English explorer Captain James Cook was the first, but not last, Western adventurer to suffer loss and indignation in Hawaii after enjoying an initial period of blissful discovery. First welcomed as an incarnation of the god Lono, Cook and his men eventually fell out with the locals, culminating in Cook being murdered and barbecued.
The setbacks suffered by several private equity firms in Hawaii in recent years have not been as severe, but taken together they seem to indicate that trouble is the norm for nonnative capital in the Aloha State.
The most recent private equity investment to get the Cook treatment has been Aloha Airgroup, an inter-island airline that received rescue financing in 2004 from Los Angeles-based Yucaipa Companies, led by Ron Burkle. Yucaipa, which touts its skill in labour negotiations, had taken Aloha out of bankruptcy with a $43 million (€27 million) equity infusion. The company ended up going bankrupt again in March, shutting down its passenger operations.
Moving people from island to island is also the business plan behind Hawaii SuperFerry, an upstart high-speed ferry service backed by private equity firms JF Lehman and Norwest Equity Partners in 2005 with $80 million in equity. While the company remains solvent, it has been besieged by court injunctions and environmental protests. An activist surfer blog told readers they should be “ready to die” in protesting the relaunch of SuperFerry service.
On Oahu's North Shore, Los Angeles-based Oaktree Capital Management is encountering opposition to its plans for the Turtle Bay Resort, which the firm acquired in 2000. Oaktree had plans to build a collection of new resorts on the oceanfront land owned by Turtle Bay until local activists sounded the alarm. Now Hawaii's governor, Linda Lingle, is pushing for legislation that would see the state purchase the land from Oaktree. This is at least more profitable than the idea suggested by activists that Oaktree donate the land to “the people”.
The firm with the most money at stake in Hawaii is The Carlyle Group, which bought Hawaiian Telecom from Verizon for $1.6 billion in 2005. The deal has not gone as planned. Carlyle found itself rebuilding the billing system from scratch while local regulators fielded complaints about poor customer service. Carlyle recently replaced its Hawaiian Telecom CEO with turnaround ace Stephen Cooper.
A number of GPs may be returning from Hawaii looking paler than before they made the trip.
AXA PE PAYS $155M FOR CHEMICALS BUSINESS
The private equity captive arm of the French insurance giant bought a division of Canada-listed Atrium Innovations for $155 million (€99 million), with KBC arranging senior debt and European Capital providing mezzanine. The deal has a debt to equity ratio of roughly 60:40, AXA managing director Eric Neuplanche said. “It's very tough to have $155 million in commitments from a bank these days, but because of the strength of the company they chose to invest.” The division had revenues of $222 million in 2007, of which 55 percent came from Europe and 45 percent from Canada. It has an operating margin of around 8 percent, or $17.76 million in profits, giving the business an acquisition multiple of under nine times.
SAFETY PRODUCTS COMPANY PROVIDES SECOND SPONSOR EXIT
Odyssey Investment Partners will sell protective equipment manufacturer Norcross Safety Products to Canadian industrial supplies company Honeywell International in a transaction valued at approximately $1.2 billion (€768 million). The New York-based private equity firm acquired Norcross for $495 million in July 2005 from a group of investors including Trimaran Capital Partners, John Hancock Life Insurance Company and Chicago's CIVC Partners. Under Odyssey's ownership, Norcross completed four add-on acquisitions with a fifth pending. The company generated $609 million in revenue in 2007, up from $440 million in 2004. Odyssey made the investment in Oak Brook, Illinois-based Norcross via its third fund, which closed on $750 million in March 2005.
BUYOUT-LINKED FEE REVENUES, DEAL VALUES DROP
The amount of investment banking fees generated by buyout firms was down 77 percent to $1.16 billion (€742 million) in the first quarter of 2008 compared with the same period last year, according to data provider Dealogic. The lack of fees generated by buyout firms coincided with a 65 percent slump in the value of deals, down from $179.8 billion last year to $63.1 billion in the first quarter of 2007. This is the lowest first quarter deal value since 2004. Specialist energy firm First Reserve provided the greatest net revenue for banks from advice and financing, paying out $75 million in the first quarter – more than three times higher than the $24 million it paid in the same period last year.
SPONSORS, BANKS SPAR OVER CLEAR CHANNEL DEAL
Thomas H Lee, Bain Capital and a group of six major banks, which the buyout firms are suing to force funding of their $26 billion (€16.5 billion) Clear Channel take-private, exchanged heated public statements as the banks sought dismissal of a lawsuit filed in New York and a transfer of a Texas lawsuit from state to federal court. The sponsors accused the banks of “pretending to negotiate” and converting terms of the original deal from seven-and-a-half-year financing into a threeyear bridge loan. Meanwhile the banks maintained their willingness to honour their obligations and said: “Providing memoranda to the media will not get this deal done nor will filing baseless litigation”. The New York court case is slated to begin 5 May.
RIVERSTONE AGREES TRADITIONAL, RENEWABLE ENERGY DEALS
Riverstone Holdings, an energy-focussed Carlyle Group affiliate, inked two large deals in March. The firm joined power company AES in launching $1 billion (€648 million) joint venture AES Solar to develop, own and operate utility-scale solar installations. Each agreed to contribute $500 million over five years with the aim “to make solar power a viable energy source worldwide”, said AES chief executive Paul Hanrahan. Riverstone also signed up to a C$625 million ($614 million; €329 million) club deal to help Shelter Bay Energy, a Canadian oil and gas company, target light crude oil drilling expansion opportunities in the Bakken lands of Southeast Saskatchewan. Investing with Riverstone was Goldman Sachs, mid-market firm Kelso & Co, hedge fund Trafelet & Company, and Crescent Point Energy, a publicly traded Canadian income trust that formed Shelter Bay.
TPG BAILS OUT BANK
An investor group anchored by TPG agreed to inject $7 billion (€4.5 billion) in beleaguered US banking giant Washington Mutual, with TPG agreeing to purchase a $2 billion stake in the Seattle-based savings and loan. TPG co-founder David Bonderman will rejoin WaMu's board of directors after serving there from 1996 to 2002. At TPG's request, Larry Kellner, chairman and chief executive officer of Continental Airlines, will become a board observer. The bailout is the latest example of private equity firms extending rescue capital to troubled banks and financial companies – a long-standing industry trend that has resulted in lucrative exits for some firms.
FORMER APOLLO EXEC LEADS $1BN ‘BLANK CHEQUE’ ACQUISITION
Special purpose acquisition company Marathon Acquisition, headed by former Apollo partner Michael Gross, will purchase a 66 percent stake in shipping outfit Global Ship Lease in a deal valued at roughly $1 billion (€648 million). The London-based container ship company, currently a subsidiary of French logistics giant CMA CGM, will access the public markets following approval of the deal by Marathon stockholders. Marathon plans to list Global Ship Lease on the New York Stock Exchange early in the third quarter of this year. Gross, among the original partners of the Leon Black-founded buyout and distress giant Apollo Management, spearheaded the $308.8 million public debut of Marathon in August 2006.
3COM SEEKS $66M BREAK-UP FEE FROM BAIN
IT networking company 3Com, which has cried foul over Bain Capital's termination of its $2.2 billion (€1.4 billion) take-private, is seeking $66 million in termination fees. Bain dropped its bid to acquire the company amid mounting US regulatory scrutiny pertaining to Chinese networking company Huawei, a commercial partner of 3Com slated to take a 16 percent stake in 3Com post-buyout. Huawei has been accused of allegations including industrial espionage against Cisco Systems. Because 3Com makes intrusion-prevention equipment for the Pentagon and other federal agencies, opponents of the deal feared sensitive information could be compromised. Bain and 3Com were unable to agree upon an alternative deal likely to appease regulators.
PE-BACKED AIRLINES FILE CHAPTER 11
MatlinPatterson-backed ATA Airlines and Aloha Airlines, a Yucaipa portfolio company, each filed for bankruptcy amid rising fuel costs and massive operating losses. For US regional airline ATA, it is the second time it has sought protection from creditors in the last four years, but the first since MatlinPatterson acquired the Indianapolis-based airline in 2006 via Global Aero Logistics, a holding company in which it owns a 74 percent stake. MatlinPatterson had actually bid to acquire Aloha after its first bankruptcy in 2004, but was beaten by Los-Angeles based Yucaipa. Los-Angeles based Yucaipa rescued the regional Hawaiian airliner with a $43 million equity infusion, and currently holds $106 million (€68 million) in secured debt in the collapsing airline.
APAX IN $1.4BN US TAKE-PRIVATE
Joined by insurance company BlueCross BlueShield, the mega-buyout firm has agreed to a $1.4 billion (€885 million) take-private for healthcare software company TriZetto. Apax will pay $22 per share in cash, representing a 29 percent premium over TriZetto's 30-day stock price average. “We see the confluence of healthcare and information technology as a key area of focus for strategic investments,” Buddy Gumina, a partner and head of US healthcare investments at Apax, said in a statement. BlueCross BlueShield of Tennessee and The Regence Group, a conglomerate of BlueCross firms in the Pacific Northwest, have agreed to provided a portion of the funding for the transaction and will be equity investors in the new private company.
GOLDMAN KILLS $1BN MYERS DEAL
GS Capital Partners and Myers Industries have agreed to terminate their $1 billion (€635 million) deal to take private the Ohio-based polymer manufacturer. The deal, struck in April 2007, consisted of $788 million in cash, or $22.50 per share, and debt assumption of approximately $276 million. In December, GSCP requested an extension of the deal's close to further evaluate Myers' exposure to certain industries. In return, GSCP agreed to make a non-refundable payment to Myers of the previously agreed upon $35 million termination fee. Myers' head of investor relations, Max Barton, said GSCP is not required to pay any additional fees for terminating the deal.