The Japanese market for buyouts is certainly alluring, since there are lots of opportunities to cut costs. But it has been tough for US private equity firms to break in.
But today there was a success: D&M Holdings Inc. agreed to a $470 tender offer from Bain Capital Partners. This is according to a report in The Wall Street Journal.
D&M sells premium and super premium audio and video products, with brands like Denon and Snell. The company got its start in 1910 and has since engaged in a variety of acquisitions, such as for McIntosh Laboratory, Allen&Heath Holdings and Boston Acoustics.
D&M does have an attractive long-term potential. With the surge in wealth in Asian countries, there is likely to be strong demand for D&M products. And, with the financial backing of Bain, there are likely to be more bolt-on acquisitions to enhance the D&M platform.
LinkedIn is the social networking operator that just about every business person has received an invite to join from at least one person they know.
The company issued a press release this morning noting that it has secured $53 million in additional funding in a capital raise. This was its fourth and largest round of funding and is said to value the company north of $1 billion. What is perhaps more interesting than anything is that the finding was from a private equity-led group rather than from venture capital. Bain Capital Ventures, the VC unit of Bain, led the financing with additional reinvestment from the company's existing investors:
Sequoia Capital,
Greylock Partners,
and Bessemer Venture Partners.
Over 23 million professionals use LinkedIn to keep in touch with old contacts, to reach new contacts, to problem-solve, and more.
To top matters off, CNBC hosted the head of the company, Dan Nye, earlier this morning and the hint of going public was much more than a hint. It seems like you can probably expect an S-1 filing with the SEC in the relatively near future if things continue, although that timing could be later in 2008 or into 2009 or even never. But the 'we are going for valuations much higher than this' line was a hard one not to notice. Personally, I'll go ahead and 'bet the over' that we see an IPO filing in the coming months as long as market conditions don't go further awry.
I recently saw a presentation from Dan Nye, who is the CEO of LinkedIn. Of course, all the metrics were spiking. Then again, LinkedIn is the place for professionals to connect.
So, this week the firm has snagged $53 million in venture capital. The investors include Bain Capital Ventures, Sequoia Capital, Greylock Partners, and Bessemer Ventures. As a sign of their optimism, the valuation of the investment came to around $1 billion.
While Facebook and MySpace get lots of buzz, I think LinkedIn is a more interesting play. Basically, the company is leveraging user-generated content to build an immensely valuable database. For example, if an advertiser wants to target someone located in California that is interested in Linux systems, you will definitely get some hits. This is critically important. After all, many other social networks have a tough time monetizing things.
A fresh report out of Reuters is saying that Time Warner Inc. (NYSE: TWX) has withdrawn from the bidding process to acquire The Weather Channel due to price. The deadlines on this were supposed to be noon today.
Because this is a private transaction and because this is such a large deal for the ultimate buyer(s) and sellers, this one has been a hard one to follow with any credible or dead set numbers and terms.
This is an ongoing and developing story with an outcome that is not yet known. Stay tuned.
The almost never-ending Clear Channel Communications Inc. (NYSE: CCU) buyout may finally clear. Numerous reports talk about a settlement was reached this weekend between the banks and the buyers. The New York Times has a full report, while the WSJ also has data on its reporting too.
A year ago, Bain Capital and Thomas H. Lee Partners agreed to buy the largest U.S. radio broadcaster for $39.50 per share but the deal delayed after the six banks failed to provided promised financing. The New York trials between the banks and the buyers were set to begin this morning and the judge postponed the trial until Tuesday, largely thought to allow more time to complete a settlement. The new terms for the buyout reduced the price to $36.00 per share, according to someone familiar with the settlement. The six banks include Morgan Stanley, Citigroup, Deutsche, Credit Suisse, Royal Bank of Scotland, and Wachovia.
Clear Channel shares jumped on the news over 10% to $33.20. The 52-week range is $25.90 to $38.58.
An article by South-African based Business Report summarizes private equity trends this year amidst the crunched credit markets and slowing U.S. Economy. While it isn't exactly 2007 or 2006, the numbers are still impressive.
According a Private Equity Intelligence Study cited in the article, in the first three months of 2008, private equity funds have raised $163.5 billion.
Last year, leveraged buyouts tripled the $73 billion posted in the same period this year. This article is also confirming what we have started seeing in many such private equity trends for the start of 2008, as it notes that leveraged buyouts are being replaced with distressed debt. That is amounting to $40 billion being raised by 31 firms so far. For example, Bain Capital's hefty $13.5 billion fund targets distressed debt, as well as venture and property.
If you've ever wondered why so many low-P/E ratio technology companies haven't been gobbled up, there is a really good explanation: R&D, leverage, and volatility.
Business Week just ran a great cover story titled "When a Buyout Goes Bad" for this week's magazine. The case in hand is the old private equity buyout of Freescale, which was the chip business from Motorola Inc. (NYSE: MOT). This talks about a company that was turned around from the edge of the cliff by a great tech leader who created a great stock again. Then the $17.6 billion buyout came from a group led by The Blackstone Group (NYSE: BX), Carlyle Group, and Permira Advisers. This buyout came after being in a competing bid from a consortium led by KKR, Bain Capital, Apax Partners, and Silver Lake Partners.
Last year the company's revenues fell 10% while the chip sector revenues grew by 5%, then Motorola announced a spin-off or sale of its handset business, and then there is the issue of the $9.5 billion in debt that was clumped on top of the company to get the private equity buyout done.
Unless you are selling transistors and capacitors or just plain Jane DRAM, technology companies require heavy R&D commitments. This is why historically technology companies used to come public back before the 1990's "get rich from tech stock option awards" became the norm. The accounting changes required investor backers of a different group to mark down 15% of their $7 Billion stake as well. In fact, it notes that it is having a hard time ponying up the $1.2 billion for R&D and $400 million for capital expenditures needed for Freescale. And now there are inventory problems.
For me personally, I am not all that surprised that Freescale was a temporary success. One night right shortly before Freescale was spun-off by Motorola, I was flying from Austin to Chicago. I spoke to two workers that said they were low level managers for Freescale. When they called the company "Free-Fall" and told me about some of their pension or retirement issues and stock option plans getting mixed up (not for the better, at all), it left a bad taste in my mouth. Then when this one went private with that much debt and knowing what comm-chip R&D percentages of revenue were, I thought the billionaires were drinking too much of the cool-aid.
You should read that article as it puts it well into context. This is why niche technology companies generally end up being acquired by other niche technology companies or by larger tech companies that are competitors or that can complement each other. In mid to late-2006 you started seeing the private equity frenzy go into overdrive.
If you want good news or the silver lining, I do actually have some. I think that there will be another wave of public technology companies that get acquired. But the buyers will almost all be LARGER public technology companies. Private equity and technology can mix, but the deals need to be smaller deals with less leverage and in companies that require less R&D.
The firms are filing suit against against Citigroup, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland, Deutsche Bank and Wachovia.
Some of the allegations are that banks inserted poison provisions, pretext and misdirection, and even a re-cut of the deal as they faced $2.65 billion in losses (that figure according to WSJ).
This one may be a done deal for sure now. When buyers and sellers have to start suing lenders, it is not all that frequent that those providing the leverage get forced into it.
But on the flip side, those banks should have to pay severe business penalties via a break-up fee for backing away.
Clear Channel Communications Inc. (NYSE: CCU) looks like they are just going to have to stay public. Shares closed down over 5% to $32.56 on the day but shares are down over 15% to $27.40 in after-hours trading. The Wall Street Journalhas reported that the $19 Billion club-deal with private equity firms Thomas H. Lee and Bain Capital Partners LLC and their bankers is all but dead.
This has been covered here with more than skepticism as the real chances of the merger closing, usually with plenty of email responses claiming all is well.
If this deal does end up getting closed, it may get to apply for the Guinness Book of World Records for the biggest and longest merger in history. This volatility behind this merger is starting to look like a soccer match played by kindergartners on a hockey rink.
Someone please just turn out the lights and call this game a loss or a draw.
3Com Corp.'s (NASDAQ: COMS) already hurting stock price dropped 12% in trading yesterday on news that Bain Capital Partners LLC has terminated its $2.2 billion take-private offer amid regulatory concerns.
The deal, which included an equity investment from Chinese electronics maker Huawei Technologies Inc., faced disapproval from the Committee on Foreign Investment in the U.S., a national security review panel. Huawei chief marketing officer Xu Zhijun memorably disagreed.
3Com said yesterday it would proceed with a scheduled shareholder meeting that would include a vote on the matter Friday, apparently in the hopes of keeping the deal alive long enough to pursue a breakup fee. But Bain pulled the plug in advance of that meeting, saying that 3Com and Bain failed to reach an alternative agreement that would withstood the Committee's scrutiny. Most likely, that would have involved the sale of 3Com's TippingPoint security division, which sells to the U.S. military.
Many buyouts have failed over the last six months. That "material change" clause in every deal is frequently as vague as asking someone if they promise not to get mad at you before you tell them the problem. Many of these blown-up mergers have resulted in large break-up fees being paid out by the would be buyer to the intended buyout company. But many private equity firms have been able to get out of these break-up fees.
The truth is that your definition of "a material change" will differ from mine, and mine will differ from others. You can bet that "a material change" differs greatly between the opinions of a buy a seller. Here are some of the deals where break-up fees "ot other damages and penalties" may come up shortly.
3Com Corp. (NASDAQ: COMS) just hinted at this today, as it wants a YES Vote from holders from the Bain-led offer and noted that it has been unable to appease CFIUS review concerns because of Huawei's involvement in the deal.
This pending Clear Channel Communications inc. (NYSE: CCU) has been noted as the longest standing current large club deal that is still in pending deals, but all indications point to the banks wanting to get out of the loans. They might not be able to get out of it. And they might. After this long, it isn't even clear what damages would be eligible if any. Scott Sperling of Thomas H. Lee was just on CNBC shortly to discuss the Clear Channel deal, and to discuss his new $10 billion fund he recently raised. He didn't comment about Clear Channel, but he said it may take another 6 to 12 to 18 months before values and conditions come in line with deal making strategies.
3Com Corporation (NASDAQ: COMS) is essentially delaying any material events from coming in the shareholders' meeting scheduled for Friday, March 7, 2008 as it has again delayed the vote on the pending Bain Capital Partners & Huawei merger until Friday, March 21, 2008.
This extra 14 days is to allow 3Com to continue working with Bain Capital Partners to construct alternatives to address concerns raised by the Committee on Foreign Investment in the United States (CFIUS) regarding the pending merger. 3Com does note that there are no assurances that the discussions will not adversely affect the terms of the pending merger transaction.
There has already been an offer on the table that would have resulted in an already lower price, so at a minimum shareholders should already expect that to be a fact. Based upon how this has traded, it seems that the group is just going to be unable to please CFIUS as long as Huawei in China is involved in the deal. It would seem that without Huawei in the deal, the need to acquire 3Com is a far less profitable venture.
3Com hasn't been able to make the magic work, so being overly excited here is a hard task. With shares down 1% today, it sure looks like traders and investors aren't putting too much faith in this merger.
There was a large move of almost 6% today in shares of Clear Channel Communications (NYSE: CCU). There was a note that a trial is being set from yesterday, but the talk out there today was that this was soon going to be a done deal.
The truth is that this one has been like watching a soccer game and is still in the pending stage with a suspiciously wide arbitrage spread. Even after a large move up today and even with a large move from the high $20's in early February, the spread here is still huge in the deal from Bain Capital and Thomas H. Lee Partners LP for $39.20.
It is wide enough that it still should bring more questions than answers. At a $33.68 close, this one has a merger arb-spread of some 16.3 percent. That isn't as high as it has been, but it is still questionable. I have been questioning this along with other failed deals even though this one is still in the "pending" status.
There are two words come to mind here: speculation, or rumors. This one is still a head scratcher. For whatever it's worth, if this closes it may be the last or one of the last giant club deals in private equity buyout land. Every time this one is discussed, the opinions vary wildly.
With the severe credit crunch, the private equity world has come to a screeching halt. Sure, there is some dealmaking – but nothing like it was just a year ago.
So, what are the private equity folks doing? Well, they are raising billions of dollars. This is according to a piece in the FT.com (subscription required).
Although, the typical investors in private equity funds, such as pension funds, are actually losing their appetites. There are concerns about lower returns as well as larger concentrations of portfolio risk. Just look at the recent write-downs at KKR.
Yet, the top-tier private equity firms are still having little trouble raising money. TPG plans to snag $15 billion and Apollo should also get the same amount. And, as for Bain and Blackstone (NYSE: BX), it looks like they'll get $20 billion apiece.
OK, so where is the big money coming from? Yep, it's the sovereign wealth funds. With bulging coffers – especially from oil – the money needs to go somewhere. And, with lower valuations and distressed companies, it could be spot-on timing for those with a long-term perspective. Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.
3Com Corp. (NASDAQ: COMS) is postponing its vote that was scheduled for today over the proposed acquisition. That isn't really a surprise since the company and the Bain-led group had to withdraw their merger approval application because of CFIUS concerns.
But what is sort different is that the company is going to reconvene the meeting and vote next week on March 7, 2008. The merger was already indicated that a lower price was coming because of a divestiture that would have been a merger concession to secure CFIUS approval. It appears that 3Com and Bain Capital might be making another run at CFIUS with more concessions.
3Com continues to work with Bain Capital Partners to construct alternatives that would address concerns regarding the company's pending merger transaction with affiliates of Bain Capital Partners. The companies are leaving themselves an out if this doesn't work out:
"There can be no assurance that these discussions will not adversely affect the terms of the pending merger transaction, including valuation, or that these discussions will result in an alternative that adequately addresses CFIUS' concerns."
We'll see if this will really yield a merger approval or not. 3Com shares are up 20% to $3.50 on renewed hops that the merger will go through. Concessions will likely lower that price far under the $5.11 highs seen over the last 52-weeks, but there's a shot this could still end up being a win for those who have invested in 3Com since the original merger was withdrawn.
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The Japanese market for buyouts is certainly alluring, since there are lots of opportunities to cut costs. But it has been tough for US private equity firms to break in.
I recently saw a presentation from Dan Nye, who is the CEO of 
3Com Corp.'s
With the severe credit crunch, the private equity world has come to a screeching halt. Sure, there is some dealmaking – but nothing like it was just a year ago.
