Commentaries and insightful analyses on the world of finance, technology and IT.

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August 25, 2009

The Other Reason Private Equity Deal Flow Will Increase

In previous entries, I have written about stagnation in the mergers and acquisition market, specifically in terms of Private Equity buyouts. There are a variety of reasons, not related specifically to Private Equity, for this relating to tighter credit, buyer/seller expectations, etc. However, there is one significant reason that not typically mentioned that will ensure existing “dry powder” is burned down sooner rather than later. The public equity markets.

 

 

Many acquisitions made at the end of the boom are suffering due to high debt exposure along with older holdings that have simply sunk with the overall market (a very positive exception being KKR’s Dollar General) which are drags on fund returns. This has been the same fate for any other holder of portfolios in the public equity market that was unable to liquidate as the broader market retreated into the Dow Jones 6000 range. However, recent gains of over 30% from those lows in public equity market is allowing those sophisticated players to recoup earlier losses by taking advantage of this run up. Private Equity funds which have not made any acquisitions or exits will have simply ridden the market down and back up with current investments while keeping uncalled funds in cash equivalents which don't get the benefit of an up market. While I am not saying Private Equity could not create better overall value for those Limited Partners, I am sure many LPs are having the discussion with their General Partners regarding fund strategy considering we have been in a dead period for almost a year now. Whether or not buyer and seller expectations are aligned yet, my guess is that buyout activity will increase one way or the other.

 

 

Posted by Jeremy Kloubec at 04:09 PM | | Comments (0) | TrackBacks (0)

August 18, 2009

Cloud Computing Seminar Hosted by HYSEA

Next in the series, after the NASSCOM Emerge Forum event, once again I and Bhavin would be presenting a business case for cloud computing @ HYSEA. 

HYSEA is organizing half-day Workshop on Cloud Computing Usecases on August 22, 2009 @ CA, Manikonda, Hyderabad. We will be discussing a real-life use case and ROI model for a large postal solutions provider (ISV) for migrating to cloud infrastructure.

Please join us and lets share and learn more...

About HYSEA Cloud Computing Workshop

HYSEA (Hyderabad Software Exporters Association) is organizing a half-day Workshop on Cloud Computing Usecases. The industry leaders from different organizations will discuss the emerging trends in Cloud Computing space and talk about the real-life use cases of cloud computing.

You can find more details of the workshop, detailed agenda & schedule at HYSEA website here. For registrations, please follow the instructions on the website.

Posted by Srinivas Prabhala at 06:24 AM | | Comments (0) | TrackBacks (0)

August 14, 2009

Mega-Funds Are Using Their PIPEs

Private Investment, Public Equity or PIPEs have always been a tool for buyout funds to utilize and generate returns. The issue becomes the need to uncover outstanding corporate performers else the individual investor or money manager could simply follow a similar strategy (granted, typically not on as good of terms) without the additional restrictions required with being a Limited Partner. Additionally, a buyout fund would also need management concessions so they could influence change to drive value else they are at the mercy of the returns given to them. In my opinion, it is only a way to test an investment hypothesis, put some dry powder to use in a down market and just a compliment to the overall buyout strategy. However, recent activity is showing a significant surge in PIPE activity which means it may start being used more as a leading strategy.

 

 PIPE activity more than doubled from 2007 to 2008 (according to a PWC study) for a total of $177B in the US alone. This made sense due to falling share prices and a need to raise cash during the financial market crash. Additionally, 2007 was still a boom year so PE firms could execute buyout strategies to achieve outsized returns using cheap credit instead of using PIPE options. While 2009 has seen a return of financial stability, global M&A is still down due to tighter credit along with still overpriced assets. This situation has created a significant of unallocated capital that needs to be put to work as LPs begin start to reconsider new funding rounds on top of idle money.

 

This trend was validated by PrivateRaise LLC which noted in a report that venture and private equity has raised its contribution from 11% to 18% of all PIPE transactions in 2009. Some of the most recent transactions have been from TPG Capital taking an 11% stake in the Chinese retailer Wumart and 12% stake in Armstrong World Industries. TPG Capital may be a buyout fund PIPE leader having executed 10 such deals since 2007, a practice typically done by the banking investment funds such as Goldman Sachs or Warburg Pincus that utilize a hands off management style with investments anyway. Not all of the mega-funds will be adopting PIPE investing, but we may soon see more of them jump in unless this market turns a corner.

 

Posted by Jeremy Kloubec at 10:15 PM | | Comments (0) | TrackBacks (0)