a trillion of committed, uncalled capital was raised in '06 and ‘07. So once you get out to 2014, that money will have to be invested or sent back to investors. There's a tremendous incentive for private equity firms to do deals.
4 min read · 22 March 2010
Here are some potential target ideas, rumored or official, to jumpstart your deal pipeline. Our sources are various news reports and the Buyouts “Seeking Buyers” list. The Golden State Warriors basketball team said it is for sale. (Reuters) The FDIC is seeking buyers for three small Puerto Rican banks which need capital. The FDIC hired a bank to help is sell the assets. (WSJ) Novell Inc. has rejected a takeover offer from Elliott Associates LP. The company, an IT management software and Linux producer, will explore strategic alternatives on its own. Spark Networks, an online personals services company, retained Piper Jaffray & Co. to advice it on its strategic alternatives following an offer from Great Hill Partners.
2 min read · 22 March 2010
Here’s a look at the last week’s worth of scoops, data, and analysis from the peHUB team. Catch up on what you missed before it goes behind our paywall… All First Reads | All Second Opinions Risk Is Part of The VC Game San Francisco Shindig Tickets Now On Sale Exclusive: CalSTRS Names Private Equity Investment Chief PE Community Helps Launch City Year London Apax Banks 4.5x on Tommy Hilfiger, Invests in PVH Again 5 Questions with Social Media Expert Rachel Polish M&A Monday What Dodd Bill Would Mean for Venture Capital and Private Equity
2 min read · 20 March 2010
Goodbye, FlyOnTheWall: The stock rumor site Flyonthewall.com is no longer allowed to post news about analyst reports, a judge ruled. (Reuters) Lessons in Branding: Nestle, which has come under fire from environmentalists for its use of palm oil, has somewhat bungled its social media strategy by banning angry commenters from its Facebook page. That did nothing but fan the flames. (Ad Age) Here Comes Financial Reform. The Journal says “Finally.” (WSJ) Hugo Loss: Permira is willing to risk losing its commitments from Ohio pension funds over closing a Hugo Boss factory in Ohio. (LBOWire) Heidi Moore: The Big Short Gets the People Right and It Gets the Finance Right. (Slate) Can Palm Survive? The company received a brutal analyst report alongside yet another downgrade to “sell.” (Reuters)
1 min read · 19 March 2010
Morgan Stanley predicts a huge increase in the demand for private credit. In a new report titled, “The Coming Rebound in Credit Demands,” the investment bank refers to the credit crunch as a “financial purging and healing.” Commentators haven’t shied away from the “binge” metaphor when discussing the 2007 boom-era, so I suppose there’s no harm in extending it to the credit crunch. With banks’ balance sheets de-levered and stimulus money in hand, the credit crunch is basically over, the report argues. And that means one thing: Time To Binge Again! According to Morgan Stanley, credit demands, which declined through the fourth quarter of 2010, will bounce back any time now. The report doesn’t directly address leveraged loans, but we know the issue of credit availability is certainly near and dear to the hearts of all general partners (whether they admit it or not). We’re already seeing increased credit demands from private equity with lenders meandering back to the table and deal volume picking up slightly.
2 min read · 19 March 2010
