With depressed markets, it would seem that private equity funds have many opportunities to pickup some good investments at compelling valuations. In fact, this environment seems particularly good for top-tier operators, such as TPG, KKR and Blackstone Group LP (NYSE: BX).
Well, perhaps not.
For example, according to a piece in the Wall Street Journal (subscription required), Blackstone will likely snag a mere $250 million form the California State Teachers' Retirement System (Calstrs) for its next fund. Keep in mind that Calstrs pumped in $1.7 billion in the prior fund from Blackstone.
Is this a sign of a chill? Of course, we won't know for awhile. But, Calstrs is influential. Besides, pensions are probably getting a little edgy as the credit crunch is still in effect.
Although, another concern may be that Blackstone is now a public company. As a result, there is less confidentiality and maybe even more conflicts. For instance, may a private equity fund cash-out of a deal too soon so as to meet the quarterly earnings expectations?
If so, this could be bad for other private equity firms planning to become public, such as Apollo and KKR.
According to the Blackstone Group LP (NYSE: BX) conference call, it appears that the buyout market is getting somewhat better. For example, in Q2 the firm struck deals like the purchase of the The Weather Channel.
Despite all this, things are still far from good. In fact, Blackstone predicts that the slowdown will continue into 2009 and perhaps 2010. Actually, it looks like the problems are slipping over into Europe and even Asia.
So it should be no surprise that Blackstone's recent financial results are fairly lackluster. The firm posted a net loss of $156.5 million, or $0.60 per share, which compares to a profit of $774.4 million or $0.20 per share in the same period a year ago. Revenues plunged 63% to $353.7 million. Of course, the main reason is that Blackstone hasn't had opportunities to exit investments from its portfolio.
However, Blackstone believes there are juicy investment opportunities. For example, the firm's credit-focused hedge fund, GSO Capital, is investing in distressed debt and even providing financing for Blackstone buyouts. Interestingly enough, the alternative asset management segment saw a 34% spike in revenues to $225.2 for Q2.
Some other good news: Blackstone is still collecting large amounts of assets. So far, the amount is about $113 billion, providing the firm with lots of power to capitalize on things.
Back in the mid 1970s, three smart investment bankers from Bear Stearns started a new firm, KKR. They helped create a new way of buying companies called an LBO -- a leveraged buyout. Since then, KKR has been an innovator in that and other financial structures.
Well, this week, we got news of another one: KKR is going public through a complicated exchange of securities. KKR will merge into KKR Private Equity Investors, which is listed on the Euronext Amsterdam. This firm essentially is a co-investor in KKR deals; it raised $5 billion in May 2006 soon after it was formed. Ultimately, KKR will own about 79% of the entity.
From there, KKR will then list on the New York Stock Exchange, likely in Q4.
Something else: KKR will not get cash in the transaction, nor will the partners or employees. The insider shares will be locked up for six to eight years.
When UK mortgage lender HBOS Plc went to market to raise capital, the outcome was a bust. The company sold only about 8% of the securities. In the end, HBOS's underwriters -- Morgan Stanley (NYSE: MS) and Dresdner Kleinwort Ltd. -- were stuck with $7.6 billion in unwanted paper.
In light of this, it's going to be tough for UK financial institutions to bolster their balance sheets. But there is an alternative: private equity.
In fact, it looks like The Blackstone Group LP (NYSE: BX) is taking a look at Paragon, a UK mortgage lender. It appears that Paragon is opening up its books to engage in some initial due diligence.
Of course, this is still nascent, and deals can easily fall apart, especially in tough markets. However, investors are certainly excited. In London trading, Paragon's shares spiked 23%.
Even so, the value of Paragon is still down 87% over the past year, so it should be no surprise that the private equity folks sense opportunity.
The Blackstone Group (NYSE: BX) has entered into its second large-scale alternative energy project. The private equity giant has announced that it will form a partnership with Windland Energieerzeugungs GmbH to complete the development and construction of Meerwind.
This is being billed as one of the North Sea's largest wind farm projects. The wind farm will comprise 80 wind turbines with a combined generation capacity of 400MW. The project will be located some 80 kilometers (approximately 49 miles) off of the northern coast of Germany in the North Sea and is expected to cost in excess of €1 billion (almost US$1.6 Billion) to build.
The area management plan for the future wind farms in the North and East Sea was introduced by the German government in July, 2008 and supports local government objectives in fighting global warming by reduction of its greenhouse gas emissions by 40% by the year 2020.
The wind farm will generate approximately 1.6 billion KWh annually and will provide enough energy to supply electricity to some 500,000 households.
This will be Blackstone's second significant investment in renewable energy after the financial closing of the $870 million Bujagali hydroelectric power station project in December 2007 by Blackstone's 80% owned portfolio company called Sithe Global.
I received an interesting email alert this morning from The Blackstone Group (NYSE: BX) regarding the addition of a new Board of Directors member. The addition is Richard H. Jenrette.
Board member additions are usually not stock events or at least not actionable events, but Mr. Jenrette is founder of DLJ, or Donaldson Lufkin & Jenrette ("DLJ"). That firm was founded in 1959.
DLJ wasn't exactly an institution that went without problems through the years, but it was built essentially from scratch to a multi-billion dollar behemoth in the financial sector with operations in trading, brokerage, investment banking, advisory, clearing, and more. Ultimately it was acquired by Credit Suisse Group (NYSE: CS), and its discount brokerage operations were acquired by E*TRADE Financial Corp. (NASDAQ: ETFC).
Mr. Jenrette is also also a former Chairman of the Securities Industry Association and has served as a director or trustee of The McGraw-Hill Companies, Advanced Micro Devices Inc., the American Stock Exchange, The Rockefeller Foundation, The Duke Endowment, the University of North Carolina, New York University and the National Trust for Historic Preservation.
It has been a while since we have seen a lot of news on the front of Special Purpose Acquisition Companies, or SPACs. Apparently they aren't dead. In fact, a huge deal just came in for a SPAC to become operational.
Hicks Acquisition Company I, Inc. (AMEX: TOH) has reached an agreement in principle to go from SPAC to operational in a tentative deal that is expected to be finalized in the next few days. Hicks Acquisition will merge with Graham Packaging Holdings Co. through a transaction with Hicks Acquisition.
Interestingly enough, this will be in partnership with The Blackstone Group L.P. (NYSE: BX) and the Graham Group. Blackstone has also agreed that it will maintain the largest ownership stake for at least two years as it continues to play an important role in guiding the company strategically and operationally.
After the transaction, the combined enterprise will be renamed Graham Packaging Company and will list on the New York Stock Exchange.
Continue reading core background data as to what the company will look like at 247WallSt.com.
It's been tough for private equity firms to exit investments. Basically, the valuations are much lower – and the IPO market is particularly weak. And, with the credit crunch, it's really impossible to recap portfolio companies (such as with dividend payouts).
Despite all this, the Blackstone Group LP (NYSE: BX) may buck the trend. According to a report in Bloomberg.com, it looks like the firm may be able to sell one of its portfolio holdings, Groupe Vitalia, a hospital operator based in France.
In fact, it appears that Groupe Vitalia has attracted four serious bidders – and that the deal may come to $2.2 billion. Some of the bidders include CVC Capital Partners, LBO France, Gruppo Ospedaliero San Donato and Batipart SA. In other words, it's a mix of private equity players and strategic buyers.
Interestingly, Blackstone has been able to bulk up Groupe Vitalia with a variety of bolt-on acquisitions. All in all, it 's a smart strategy that may see a rare pay off.
For some reason, private equity has refrained from aggressively investing into energy and oil & gas plays. Perhaps it was that energy prices spiked too fast or perhaps it was because the fears would be that the projects only merited investing if prices were assured to stay high in oil and gas. That may be changing.
The Blackstone Group (NYSE:BX) will invest $500 million in a new pipeline company, Crestwood Midstream Partners LLC. A Blackstone-owned hedge fund called GSO Capital Partners is participating in today's deal.
Crestwood was formed in December 2007 with an initial investment of $150 million from the Kayne Anderson, which has several public entities in the space:
Crestwood is headed by industry veteran Robert G. Phillips, who is former chief executive of Enterprise Products Partners, who joined Enterprise following its merger with GulfTerra in 2006.
The potential collapse of the $10.6 billion buyout of Huntsman Corp. (NYSE: HUN) is hardly a shock.
For one thing, rising oil prices are crushing specialty chemical makers. Another thing is that the deal was announced almost a year ago, an eternity for the closing of a merger and acquisition. The Wall Street Journal argues that private equity shop Apollo Management and its Hexcion Specialty Chemicals Inc. are making a "novel" argument to get out of the deal.
"In a complaint filed in the Delaware Court of Chancery, Hexion said Huntsman's poor financial results -- increased net debt and lower-than-expected earnings -- would render the combined company insolvent," the paper said, adding that legal experts expect Huntsman to file a countersuit. Of course, shares of Salt Lake City-based Huntsman were plunging in premarket action and will likely open much, much lower. CNBC's David Faber points out that the Huntsman deal was "held out" to be the strongest of the LBO deals. That's scary. In a press release, Huntsman CEO Peter Huntsman said, "These actions appear to be a blatant attempt to deprive our shareholders of the benefits of the Merger Agreement that was agreed to nearly a year ago." The company added that it intends to "vigorously enforce" its rights under the merger agreement and seek to consummate the merger under the agreed upon terms.
Early this year, The Blackstone Group LP (NYSE: BX) agreed to purchase GSO Capital Partners, a hedge fund that focuses on leveraged finance, for a cool $930 million. Stephen A. Schwarzman, Blackstone's CEO, said that the deal would create "one of the largest credit platforms in the alternative asset management business." Yes, it's an attractive space, especially in light of the credit crunch.
Moreover, Blackstone isn't wasting time in leveraging the GSO platform. According to a report in Bloomberg, it looks like it is raising a new fund that is focused on distressed debt.
True, there hasn't been a surge in defaults and bankruptcies, but such things usually have lag times, and if the economy remains sluggish, there are likely to be many distressed opportunities.
However, the distressed investment market is getting crowded. Some of the recent players include the Carlyle Group and Oaktree Capital Management. In fact, Monarch Alternative Capital and Cerberus Capital Management LP are in the market raising their own distressed funds.
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 Blackstone Group L.P. (NYSE: BX) has just announced that Laurence Tosi will become the new Chief Financial Officer for the private equity giant. He comes to the company from Merrill Lynch & Co. (NYSE: MER) where he served as Chief Operating Officer for the Global Markets and Investment Banking Group. He will also serve on the executive committee and is expected to take up this position "after the summer."
Blackstone also noted that Michael Puglisi, the current CFO, will remain on board as a senior managing director and will remain a member of senior management while he will take leadership of other firm matters and special projects for Stephen Schwarzman.
In a report (subscription required) out of the Dow Jones LBO Wire, Carlyle Group L.P. has delayed its deadline for the fund-raising efforts for its new Carlyle Partners V LP. The delay is said to have been moved to the end of the year for it to close on its fund raising efforts. Carlyle V's original closing date was May 30, and it received investor consent to extend the final closing date to Dec. 31 at the very latest.
Fund V efforts started in 2007 and was said to have quickly held an $8 billion first closing with a target of $15 billion and a hard cap of $17 billion.
The company's market cap is almost $1.9 billion, so it would seem within the realm of deal sizes even in an environment where private equity types have not been able to do many deals. Whether or not the deal is made, that is yet to be seen.
Chemtura products are used in flame retardants, polymer additives, PVC additives, agriculture, plastics, and more.
Even on a deal this size, do we need club deals in a private equity environment in need of simplification? Either way, until we have an announcement. this should be treated as just a rumor.
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