ASSEMBLING ASSETS(3)

Here's how the theory goes: more and more capital is being raised for private infrastructure investment; firms that buy infrastructure assets tend to want to improve them; improving infrastructure requires a lot of equipment and building materials; ergo, owners of these materials stand to profit handsomely from the surge in infrastructure investing.

This thesis appears to be central to a string of recent deals. In September 2006, for example, Chicagobased private equity firm Wynnchurch Capital Partners acquired SafeWorks, a maker of “suspended access and safety solutions” for construction and restoration projects. The following month, New Yorkbased buyout house Ripplewood Holdings agreed to pay $3.4 billion (€2.7 billion) for RSC Equipment Rental, a unit of Atlas Copco that rents construction equipment.

Unperturbed by the current slowdown in homebuilding across the US, these private equity investors are gearing up for a boom in infrastructure investment, as ownership of roads, railways, ports, airports, water and energy assets are transferred to private ownership.

Timothy Day, a director at Houston- and Greenwich, Connecticut-based energy specialist First Reserve, says his firm has long anticipated an increase in infrastructure investing, and has made a number of investments in response to this. The firm's latest such deal was its acquisition of Brand Energy & Infrastructure Services, a provider of scaffolding services to refineries and other energy businesses.

“As refineries get more complex, more needs to be spent on maintenance and updating,” says Day. “There will be a lot of work done on existing refineries. Everyone wants cleaner gasoline.”

Day notes that most infrastructure funds want to own the assets that produce and deliver energy, such as pipelines. While First Reserve has invested in such assets, “more often than not we want to provide services and equipment” to improve and maintain infrastructure.

Especially in the US, many forms of infrastructure asset are sorely in need of improvement. Private equity-backed companies are demonstrating that they're only too happy to help (see p. 67).

TPG, APOLLO BET ON GAMING
After months of negotiations and competing bids, Harrah's Entertainment, the world's largest casino operator, has agreed to be acquired by Texas Pacific Group and Apollo Management for $27.8 billion (€21.4 billion), including the assumption of $10.7 billion in debt. Apollo and TPG had to raise their bid to $90 per share from $81 to beat a rival consortium including Penn National Gaming and DE Shaw, one of the largest owners of Harrah's stock and a vocal opponent of the initial TPG/Apollo offer. Penn National and DE Shaw reportedly bid $87 per share.

DELPHI BAILED OUT BY CERBERUS
Former General Motors auto parts maker Delphi Automotive agreed to accept up to $3.4 billion (€2.6 billion) in financing from an investment group as it emerges from bankruptcy. Investors include Cerberus Capital, Appaloosa Management, Harbinger Capital, Merrill Lynch and UBS Securities. The deal involves the purchase of $1.2 billion in convertible preferred shares and $200 million in common stock. Approximately $3.5 billion in pension obligations will be funded, $2 billion of which by GM. JPMorgan Chase will provide roughly $4.5 billion in debtor-in-possession financing. Current Delphi president Rodney O'Neal will replace Robert Miller as CEO. Miller remains as chairman.

GOLDMAN, ONEX SOAR WITH RAYTHEON
Raytheon is selling its business and special mission aircraft arm to Goldman Sachs Capital Partners and Toronto-based Onex Partners for $3.3 billion (€2.5 billion), its largest divestment ever. The $1.1 billion equity investment in the deal will be shared equally between Goldman and Onex, who formed the vehicle Hawker Beechcraft to acquire the company, which manufactures Hawker and Premier business jets. Raytheon Aircraft's management team will likely continue running the company. The sale completes Raytheon's shift back to government and defense contracts. It now concentrates on weapons, such as the Tomahawk cruise missile used by US military operations in Afghanistan and Iraq.

BLACKSTONE BUILDS TRAVEL PLATFORM
Travelport, a holiday business owned by private equity firms Blackstone Group and Technology Crossover Ventures, is seeking to buy rival Worldspan for $1.4 billion (€1.1 billion). If approved, the deal could save approximately $50 million by consolidating technology and administrative operations. Management wants to cross-sell Worldspan's technology products to Travelport's customer base. Travelport, which operates 20 brands including Galileo, a global distribution system, Orbitz, an online travel agent and Gulliver's Travel Associates, a wholesaler of travel content, was acquired from Cendant in June 2006 for $4.3 billion in cash.

BUYOUT HEAVYWEIGHTS BACK ORTHOPEDIC TAKE-PRIVATE
Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts and Texas Pacific Group are taking Biomet private in a $10.9 billion (€8.4 billion) deal, alongside Biomet founder Dane Miller. Miller resigned from his post as president and chief executive of the hip replacement, knee replacement and other orthopedic products company in March 2006. The consortium offered $44 per share, representing a 27 premium over Biomet's closing price on April 3, 2006, the day before the company retained Morgan Stanley to explore “strategic alternatives” for it. Bank of America and Goldman Sachs are providing debt financing.

ONEX TO BUY KODAK HEALTH
Toronto-based Onex has agreed to buy Kodak Health, a medical imaging and healthcare information technology solutions provider, from Eastman Kodak for C$2.8 billion ($2.4 billion; €1.9 billion). As part of the deal, Onex will also buy Kodak's non-destructive testing business, a division that sells x-ray film and digital x-ray products. To fund the acquisition, Onex is drawing down C$560 million from its second fund, Onex Partners II. Proceeds will be used to pay Kodak's $1.2 billion of secured term debt. The deal is expected to close in the first half of 2007.

OAK HILL TUNES INTO TV STATIONS
In its first media deal, Robert Bassaffiliated private equity firm Oak Hill Capital Partners has agreed to purchase nine network-affiliated television stations from New York Times Company for $575 million (€444 million). The stations include small city affiliates of NBC, CBS and ABC broadcasting stations in Alabama, Arkansas, Illinois, Iowa, Oklahoma, Pennsylvania, Tennessee and Virginia. The NY Times company also sold its broadcast media group in September 2006 to refocus on its newspaper and digital businesses. Over the past five years, the company's share price had declined from above $50 per share to $24.36 at the end of 2006.

GOLDEN GATE TAKES DIRECT MARKETER PRIVATE
The San Francisco-based firm will acquire Blair Corporation for $173.6m and merge it with portfolio company Appleseed's Topco. Blair Corporation is a Pennsylvania-based direct marketer of apparel and home products. Golden Gate Capital will merge the company with its portfolio company Appleseed's Topco. Together, Golden Gate expects, the two companies will generate an annual revenue of approximately $1.1 billion. The deal is expected to close in the spring of 2007. “We have targeted this segment of the women's specialty market because it is one of the fastest growing demographic segments of the population – women over 50-years-old,” said Stefan Kaluzny, a managing director at Golden Gate.