Ravi Madhavan's A&D Blog

Private Equity explained

The private equity industry is fighting a PR war against all the negative publicity, this time with some educational outreach. The Private Equity Growth Capital Council tries to explain how private equity works, complete with cartoon video and a slide set.  

Inside look at Private Equity

BusinessWeek covers a key aspect of private equity: its focus on making companies more efficient.

The TXU story

NYT DealBook has the story of how the largest LBO deal in history turned out rather poorly - the $45B buyout of TXU five years ago by KKR, TPG, et al.

Role of private equity in US economy

PBS coverage of the role of private equity in the US economy here. 

Political maelstrom hits private equity

This NYT DealBook article discusses the quandary that private equity executives find themselves in, as Mitt Romney's high profile due to the Republican primaries places the spotlight on the private equity industry. (As one of the founders of Bain Capital, Romney has a very successful track record in private equity.) Excerpt:

It was a long-held fear of Wall Street’s private equity titans. If Mitt Romney won the Republican nomination in 2012, the industry would come under intense scrutiny and withering attacks from his opponents.

As Mr. Romney has established himself as the front-runner in the large Republican field, those fears have come to fruition.

 

Nice illustration from the M&A strategy playbook

Carl Icahn's offer to buy metals recycler Commercial Metals Company (NYT DealBook report here) is an exemplar of what often happens in M&A, displaying features such as the search for scale (combining target with prior acquisition) and a multi-track approach (offer to management with the implied threat of a proxy fight if rebuffed).

2011 Wharton Private Equity Report

Here. Bottom line: the industry is making a gradual comeback from the meltdown.

An LBO hit list from UBS

Barron's reports that UBS analysts have produced a list of 27 potential LBO targets. Excerpt:

Leveraged buyouts have increased as private-equity firms scour the stock market for targets in which to invest tens of billions of dollars committed by pension funds and other institutional clients.

Notable deals announced this year include Clayton Dubilier & Rice's $3 billion purchase of Emergency Medical Services (ticker: EMS) and Providence Equity Partners' $1.9 billion acquisition ofSRA International (SRX). Private-equity buyers failed to snare other targets, including Sara Lee (SLE) and Dynegy (DYN), owing to objections by the companies or shareholders. U.S. LBO activity totaled $41.5 billion in the first quarter, 23% above the $33.6 billion in 2010's first three months, reports Dealogic.

What companies could be the next targets? Randy Udell and Ben Canet of the UBS U.S. special-situations equities sales team, recently listed 27 potential targets. Two prior lists, published in March and July 2010, had a good hit ratio of LBOs and other takeovers, such as King Pharmaceuticals, bought by Pfizer in March.

The new list includes a sizable number of retailers, including Aeropostale (ARO),Limited Brands (LTD), RadioShack (RSH) and Ross Stores (ROST). The sector is a private-equity favorite, partly because retailers tend not to buy other retailers, leaving the field open for financial purchasers.

 

Deal Reel

Here are a few noteworthy deal items today: NYT Deal Book's Deal Professor comments on 3M's deal structure for Cogent, pointing out some intriguing wrinkles... Newsweek suggests that the recently approved United-Continental merger might lead to higher airline prices...a Reuters article by way of CNBC on how China might play a spoiler role in the BHP/ Potash Corp. drama, including a possible competing bid from HSBC and an antimonopoly investigation... On the heels of Burger King's buyout by a PE group with Brazilian backers, an NYT article on Brazil's new global dealmakers. 

Faulty valuation to blame in Tribune Co. debacle?

According to this WSJ report, the court-ordered examiner looking into the Tribune Co.'s bankruptcy has blamed a valuation firm's work as one of the factors that brought the media conglomerate down. Excerpt: 

 A court-ordered probe of Tribune Co.'s $8.2 billion buyout casts a harsh light on an obscure Milwaukee valuation firm that proved to be the pivotal player in the failed deal.

The firm, Valuation Research Corp., gave Tribune a clean bill of financial health in late 2007, clearing the media conglomerate to go private in a deal led by real-estate investor Sam Zell. But the transaction saddled the newspaper-and-television company with unsustainable debt, and Tribune filed for bankruptcy protection less than a year later.

A bankruptcy-court examiner slammed Valuation Research's methods in a report filed late Monday. He also assailed Tribune's board for not being more skeptical of the firm's judgments about the media conglomerate's ability to handle additional debt.