World Economic Forum Findings on Private Equity
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Commentaries and insightful analyses on the world of finance, technology and IT.
February 05, 2010
January 12, 2010
Coming Back From the Holiday
Looking Forward at Deal Making in 2010
December 07, 2009
Update: PIPE Activity Continues to Increase
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November 19, 2009
The Market is Ok with Debt from Private Equity Investing (to a point)
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November 15, 2009
Q2 Capital Call Uptick, but Distributions are Holding Steady
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November 06, 2009
Emerging From the Mess
October 23, 2009
Private Equity is Following M&A Sector Trends for Market Recovery
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October 17, 2009
Private Equity Fund Raising Lowest Since 2003
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September 30, 2009
IT Infrastructure Heats Up
September 25, 2009
A Case for Optimism for Buy-Outs
Events like Dow Jones Private Equity Analyst conference usually get a significant amount of coverage due to the parent sponsor (Dow Jones) and the wealth of other news services that cater to private equity news. Most of the major headlines have already been widely distributed based on commentary from panel discussions, but often it is hard to get the gist of how those sound bites were really delivered. That to me is more telling than the content itself.
September 11, 2009
Impact of Bid-Ask Spread for Buyouts
I have previously written a bit about the difference in buyer/seller expectations as one reason for the slowdown in buyouts. Scott Sperling, co-CEO of THL Partners was on CNBC recently and discussed this very issue saying that he has expected opportunities “to buy companies in the 5-7x cash flow range” with the public market expectations of “7-9x [sales price] in most sectors” ( http://www.cnbc.com/id/15840232?video=1249086465&play=1). I am going to trust Scott at his word on this and generally enjoy the perspective he brings in his interviews. The next question is, now what does this really mean?
September 01, 2009
A Closer Look at North American Deal Flow for H1
A better title may have been “A Startling Look at Deal Flow for H1”, but I decided against panic inducing headlines. All hyperbole aside, Mergermarket’s new report “North American Private Equity in Review” for Aug 2009, provided some sobering statistics regarding the number and total value of deals completed. While I had previously written about global M&A trends, this was simply a closer look into the North American market. The only silver lining appears to be that rate of decline has significantly decreased or leveled off (depending on the metric) which provides some optimism going into next year.
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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.
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August 14, 2009
Mega-Funds Are Using Their PIPEs
July 31, 2009
Are IPOs the Private Equity Green(-ish) Shoots?
KKR may have the darling of the IPO market in the US with Dollar General which has been performing extremely well in this tight market. Speculation continues about the timing of KKR’s own pending IPO which appears to be following the infusion it will get from floating Dollar General. KKR also has stakes in Avago, HCA, TDC AS and Toy “R” Us which are all slated to go public. This should bode well for the KKR funds and their cash positions for acquisition activity. Bain Capital and Permira will get some relief with their stakes in HCA, Dunkin Brands, Toys and TDC AS, Bird’s Eye, Acromas respectively. Obviously, the size of the IPO is more important than the sheer number in terms of return, but it is an indicator that assets are being moved. Providence Equity Partners also has some activity pending from their stakes in TDC AS and Education Management Corp. Another notable transaction would include United Biscuits in the UK, a Blackstone holding that should be a larger deal. There are many other private equity owned firms in the pipeline to be floated as well, just will be smaller individual deals. Overall, this is at least a positive uptick in my opinion.
A contrarian view to this situation is that PE needs cash and is simply pushing these companies out the door sooner. Fair enough statement, but PE needs returns and not cash due to the considerable overhang left from past fund raising (see a previous post “Private Equity Dry Powder” http://www.infosysblogs.com/finspeak/2009/06/). If the asset is not ready, its poor performance will only further drag down overall fund returns. While I can somewhat believe they could be rushing, it could not be the only reason. Now let’s hope this ‘V’ movement doesn’t become a ‘W’, with is a subject for a different time.
July 20, 2009
Part III: Interview with Paul Hilger and William Gole, Authors of “Corporate Divestitures”
This is the third and final part of my interview with Paul Hilger and William Gole.
July 07, 2009
Part II: Interview with Paul Hilger and William Gole, Authors of “Corporate Divestitures”
Part I: Interview with Paul Hilger and William Gole, Authors of “Corporate Divestitures”
I recently had the pleasure of reading "Corporate Divestitures: A Mergers and Acquisitions Best Practices Guide" (http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470180005.html) written by Paul Hilger and William Gole. It is a practical, step-by-step guide for those responsible for the sell side of M&A transactions. I was also lucky enough to meet the acquaintance of Paul and Bill who graciously agreed to an interview with our Private Equity blog.
Before we start, some quick background information on Paul and Bill.
Paul Hilger was in corporate financial management for about 25 years, most recently as CFO of Thomson Healthcare, a $500 million division of Thomson Reuters, Inc. Currently, he advises organizations about various aspects of their M&A transactions and is involved in writing, educational, and training projects.
Bill Gole held a wide range of executive positions, including CEO of Frost & Sullivan, an international market research company; SVP of Worldwide Sales and Services for Thomson Scientific, a provider of data to the international research community; and SVP of Planning and Business Development for Thomson Healthcare, a provider of information to healthcare professionals. Presently, he devotes time to writing, teaching, and selective consulting activities.
July 02, 2009
And the US M&A Winner is.... Healthcare
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June 23, 2009
Private Equity Add-On Acquisitions and Adjacency Innovation
Pitchbook had posted a statistic a few weeks back that according to their numbers there have been 111 add-on acquisitions so far in 2009. Considering that add-on acquisitions help to bolster core business or provide access to complimentary markets, it should stand to reason that add-on acquisitions should be at an all time high.
Interestingly enough, Pitchbook also provides figures for the historic percentage of add-on to total acquisitions, 32%, and the current pace is right in line with historic averages. Additionally, Q1 saw 71 add-on deals with Q2 only 40 which means there is a potential to dip below the historical average (June started quick so that remains to be seen). This is even more interesting considering recent comments on the type of innovation to pursue now made by Vijay Govindarajan, an expert on innovation and strategy from the Tuck School of Business at Dartmouth, on how corporate resources should be spent in a recessionary period. Mr. Govindarajan recommends that businesses in a recession should spend 70% of their time on the core business, 25% on adjacency innovation and 5% on break-out (high risk/high reward) innovation. Considering that an add-on acquisition is in effect adjacent to the core business, this makes the above trend even more counter intuitive. My guess would be that there is still a gap between buyer and seller expectation in addition to downward pressure on deals due to interest rates moving back up. Either way it is one more confusing indicator to compare against the other “green shoots” that are being touted by many as signs of economic recovery.
June 19, 2009
Private Equity Sector Trends- Predicting Recovery by Year End?
J.P. Morgan and Thomson Reuters published a recent report on the Era of Globalized M&A which had a number of interesting items evident in their data (download or view here http://www.scribd.com/doc/16482515/The-Era-of-Globalized-MA). What I liked about the analysis was that the graphs in many cases went back 10 years to 1998 or all the way back to 1990 to see reactions to other market adjustments such as Tech melt down to draw comparisons for today’s market. While the report has a focus on global M&A trends, I found the sector data more interesting.
The most obvious findings were that M&A increases with the equity markets as companies have cash to spend on acquisitions (however prices are higher) and that peak M&A correlates to a bubble (not helped due to the last point). The data also suggests that Healthcare and TMT (Telecom, Media & Technology) will be the first sectors to pick back up with consolidation efforts coming out of the downturn. If you consider pharma part of Healthcare, this has held true in the case of the Pfizer-Wyeth megadeal earlier this year. Telecom activity has been flat with the T-Mobile UK to BT rumor not panning out, but Tech has been active albeit from Cisco and Oracle mainly driving the market. Financial M&A activity is shown to move counter cyclically which has played out in an enormous and hopefully once-in-a-lifetime way with Merrill, Lehman, WaMu and Wachovia vanishing and further Private Equity fueled activity for regional banks (BankUnited) or bank carve-outs (Fifth-Third payment processing). This historical data also shows a predicted eight quarter slowdown on M&A which would pull us out of the current stall later this year. However, in the past contractions, the financial system was not almost brought to its knees and I hope it will not be enough to derail these past tendencies to follow the script with a drift towards recovery. David Rubenstein of Carlyle Group recently made similar predictions for market recovery later this year so I hope he and the numbers from the Globalization report are right.
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June 03, 2009
Private Equity “Dry Powder” at Record High $400B
PitchBook in partnership with the AMAA (Alliance of Merger & Acquisition Advisors) recently published a report on the available capital or “dry powder” available for investment by Private Equity. What is surprising from this Overhang Report (delta between funds raised and put to use) is not hitting this record high number, but the 10 year run up to this point where every year with the exception of 2003 and 2007 saw significant year end overhangs which further added to the accumulating available capital (view the report www.pitchbook.com/library.html).
Larger fund sizes, easier credit terms and a rolling pot of available capital enabled PE to make larger buyouts and take bigger bets to chase returns. However, this massive accumulation cannot be attributed to the mega-funds themselves. The mid-market must have burgeoning coffers as well to put this money to use for larger acquisitions correct? Interestingly enough, the answer is surprising. The mega-funds will decrease their target acquisition size taking some opportunity away from the mid-market, a few funds at the higher end of the mid-market will beat the mega-funds at this game since they have always pursued a higher volume of transactions and could potentially make that leap as a larger “player”. What this leaves is a significant portion of the mid-market (and VC community) that has funds they cannot commit, may not have the ability to exist on their fee structure and are unable to raise enough capital to make acquisitions or placements in this more competitive market since new investors would not see a return with such a large amount of uncommitted capital is just waiting to be deployed. You end with up with stranded available investment that will need to be cleared with some mechanism and put to use. I don’t have the most optimal answer to accomplish this task, but it would go a long way towards jumpstarting the current economy.
May 29, 2009
What’s Old is New Again: Private Equity Carve-Outs
While the Private Equity buyout firms made their mark unlocking value from carving out underperforming corporate assets, many had shifted in recent years to simply buying the corporation outright thanks to larger fund sizes and relaxed debt structures. This move towards whole company acquisitions started shifting back around the 2003 timeframe and accelerated until the recent financial collapse (using data from Dealogic). With liquidity tight again, we should see that trend reverse as more PE firms look for more affordable business unit-level acquisitions, but executing a successful carve-out has its challenges.
The obvious benefit of purchasing an entire company is that you get the entire support infrastructure so you can focus more simply at trimming the excess while operations continue to function. With a carve-out, the acquirer has to look at which staff will move over, mandatory Day 1 functions that need to be separated, how to set up a Transition Services Agreement (TSA) with the parent for technology or infrastructure support, etc. While this transition period is much more complicated, in my opinion, it offers a greater chance to realize value of the acquisition. My reasons are that are allowed to immediately cut non-core activities or have those activities performed by a third party with a lower cost basis since they simply don’t have to exist in their old form. It is much easier to remove operational costs from a newly designed firm than an existing entity. The trick is to balance the desire for a functional transition against keeping enough subject matter expertise with more “virtual” or variable cost resources (in addition to any specific expertise you may have paid for in the acquisition). This model creates a more rapid time to value and better returns for the acquirer.
At Infosys, we have looked very closely at this unique scenario for supporting carve-outs and have developed specific approaches to ensure we are reducing as much risk as possible for the acquiring firm. It is just another way we try to add value by combining our skills in new ways from an operational and technical perspective to best benefit our customers. M&A activity can be a healthy contributor to well functioning markets and should be supported.
What are some of your carve-out experiences?
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May 19, 2009
Effect of Limited Partner Investment in Private Equity Buyout Funds
However, being a Limited Partner, just as the name implies, makes you are a true partner of the buyout firm. LPs often times invest in multiple fund vintages from the same Private Equity firm with the assumption that some disbursements from previous funds would roll forward to fund future obligations in addition to providing liquidity back to the money manager. This riskier partnership and the Private Equity investment class in general has rewarded those investors with outsized returns in the past, but has flat lined in this current market. Regardless of the fund return, LPs are still legally bound to fulfill their full capital funding obligations (often putting 20% or more upfront) during the life of the fund with capital being drawn down to make acquisitions or buyouts (sometimes those obligations can be sold to a secondary buyer at a discount, just like any other asset). Unfortunately for LPs, many are experiencing interrupted disbursement cycles due to fund losses or an inability to divest fund holdings. This puts significant stress on the LP as they will continually be required to place money into these funds without planned payback.
This may sound like a bad deal as there has been an uptick in the number of articles written about the stress that these Private Equity relationships have put on LPs from this capital call arrangement. I have even seen quotes to saying that they [LPs] would rather not see any new buyouts so those capital calls would not have to be funded. While it may be an interesting human angle and generate some sympathy for LPs, I am a bit confused as to the problem. Risk is rewarded by higher returns. An indefinite higher return is free money and nothing is for free so I don’t understand the worry about these LPs since they should have modeled downsides into their investment strategy. If they have not, then we may see a period of underfunding for buyout firms (in addition to LP portfolio strategy changing) which could limit buyouts in a 1-3 year window if a number of LPs take a haircut via forced liquidation to secondary firms which reduces their appetite during future fund raising. Interestingly enough, I really feel this is much ado about nothing and don’t believe it will have a drastic impact on most buyout firms. I am basing my assumption on the fact that there is still a significant amount of uncommitted capital or “dry powder” and deal sizes will be smaller since banks will not be backing mega-buyouts so that capital will go farther. While I can’t appreciate these LP concerns over losses, my bigger worry is that some LPs are also state retirement funds which becomes a completely different story…
May 01, 2009
Update on Venture Capital
I previously posted on the slowing VC investment cycle and potential effect on innovation (http://www.infosysblogs.com/finspeak/2009/03/from_where_will_the_innovation.html#more). I wanted to provide an update on the subject, thanks to recent information released from the National Venture Capital Association (NVCA).
April 23, 2009
Interview: Paul Petersen, Principal at Wind Point Partners (Mid-Market Private Equity)
Paul Peterson is currently a Principal at Wind Point Partners with an investment focus in Engineered Industrial Products, Chemicals/Plastics and Building Products. Paul has worked on numerous leveraged buyouts and currently is the lead investor and sits on the board of directors of Citadel Plastics. Wind Point Partners is a Private Equity investment firm that acquires middle market businesses with growth potential and a clear path to value creation. Wind Point manages $2B in commitments and has invested in more than 80 companies since 1984. I am very appreciative of Paul taking time out of his day to discuss mid-market Private Equity.
April 22, 2009
Next Phase for Private Equity
April 15, 2009
Interview: Charles Bauer, VP, Investor Relations, HM Capital
Charles Bauer serves as Vice President – Investor Relations for HM Capital. Mr. Bauer spent the first 11 years of his career in public service serving as Chief of Staff for a United States Congressman with a special focus on fundraising and donor relations for the Congressman’s campaign. HM Capital Partners is a sector-focused private equity firm that primarily makes control investments in the energy, food and media industries, where the Firm has extensive experience, expertise, relationships and access to differentiated deal flow. Since inception, the Firm has completed more than 150 transactions in these sectors for a total transaction value in excess of $26 billion. I would like to thank Chuck for providing his insight into this aspect of the Private Equity value chain and educating me on some of its nuances. I hope you enjoy the interview.
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April 13, 2009
Effect of the Super Regulator
There are many fixes for the financial industry being bandied about Congress and from experts in the field. While not all will be implemented, it is a safe bet that regulatory powers will be increased just from the fact that financial firms have been at ground zero in this current economic crisis. Obviously, the mention of additional regulation creates significant concern and histrionics for some, but I feel that this is a turn in the right direction. Before I start on my defense of additional regulatory powers, I would like to state I am in favor of financial innovation. I just draw the line when that innovation creates systemic risk to our broader economy.
April 06, 2009
Interview: Private Equity Mega Buyout Fund
Today in the next set of interviews with Private Equity, I will be providing the text from a conversation with an investment lead at what is considered to be one of the mega Private Equity funds. I will not be able to provide specific information on the interviewee or the firm name due to the fact that approvals from their PR department would be quite lengthy, so I decided on anonymity, speed and content over names. I assume you will find it useful none the less and I am very appreciative of my interviewee for the taking time to answer some questions.
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March 31, 2009
Desperately Seeking Returns
It is no secret that many investors right now are struggling to gain traction against this mostly bearish market that has taken to whipsawing dramatically as of late. However, I still found the recent comments of David Rubenstein, the co-founder of the mega fund Carlyle Group, very surprising. While speaking at the Emerging Markets Private Equity Forum in New York, Mr. Rubenstein made a remark in regards to investments made in the last three years that
“Returning your capital may make you a top-quartile performer, if not top-decile performer.”
(courtesy WSJ Private Equity Beat http://blogs.wsj.com/privateequity/2009/03/26/top-returns-may-not-be-top-notch/)
March 30, 2009
Interview: Gary Weinstein, COO of Providence Equity Partners
This will be the first in an ongoing series of interviews with members of the Private Equity industry. My hope is to offer insights besides my own in the blog. Today I will cover aspects of the role of the COO for Private Equity firms, which a topic I have addressed in a previous blog entry.
Gary Weinstein, the COO of Providence Equity Partners, was gracious enough to spend some time with me and will be the participant in today’s interview. Just to provide some background on Gary, prior to joining Providence in 2008, he was the Managing Director and Global Chief Administrative Officer of investment banking at Lehman Brothers in addition to other leading roles in that firm. He also served as the CEO of Thermotrex Corporation from 1996 to 1999. Providence Equity Partners is the leading global private equity firm specializing in equity investments in media, entertainment, communications and information companies around the world. The firm has approximately $22 billion in equity commitments and has invested in more than 100 companies operating in over 20 countries since its inception in 1989.
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March 19, 2009
Private Equity is Transforming Their Own Operations
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Getting More Value Out of Current Portfolio Investments
Don’t just take my word that Private Equity is retrenching with an operational focus, David Rubenstein, the co-founder of Carlyle Group and key figure in the Private Equity industry recently stated “Private equity firms will spend 70 per cent of their time shoring up their investments, 20 per cent of their time shoring up their investor base, 5 per cent trying to raise new money and 5 per cent trying to do new deals”. While part of that 70% will also involve financial restructuring, the bulk of that effort will be in creating value for that portfolio investment via new revenue generation or cost reduction.
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March 06, 2009
From Where Will the Innovation Come?
Thomson Reuters reflected a 70% drop in total funding from the previous year in their Jan 2009 Venture Capital survey (thanks to PEHub for posting the data http://www.pehub.com/32973/vc-investment-pace-gets-even-worse/) . You could chalk this up to a monthly blip due to the current economic crisis, but total VC investments have been trending downward for a while now. Through no fault of the Venture community, they are holding onto their money due to market uncertainty and issues from being able to raise new capital. While many people may not shed a tear for VCs, this unfortunately creates many problems for the intellectual economy.
March 02, 2009
Value of Private Equity to its Portfolio Firms
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February 17, 2009
Looking for Leverage with Private Equity
This might be an unsurprising fact, but the LBO (leveraged buyout) market is under significant distress. To put it simply, it is harder for Private Equity to support LBO activity without having the “L” due to a tighter credit market that is restricting lending and many buyout firms already supporting high leverage ratios with current investments from previously looser lending. Because of this, new deal flow has dropped precipitously (over 80% YOY according to Reuters) and many are calling for a complete shake up in the Private Equity industry. David Rubenstein from Carlyle Group mentioned this and more during his presentation to his industry colleagues at SuperReturn this year in Germany in addition to providing a 15 point plan to fix the systemic problems. (http://graphics8.nytimes.com/images/blogs/dealbook/superreturn2009/rubensteinsuper09.pdf). Time to write the epitaph and move on right? Well, nothing is always that simple.
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Recent Posts
- World Economic Forum Findings on Private Equity
- Coming Back From the Holiday
- Looking Forward at Deal Making in 2010
- Update: PIPE Activity Continues to Increase
- The Market is Ok with Debt from Private Equity Investing (to a point)
- Q2 Capital Call Uptick, but Distributions are Holding Steady
- Emerging From the Mess
- Private Equity is Following M&A Sector Trends for Market Recovery
- Private Equity Fund Raising Lowest Since 2003
- IT Infrastructure Heats Up