Private Equity
Here's a look at the past week's scoops, opinions and analysis from the peHUB blogging team. It was Q1 earnings week, and we covered the Blackstone and American Capital calls. Dan liveblogged Blackstone's media call. I posted some of the highlights, including Tony James on how "portfolio companies are like humans." As for American Capital, shareholders are pretty worried about the possibility of bankruptcy or a reverse stock split (we didn't even realize that was possible!). Private Equity deal activity dipped in April, but that doesn't meant there aren't a ton of companies on the block-here's our Midweek M&A Madness roundup. Not to mention, KKR landed the second largest deal of the year even though it submitted the lowest bid, and there's a heated bidding war for software services company SumTotal. We learned that private equity-backed IPOs in Europe have out-performed their non-PE-backed peers. Meanwhile, CNBC frustrated us not once, but twice. On the VC side, we dug up scoops on six new fundings. Connie reported on new money for Gist, and Dan provided details on investments with 23andMe. Venture firm vSpring backed an aggressive buyout roll-up. Alex profiled a new start-up founded by Willard MacDonald. Connie noticed that Twitter-watching has gone so, so wild. In entrepreneur celebrity news, Google's cofounder got sentimental and Facebook's founder cozied up to college students. Skype's co-founders launched a new venture fund and eCast's founders were accused of fraud. Meanwhile, global warming activist Al Gore is taking some heat on his role as a partner with VC firm Kleiner Perkins and software titan Peter Norton is still very rich. We posted Q&A's with two VCs and one CEO: Cliff Friedman, Constellation Growth Capital Samuel Schwerin, Millennium Technology Value Partners And Joel Strellner, the CEO of Twitt(url)y Meanwhile, DFJ is facing fundraising difficulties and VC firm Omidar Network laid off a handful of employees, not long after hiring. HIG Capital's investment in Spring Air Mattresses is losing its bounce (and maybe its backing). The fountain of news that is the New York pension scandal continued to gush. We took stock of Aldus Equity's diminishing client list. Dan approved of CalPERS plan to monitor placement agents rather than ban then, and laid out five issues facing pension funds that are bigger than placement agents. New York State Comptroller Thomas DiNapoli released a detailed list of placement agents that were involved with investments made by NY Common Retirement Fund under former Comptroller Alan Hevesi. The accompanying press release also pretty much dissed Hevesi at every opportunity it got. Vox Populi contributor Chris Bulger pointed out the NVCA's two big blind spots. Michael Butler detailed future of financial regulation with a post titled, "How a Changing Investment Banking Industry Will Finance the Future." Denise Palmieri offered some expert pointers on how to (and how not to) ace a phone interview. Tim McMahon outlined the opportunities for small caps (and why they're on their way.) The weekly downgrade wrap-up was light for once. And of course, First Read and Second Opinion covered plenty of ground, including the Silver Lining for Cerberus on Chrysler, once place where MBA life is good, TPG's transition into a buyer of debt, leverage gone very, very wild, Firefox versus Facebook, the return of junk bonds, the arrival of vulture investors from China, and reverse PIK toggling. Previous Weeks: peHUB Rewind May 3, peHUB Rewind April 17, peHUB Rewind April 10, peHUB Rewind April 27
3 min read · 08 May 2009
Yikes Did Sun Microsystems violate bribery laws? (WSJ) It's Back! High yield debt is at a 2-year high this week. (Thomson Reuters) Illiquid: One investor's struggle with that whole ten-year lock-up period thing. (Seeking Alpha) Here's a Switch: An exec leaves PE for banking. Isn't that supposed to be the other way around? (Deal Journal) Bold Words: But not surprising that a Twitter backlash (a Twit-lash? Bad joke...) would happen soon enough. Dealscape writes that Twitter, like Skype, is overhyped.
1 min read · 08 May 2009
In a deal that defies the stilted secondary market, Merrill Lynch yesterday sold €150 million worth of shares in Kreos Capital, a European venture debt fund manager. The buy-side group included Paul Capital, AIG PineStar Capital, HarbourVest Partners, Access Capital Partners and SVB Financial Group. Alongside the spinout of Lehman Brothers’ venture arm (advised by Harbourvest Partners), it is one of the largest secondary transactions to close this year. I spoke with the deal’s sell-side advisor, David Waxman of Azla Advisors, on where the deal stands in the greater secondary market. How does this deal fit in with the general market activity? The gap between buyers and sellers is wide because it’s so tough to value equity at this stage. … There’s a feeling in the secondary community that NAVs don’t yet reflect the full value of the writedowns, and so it’s difficult for them to offer much for the LP interests. There’s even a debate over whether secondary investors should stay away from ’06-’07 vintage private equity funds altogether. In this deal, we started working with Merrill Lynch two years ago. Merrill planned to be the sole sponsor of Kreos for two years and then divest 75% of holding on secondary market.
2 min read · 08 May 2009
We won't soon see another deal like KKR's $1.8 billion carve-out of Oriental Brewery. The year's second-largest buyout was made possible by the combination of a motivated seller and an unusual capital structure. According to a source familiar with the situation, KKR's bid was actually the lowest of the three final offers -- from Affinity Equity Partners and MBK Partners -- but KKR won because its was the only offer with committed financing. This was important to Anheuser-InBev because the company is in a bit of a pinch to pay down debt: it has a $7 billion bridge loan due this fall. Anheuser-Inbev was so motivated, in fact, that it set up a $300 million PIK note for the deal, something that wasn't necessarily offered to KKR's competitors.
3 min read · 08 May 2009
As usual, we have a week’s worth of ratings agency downgrades, upgrades, revisions and withdrawals on the debt of LBO-backed companies, via Standard & Poor’s and Moody’s Investor Services. It was a light week coming off the big Chrysler filing last week. No worries, two frequent downgraders, Ply Gem and First Data, didn’t disappoint. Company: First Data Corp. Sponsor: KKR Downgrade: Moody’s downgraded the company’s corporate family and probability of default ratings to B1 from b2. Highlights: “We expect slight revenue and EBITDA declines for 2009 with only modest recovery for 2010. As a result, we believe the company will not be able to significantly de-leverage until 2011 at the earliest, at which time the company faces increasing cash interest payments as the company's 10.55% unsecured PIK notes convert to cash pay after September 2011.”
2 min read · 08 May 2009
Women CEOs: Ten women who should be big company CEOs. The list includes one PE pro, Jenny Ming of Advent International, who "would be on any headhunter's retail CEO list." (24/7 Wall Street) Here Come The China Vultures: "Encouraged by sinking stateside valuations, a delegation of up to 600 Chinese entrepreneurs will travel to North America in June on a state-organised "bottom fishing" tour, an organiser source said. The visitors, provincial governors and heads of large state-owned and private companies, will be trawling the market for distressed acquisition targets." (Mergermarket) Twittermania: Ok, so Connie already discussed the madness that is Twitterwatching these days. But here are two more to add to your reading list: -All you need to know to Twitter. -Political correspondent Jeff Greenfield apparently said: "I don't masturbate in public, and I don't Twitter." New Hiring Is Robust: "Who is hiring? Hospitals, colleges, discount stores, restaurants and municipal public works departments." (NY Times) Don't Get Excited: KKR's deal for Oriental Brewery is an exception, not the start of the return of big buyouts. (WSJ)
2 min read · 07 May 2009
There’s only one true way to settle the age-old “Is private equity a positive force” question, and that is to look at the performance of PE companies after the exit. Assuming the buyout firm made a profit for itself and its investors, the real test lies in a portfolio company’s post-PE lifetime. It's simple. If the company is leaner, more competitive and stronger than it was before private equity intervened, then the LBO detractors have no case. If it is so crippled with debt and stripped to its bare bones that it struggles or fails, then maybe they’re right. There’s not much comprehensive data on this topic, but today, the Wall Street Journal published a slice of evidence that paints private equity pros as the good guys. A story titled “Private Equity IPOs Outperforming Others” cites data that shows, between 2003 and 2008, PE-backed IPOs in Europe have performed better than their non-PE-backed counterparts.
2 min read · 07 May 2009
Why is a standard software services business suddenly the most coveted company around? SumTotal Systems last month agreed to sell itself to Accel-KKR, but yesterday received a competing bid from Vista Equity Partners, a firm that's already had past offers dismissed. The whole process seems like a relic of frothy M&A time gone by, and in a way, it is: The battle to win SumTotal started in April of last year. After digging through this behemoth proxy statement, I learned that Vista and Accel-KKR have jumped through no shortage of hoops to bed SumTotal. After more than six months of meetings, Accel-KKR offered to buy the company for $7 per share, then $8 per share, then finally back to $7 per share in the fall of 2008 (just after Lehman Brothers collapsed). Even though SumTotal's M&A Committee recommended the deal, the company's board said no thanks. Simultaneously, Vista Equity had its offer rejected by SumTotal's CEO without any board consideration (pricing wasn't provided in the filing). Once the stock market began to tank
3 min read · 07 May 2009
Hoorah! Junk bonds are coming back. (WSJ) Meanwhile the price of leveraged loans are rising. (WSJ) Steve Schwarzman expressed his happiness over this on Blackstone's call this morning. (They still probably aren't back to levels a lot of buyout guys bought them at, though...) Drama Time: "Picking over the carcasses of bankrupt companies is tempting for private equity firms, but the more traditional buyout shops are showing caution bidding on assets entangled in the courts, experts say." (Reuters) Not Scared Of Disney: Doesn't look like Providence Equity is going to take this opportunity to get out while the valuation is sky-high for Hulu, even though Disney has taken a larger stake. (PBN) No Longer The Master Of His Universe: At the Time Magazine's "Influential People" dinner, Steve Schwarzman was relegated from his front row seat to the very last row. Even worse, he was replaced by, as Cityfile said, "The nerdy co-founders of Twitter and a bunch of wonky Obama policy advisers." (NYP)
1 min read · 06 May 2009
1 min read · 06 May 2009
