Publicly traded American Capital Strategies, led by Malon Wilkus, last month raised $585 million (€414 million) through a unique fund that attracted commitments from private equity secondary players AIG Investments, Landmark Partners, Paul Capital Partners, Lehman Brothers Secondary Opportunities Fund and SVG Advisors.
The vehicle has a complex mandate. The fund will purchase 17 percent of American Capital's direct equity investments in 80 portfolio companies for $488 million, at 3 percent below fair value, according to the firm. American Capital will continue to manage the portfolio companies, for which it will earn $10 million in management fees during the first year of the investment. The remaining $97 million will be used to fund follow-on investments in the portfolio companies.
“During a time when the capital markets are closed for many financial services companies, our ability to raise capital in diverse and flexible ways gives us a tremendous competitive advantage,” said American Capital's chief financial officer John Erikson in a statement.
The deal highlights an unusual method for raising new investment capital as well as a hunger on the part of secondary buyers to put their own equity to work. David Wachter, managing director of secondary direct specialist, New York-based W Capital, said deals like this may become more frequent if exits become scarce. However, Wachter added that no standard format for direct secondary investing has taken root. “There's no usual or unusual anymore,” he said. “It's whatever can be negotiated in these types of deals.”
American Capital raised $900 million for a more traditional private equity vehicle, American Capital Equity I, last October. The firm has kept up a rapid pace of investment, drawing capital both from the private equity fund and from numerous public offerings of equity. Since June, the firm has announced 11 new transactions.
The firm has also been divesting assets in a more traditional manner. In the second quarter of 2007 the firm sold $984 million worth of investments, according to its quarterly report, earning a profit of $77 million from these divestments.
TPG, LEHMAN FINANCE PRIVATE JET COMPANY
TPG Growth and Lehman Brothers Global Principal Strategies have supplied $363 million (€258 million) in financing for XOJET, which provides private Cessna jets. The two firms invested $143 million in debt and equity financing, while Lehman invested an additional $220 million for aircraft lease financing. “Global demand for private jet travel continues to grow more than three times the rate of the broader economy,” TPG founding partner David Bonderman said in a statement. “After studying this substantial $33 billion global industry, TPG concluded that XOJET's model is well positioned to take advantage of growth opportunities by delivering top quality service cost-effectively.”
ONEX TO TAKE HUSKY PRIVATE
Canadian private equity firm Onex has agreed to acquire Toronto Stock Exchange-listed Husky Injection Molding Systems for C$960 million ($969 million; €680 million). Onex's C$8.18 per share offer represents a 38.6 percent premium over the company's closing price on 27 September. Husky provides equipment and services to the plastics industry for the injection molding process. The company's equipment is used to make products such as bottles and caps for beverages, food containers, automotive components and consumer electronic parts. Husky's shareholders will vote on the deal on 6 December. If approved, the deal will close shortly after.
SILVER LAKE, VALUEACT DROP ACXIOM BUYOUT
Silver Lake and ValueAct Partners have dropped their planned $3 billion (€2.1 billion) acquisition of data company Acxiom due in part to “current market conditions”, an Acxiom spokeswoman said. The two private equity firms will pay Acxiom a $65 million break-up fee, according to a statement. The two firms agreed to buy Acxiom in May for $3 billion, including the assumption of $765 million in debt. UBS was to provide financing for the deal.
TXU BUYOUT GETS GREEN LIGHT
The largest US leveraged buyout to date completed last month with the close of the $45 billion (€32 billion) sale of TXU. The close came one month after 74 percent of the Texas energy giant's shareholders voted in favor of the $69.25 per share cash offer from TPG, Kohlberg Kravis Roberts and Goldman Sachs Capital Partners, which was put on the table roughly nine months ago. The private equity firms promised a number of initiatives designed to placate stakeholders that could have slowed or stopped the sale, including a promise to cut TXU's retail prices by 5 percent by year's end, an agreement to commit $150 million over 5 years to assist low-income customers and a pledge to create a Sustainable Energy Advisory Board.
KKR, GOLDMAN DROP HARMAN LBO
Private equity firms Kohlberg Kravis Roberts and Goldman Sachs Capital Partners have informed Harman International Industries that they do not plan to go through with their previously agreed buyout, valued at roughly $8 billion (€6 billion). The buyout firms said a material adverse change has occurred in the US audio equipment maker's business, and that the company breached their contract, according to a statement issued by Harman, which disputes the claims.
SPG MAKES FIRST EXIT
Snow Phipps Group has made its first exit with the sale of Excel Mining, a maker of roof bolts for mines, to Orica Limited, an Australian industrial explosives manufacturer, for $670 million (€475 million). SPG bought Excel from founder Bruce Cassidy in October 2006 for an undisclosed amount, and re-capitalised the company in July 2007 in order to pay a special dividend to SPG shareholders.
SHAREHOLDERS APPROVE BCE BUYOUT
Shareholders of telecom giant Bell Canada Enterprises have approved its $49 billion (€35 billion) take-private by Teachers Private Capital, Providence Equity Partners and Madison Dearborn Partners. Following a two-and-a-half hour special meeting, roughly 63 percent of the holders of outstanding BCE common and preferred stock voted on the buyout, which was approved by 97 percent of total votes cast. The deal is the largest proposed LBO to date, and is the product of an auction which included two other heavy-hitting consortiums comprised of Canadian pensions and major US private equity firms. The proposed deal still faces hurdles, with Canada's telecom regulatory body planning to hold hearings in January 2008, according to a report in Canada's Globe and Mail. Posttransaction, Teachers Private Capital would own 52 percent of BCE, Providence 32 percent, Madison Dearborn 9 percent and other Canadian investors 7 percent.
SALLIE MAE BUYOUT FALTERS
Days after saying it would likely walk away from its $25 billion (€18 billion) buyout of US student lender Sallie Mae, a consortium led by JC Flowers made a revised offer that would have slashed the value of the deal by up to $4 billion. Sallie Mae responded negatively to the offer, which was comprised of $50 per share in cash, down from $60, plus a conditional payout of up to $10 per share. “Our contract is with Bank of America and JPMorgan Chase, two of America's largest and strongest banks,” Sallie Mae said in a statement. “We expect these banks to honour that contract, not breach the contract.”
CERBERUS IN $2.52BN PAPER BUYOUT
Cerberus Capital Management will pay $2.52 billion (€1.8 billion) for the North American holdings of Stora Enso, a paper, packaging and forest products company based in Finland, in what was the first agreed deal worth more than $2 billion post-credit meltdown. Cerberus will pay $1.5 billion in cash and $200 million in vendor notes for 19.9 percent or $370 million of shares in the new company. Debt of approximately $450 million will be assumed by NewPage Holding Corporation, Cerberus' paperfocused portfolio company which will merge with Stora Enso North America. NewPage and SENA had combined annual sales in 2006 of $4.3 billion and EBITDA of $525 million. Stora Enso said in a statement that it anticipates the merger will result in value creation from significant cost synergies.