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.
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.
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.
Clear Channel Communications (NYSE: CCU) has sued (subscription required) Providence Equity Partners in attempt to complete an agreed-upon deal to sell 56 TV stations to the firm $1.2 billion. Providence says that it is "surprised and disappointed that Clear Channel would suddenly bring this baseless lawsuit."
Interestingly, Providence is arguing that Clear Channel didn't have a right to sue them under the terms of the deal and that therefore it is under no obligation to pay the $46 million break-up fee if the deal falls apart.
Nothing seems to be going well for Clear Channel as far as its efforts to get previously agreed to buyouts to close. The Lee-Bain deal has been dogged by rumors. At $32.35, Clear Channel shares trade at a substantial discount to the buyout price of $39.20.
Over at Seeking Alpha, Saul Sterman believes the buyout is a done deal. If that's the case, Clear Channel shares are a good deal here, but I wouldn't advise individual investors to speculate on something like this. Leave that game to more in-the-know arbitrageurs.
He made hundreds of millions of dollars running Bain Capital, but Mitt Romney won't be running the U.S. He announced this afternoon that he is ending his run for the presidency. No doubt, countless Mormons and private equity lobbyists have gone into mourning.
Technically, Romney is "suspending" his campaign. This means that he will keep the delegates he won in his primary victories in Massachusetts, Michigan and Utah. This will give him some influence in the process of selecting the eventual Republican nominee.
Although Romney was a great success in the world of private equity, it didn't seem to help him in the national campaign. Mike Huckabee's line about the essential coldness of private equity investors -- "I believe most Americans want their next president to remind them of the guy they work with, not the guy who laid them off" -- was pretty devastating. I don't know if that background was Romney's greatest weakness -- his Mormonism didn't help, nor did his salesman's tendency to say just about anything to please a given audience -- but you can bet there are some disappointed Democrats out there. I'm sure they were looking forward to exposing the layoffs that Romney initiated through his equity investments.
Bain Capital has just closed a $20 billion global buyout fund. Bain reportedly had no problem raising the money, as investor demand for stakes in buyout funds is growing as the economy weakens.
Bain's managing director, Steve Pagliuca, spoke yesterday at the Private Equity Analyst Outlook conference in New York. According to Financial News, he stated that buyout firms are heading into a favorable period. When bubbles burst, opportunities increase: "We will see some good opportunities over the next few months as there is always a large use of capital after a bubble."
Pagliuca's sentiment echoes Carlyle's Louis Gerstner, who recently said that the current private equity slowdown offers the biggest players excellent opportunities to increase their investments as weaker investors panic and sell their stakes. Gerstner seemed particularly interested in overseas investments. Pagliuca, though, says Bain plans to stay closer to home, with a majority of probable deals in the U.S. over the next two years.
Beleaguered shareholders of Getty Images (NYSE: GYI) got some good news today. According to The New York Times, the company is exploring "strategic alternatives." This is essentially finance-speak for selling the company.
To get things rolling, Getty has hired Goldman Sachs (NYSE: GS) as its financial advisor. The buzz is that a deal could fetch $1.5 billion.
The buyers? Well, despite the credit crunch, it's the private equity crowd, such as KKR and Bain Capital.
While Getty has a strong business in licensing of media (such as photos), there have been competitive pressures lately. Some of the competitors include Jupitermedia (NASDAQ: JUPM) and Corbis Corporation. There are also a number of smaller photo sharing sites, some of which that give away their photos.
Interestingly enough, the CEO of Jupitermedia, Alan Meckler, has a blog post on the possible sale – and, no doubt, thinks his company is in better shape to deal with the changes in the industry. According to him: "While the Getty team might be bailing out, management at Jupiterimages remains confident that we have the best chance of the big three in the image industry to come out on top. We are the only company with the right mix in this difficult environment to hopefully create a solid business model for success."
In November of 2006, Thomas H. Lee Partners and Bain Capital announced that they were pursuing a deal for Clear Channel Communications (NYSE: CCU). It took a few months to reach an agreement, but in May 2007 buyout terms were reached, and shareholders approved the deal in September. The deal is worth nearly $20 billion, one of the largest buyouts in history.
As of noon today, Clear Channel is trading at $33.94, a significant discount to the buyout price of $39.20. This suggests that there is considerable -- and growing -- skepticism about the deal. Concerns include the weak track record of recent big buyouts, and the uncertain prospects of commercial communications companies like Clear Channel, which face growing competition from internet-based services and MP3 devices.
The Financial Times, via MSN.com, is reporting that while bankers involved in the deal still think it will probably go through, there is some resistance. One banker is quoted as saying, "there are a lot of undercurrents, including the fact that the returns for the sponsors are terrible and the break-up fee isn't huge." The 'not huge' break-up fee is $500 million -- not a small amount for your average music lover, but small enough when compared to massive losses on a $20 billion deal.
A secondary buyout is when private equity firm buys a position from another private equity firm. And with private equity deals getting tougher, we may see more of these transactions, especially from top tier firms that have lots of capital to throw around.
Back in 2003, the company went private for about $1.7 billion and the private equity sponsor was One Equity Partners. Interestingly enough, TPG was an investor in the transaction as well.
With about 19,000 employees, Quintiles has a global footprint in the healthcare industry, helping companies deal with the complexities of clinical trials. Such engagements are vitally important and tend to be long-term, allowing for nice cash flows. No doubt, this is attractive for private equity operators.
The price tag on the Quintiles deal was not disclosed. But the rumor is that it was more than $3 billion.
Garmin Ltd. (NASDAQ: GRMN), a designer and manufacturer of navigation, communication and information devices, is recently up $4.11 to $107.82 on unconfirmed Microsoft Corp. (NASDAQ: MSFT)takeover chatter. Dow Jones reported American Technology raised its rating on GRMN to Neutral from Sell. GRMN call option volume of 14,448 contracts compares to put volume of 3,027 contracts. GRMN October option implied volatility of 58 is above its 26-week average of 42 according to Track Data, indicating larger price risk.
TJX Companies Inc.(NYSE: TJX), an off-price retailer with 1,530 T.J. Maxx & Marshall stores, is recently up 40 cents to $29.49 on unconfirmed LBO chatter that Thomas H. Lee and Bain will announce a $38 tender offer for TJX. TJX October 30 calls have traded 88 times on transaction volume of 2,764 contracts. TJX October option implied volatility of 38 is above its 26-week average of 28 according to Track Data, suggesting larger risks.
Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
This morning, 3Com (NASDAQ: COMS) announced thatprivate equity firm, Bain Capital, would put it out of its misery and pay $2.2 billion in cash for the company. 3Com has lagged so far behind that it has been painful to watch. 3Com and Cisco Systems (NASDAQ: CSCO) indeed could provide at least two to three chapters in an investing teaching and history book. Here's the Cliffs Notes version:
Summer of 1994 was a tough technology environment. Technology had a great run from 1990 through 1994, till summer that is. Valuations contracted and investor fatigue set in for about four to five months. I was traveling through Silicon Valley with a couple of British portfolio managers, visiting companies. One day we had a breakfast meeting with then CEO Eric Benamou of 3Com and lunch with a senior VP at Cisco (whose name escapes me). Benamou was an intellectual, a refined man, but did not possess the street smarts necessary for a tech company CEO. He was arrogant, and bluntly declared that Cisco's days were numbered and 3Com would acquire any tech company necessary to achieve total domination. OK, great, and we went on to Cisco for lunch.
The senior VP was a classy guy, never said a bad word about any competitor and just explained Cisco's game plan and execution philosophy. Here is the funny part: In July 1994, BOTH companies had a market capitalization of $9 billion.
3Com went on to make some stupid acquisitions like US Robotics, paying top dollar for a company in serious decline with evaporating margins. 3Com has never been the same since. Eric Benamou went on to pursue "other interests" and 3Com has languished at the bottom of the tech food chain.
According to the Wall Street Journal [subscription required], Marlborough, MA-based 3Com Corp. (NASDAQ: COMS) is going private with the help of Bain Capital and Huawei Technologies, for more than $2 billion -- or $5.50 a share. 3Com is up 34% to $4.94 in pre-market.
3Com has been hobbled for most of this decade but it has a storied history. Its founder invented Ethernet -- a way for computers to share information. It bought a company that made a very popular modem during the era when people dialed up the internet on a telephone line. And with this acquisition came a technology which became the Palm Pilot -- a Personal Digital Assistant (PDA) which was an indispensable appendage for dot-commers in the 1990s.
Unfortunately, 3Com's financial position was weak -- it lost $89 million on $1.27 billion in sales in the year ending June 2007, but it generated $58 million in cash. It couldn't maintain its technology lead and was surpassed by competitors in all its markets.
I am not sure how Bain Capital and Huawei Technologies expect to get a return on their investment. However, 3Com's ability to generate cash in the most recent year suggests that a combination of cost cutting and entry into new markets could make it a profitable investment.
Regardless -- if I owned 3Com stock -- which has lost 20% of its value in the last year -- I would be happier today.
Time can be the enemy of buyout deals. It gives the parties more time to think about things -- or get frustrated. Just look at what happened with the Harman International Industries, Inc. (NYSE: HAR) implosion.
But, in the case of the buyout of Clear Channel (NYSE: CCU), the deal somehow appears to be mostly complete (the process took about 10 months). That is, today the company announced that its shareholders approved the transaction. As a result, the company's buyers -- Bain Capital Partners, LLC And Thomas H. Lee Partners, L.P. -- will become the new owners of the radio powerhouse.
In fact, during the buyout process, Clear Channel increased the price tag two times. There was also another interesting feature added along the way; that is, the shareholders have the right to roll over some of their equity into the private entity.
But, ultimately, the key takeaway is that radio has proven to be quite resilient. Despite competition from satellite providers and the Internet, the fact remains that traditional radio continues to be a big part of people's lives -- and more to the point, a nice cash-cow business.
Wendy's(NYSE:WEN) volatility Elevated into expected strategic review announcement. WEN is recently up .92 to $32.59. WEN announced on 6/18/07 that a Special Committee of its Board of Directors reviewing WEN strategic options, decided to explore a possible sale of the company. WEN October implied volatility of 38 is above its 26-week average of 32 according to Track Data, suggesting larger risk.
Guitar Center(NASDAQ:GTRC) volatility High considering Bain paying $63 Cash. GTRC is recently down $.42 to $57.85. GTRC announced on 6/27/97 it would be acquired by Bain Capital for $63; the total transaction value is $2.1 billion. The transaction in expected to close before year end. GTRC October & November option implied volatility of 31 is above its 11-week average of 22 according to Track Data, suggesting the buyout could be in jeopardy resulting in downside price risk.
Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
With concerns that the Sallie Mae (NYSE: SLM) transaction may not close hitting the headlines as Congress returns to session ahead of next year's presidential election, could an opportunistic candidate turn national sentiment against a small, yet powerful, private equity group?
Sallie Mae was created to provide low-cost loans to U.S. students so they could afford a college education, mostly targeting those groups who could least afford it. While this mandate has lost its focus as Sallie Mae loans are no longer cheap, it does leave the opportunity for a smart politician to seize the moment: Why should the profits of government-backed debt for students go to JC Flowers, so they make billions in profits?
The same could be said about the recently completed buyout of HCA, the large hospital chain. by KKR,Bain Capital, and Merrill Lynch Global Private Equity. While it is a Class A operation, it generates a substantial portion of its revenue from Medicare and Medicaid. Once again, why should the U.S. taxpayer, who finances both Medicare and Medicaid, be paying money to HCA so they can pay down the $30-plus billion in debt so a few shareholders can walk away with billions?
It is interesting how one deal, Sallie Mae, could potentially raise so many red flags. As with most market excesses, one deal always become the poster-child deal symbolizing an era's end. Look for it to be Sallie Mae this time around. HD Supply renegotiating the terms for its deal could prove to be pure chump change.
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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.
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.
He made hundreds of millions of dollars running 
Beleaguered shareholders of 
A secondary buyout is when private equity firm buys a position from another private equity firm. And with private equity deals getting tougher, we may see more of these transactions, especially from top tier firms that have lots of capital to throw around.
This morning, 
Wendy's
