Private Equity
As usual, we have a week's worth of ratings actions from ratings agencies Standard & Poor's and Moody's. We excluded the ratings changes on the week's two bankruptcies, which were Odyssey Investment Partners' Dayton Superior Corp. and Bruckman Rosser Sherrill's Eurofresh. Company: Banc of America Capital Investors Sponsor: Cumulus Media Inc. Downgrade: Moody's downgraded the company's corporate family rating to Caa1 from B3 and its probability of default rating to Caa1 from B3. Highlights: "The downgrade of the PDR to Caa2 incorporates Moody's view that there is increasing probability that Cumulus will likely default under its tightening financial covenants over the near term, absent an amendment. Moody's considers that Cumulus' lenders will agree to loosen the level of the company's already- elevated financial maintenance tests only in exchange for significantly higher pricing, which in turn will serve to tighten the company's liquidity profile."
3 min read · 24 April 2009
FYI: All has been quiet on the PE secondary front for a few weeks until today, with news of SecondMarket (literally a secondary market not unlike NYPPEX). It's perfect timing, as our coverage will be back in full force tomorrow: I'll be at the Private Equity Secondaries conference. Maybe I'll hear evidence that that market is actually alive again, post-year-end-results. Chooch Producer Stands By Quality Of Movie: Deal Journal interviews Tami Powers, one of the producers of the most unlikely star of this kickback scandal. We also learn the movie went straight to DVD, she never met Rattner, and she "really liked" the movie. (Deal Journal) Scary Stuff: Thanks to Epicurean Dealmaker and Clusterstock, we have a better understanding of the problems with banks repaying TARP money early. In fact, we have a better idea of how this screws taxpayers. (Epicurean Dealmaker) Infrastructure Madness: "As deplorable as our bridges may be, they're better than they were a generation ago." (Slate)
1 min read · 23 April 2009
Writing for Fortune magazine, author William D. Cohan today painted a bleak picture of former Quadrangle head Steve Rattner’s current situation. According to the story, Rattner has potential conflicts as Obama’s “car czar,” and he left Quadrangle “in a pickle.” The story lays out specifically which concessions the firm is making for its key man vote. Remember, as recently as Monday, we were hearing LPs would let the Friday deadline pass. Meaning, investors had until this Friday (tomorrow) to vote to kill the fund, and they’d likely take concessions on things like fees and carried interest in exchange for not voting. But that was before the State of New York launched its investigation as to whether Quadrangle “intentionally misled” the firm regarding its use of multiple placement agents. With $125 million sunk into the fund, New York is one of Quadrangle’s largest LPs, and knowing that New York is unhappy could change things for the other LPs. Who’s to say they weren’t misled also? It’s clearly a situation in flux, and one we’re anxious to learn more on. For now, we’ll have to get by on the details revealed in Cohan’s story, which show just how much Quadrangle had to sweeten the deal to keep investors from killing the fund.
2 min read · 23 April 2009
TPG has taken the prize (if it is a prize) of largest private equity firm in the world, as ranked in Private Equity International's Top 300 list of firms. Carlyle Group, last year's winner, dropped to number three. GS Capital, Goldman Sachs' arm, came in second and KKR ranked fourth. The results were calculated based on capital raised for direct investments in the past five years. Two thirds of the top fifty firms were based in the U.S. TPG won out with $53.6 billion. It's ironic that a ranking of this kind would name TPG as number one of anything, given the firm recently earned itself a few other top spots for crappy performance. For our part, peHUB called the firm's investment in Washington Mutual the worst deal of 2008. Time magazine ranked that deal the 2008's eighth worst of the year and listed its buyout of Harrah's, alongside Apollo Management, as the third worst.
2 min read · 23 April 2009
The New York’s pension fund kickback scandal has reached all the way to California. Pro Publica is reporting that Hank Morris’s firm, Searle & Co., shared fees with California investment firm Wetherly Capital Group on commitments from CalPERS, CalSTERS and LA Fire & Police. Writes ProPublica: Wetherly received up to $3 million in fees for one pension deal in New York, investigators say. … Wetherly and the firm with which Morris was affiliated, Searle & Co., also have shared fees for helping a private equity firm seal three multimillion dollar deals with California funds, ProPublica has learned. Overall, Wetherly has helped ten firms score a collective $300 million in commitments from CalPERS. Meanwhile, CalPERS apparently didn’t know there was a relationship between Wetherly and Morris, the publication notes.
2 min read · 23 April 2009
Back in those glorious boom times, buyout firms purchased multi-billion dollar companies on the premise that, after they somehow improve the business, they'd do a big, exciting IPO. That dream is clearly dead for the moment, and gone with it are LP hopes of distributions. If deal flow begins to pick up and buyout shops begin to spend all that "cash" they're sitting on, LPs could be in trouble. I put quotes around "cash" because it isn't exactly in their pockets. It's a commitment, and with very few exits, the money is flowing one way, making it a commitment LPs aren't too excited to fulfill. The last real mega-buyout exit was the $16 billion sale of Intelsat by Apax Partners, Apollo, Madison Dearborn and Permira. That was 14 months ago. Since then, most of the mega-firms have piddled around, selling little things with no disclosed deal value here and there. Meanwhile, four of the firms have experienced an all-out drought for the past year and a quarter. Below, I've taken a closer look at the date of the most recent exits by members of the Private Equity Council, a private equity advocacy organization with the 13 largest buyout firms as its members. They're listed in order of date.
4 min read · 23 April 2009
EuroFresh: The rotten tomato company went bankrupt finally last week, and Dealzone has an interesting take on the company's downfall: Did the crackdown in illegal workers cost Apollo $76.5 million? (Dealzone) Obviously the News Of The Day for Private Equity: The Journal's take on the placement agent ban. (WSJ) Just In Case They Make A Madoff Movie: The Daily Beast has laid out a potential cast. (Daily Beast) Not Just Pre-MBA Associates Going Back to School: It's also Wall Street's leaders, going back to teach. Despite the "hard work for little pay," Cityfile calls getting summers off a tie.
1 min read · 22 April 2009
Hope this isn’t a sign of things to come. With depressingly perfect timing, news of the State of New York’s “ban” on placement agents broke just after we read that two placement agencies would close their doors. This morning’s issue of Private Equity Insider states the placement agent businesses of both William Blair and Citigroup have shuttered their fundraising practices. The publication reported that former William Blair placement agents plan to continue to work together, possibly through creating a new fund marketing firm. Emails to professionals within William Blair’s practice were bounced back. UPDATE: A William Blair representative confirmed the business was closed.
2 min read · 22 April 2009
Today New York State Comptroller DiNapoli announced a ban on the involvement of placement agents in any investment by the New York State Common Retirement Fund. That's on the heels of Carlyle Group, and possibly other firms, completely dropping its use of the service. Clearly, these actions make life more difficult for the numerous professionals who make a living placing funds. To get a placement agent's perspective, I spoke with Russell P. Pennoyer, president of Benedetto, Gartland & Company. His firm, based in New York, is one of the earliest placement boutiques, founded in 1988. He discussed what value placement agents bring to funds in the market, and what should be done to make the process less prone to corruption. Is the placement agent business really just a matter of selling connections? What value do you bring to clients? The vast majority of people in this business are like any other investment banker helping a client access the capital markets. The GPs, who are extremely skilled in the types of investing they do, don't really know how to do all of the work that goes into raising a fund. They don't necessarily know how to describe what they do. They don't necessarily know what an investor needs to see to make an informed decision, or what kind of background information they want.
5 min read · 22 April 2009
Monday, Monday: Merger Mondays are back! Maybe! Yesterday was arguably the best day for M&A this year. (Dealzone) Google Me: Thanks to Google profiles, you can now have more control over what comes up when someone Googles you. Good news for job hunters. (Mashable) New Fund On The Block: August Capital is backing StumbleUpon's founders in their deal to buy back the company from eBay with its new "balanced-stage" fund. (Dealscape) Don't Blame Leverage: More regulators would have made the financial crisis worse. (Clusterstock)
1 min read · 21 April 2009
