Even with the huge federal government buyout, cash is still in short supply that the Federal Reserve recently loosened the restrictions on private equity firms in terms of investment stakes in banks.
In light of this, one of the top private equity operators, Fortress Investment Group LLC (NYSE: FIG), is eliminating its Q3 dividend payment of $0.225 per share. Basically, the firm wants as much capital as possible to capitalize on the opportunities. Fortress has about $300 million in cash. The CEO, Wesley Edens, said he wants to put money into banks, insurance companies and asset management operations.
In other words, this may be an attempt to reformulate the structure of Fortress's private equity structure, making it look more like a traditional financial services firm. It certainly helps that Fortress has a lot of capital to put to work.
However, such investments can be volatile and take several years to come to fruition. Then again, the purpose of private equity is to seek out long-term returns, right?
As seen recently with the quarterly reports of the Blackstone Group LLP (NYSE: BX) and Fortress Investment Group (NYSE: FIG), the private equity world is having a hard time exiting investments. As a result, its returns are fairly muted.
That's why the recent announcement from the Carlyle Group is important. That is, the firm has sold John Maneely Co. to Novolipetsk Steel, Russia's #4 steel maker, for $3.53 billion.
Essentially, Novolipetsk sees this deal as a way to bolster its presence in the US market, especially in the pipe and tube markets. In fact, such things are fairly profitable because of recent shortages, largely due to energy costs.
As for Carlyle, the deal is a nice score. After all, the firm invested $550 million in 2006 for several companies which ultimately turned into John Maneely. This transaction will also be lucrative for a group of investment banks -- like Merrill Lynch (NYSE: MER), Deutsche Bank and Societe Generale -- that will provide the necessary debt financing.
Almost everyone thought of the Penn National Gaming Inc. (NASDAQ: PENN) private equity LBO merger as dead money for quite some time. It only officially became a dead merger this morning. This was the last of the big multi-billion deals still officially on the books that was put together back before we had a full blown credit crunch.
PNG Acquisition Company Inc. was the buyout entity, which was indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC (NYSE: FIG) and Centerbridge Partners, L.P.
The buyout price of $67.00 per share was older than Methusela. Since January, this stock slid steadily from over $60.00 down to under $30.00. The deal was a known to be dead by everyone. But there is actually a silver lining here for the company. Penn National will get $1.475 Billion in cash out of this.
Affiliates of Fortress, affiliates of Centerbridge, affiliates of Wachovia, and affiliates of Deutsche Bank will all be holders of those notes. To top it off, Fortress Investment Group's Chairman & CEO, Wesley Edens, will join the Penn National Gaming Board of Directors.
Keep reading for on the fly analysis, guidance, and ramifications at 247wallst.com.
It's been a year since Fortress Investment Group (NYSE: FIG) went public. At that time, the offering got a nice reception. After all, investors were hungry for hedge fund and private equity operators.
Of course, that's no longer the case. And the stock of Fortress has gone from $34 to a low of $9.50.
Well, this week, the firm announced its fiscal Q4 results. There was a net loss of $29.3 million, or $0.43 per share and pre-tax distributable earnings were down 43% to $78 million, or $0.18 per share. Revenues were also lackluster – falling 22% to $196 million. Although, with a large amount of assets under management (roughly $33.2 billion), Fortress saw a 43% spike in management fees.
With the roiling credit and equity markets, it's tough to complete deals. As a result, there hasn't been much opportunity to realize gains.
Despite all this, the Fortress conference call was upbeat. Keep in mind that the company focuses on asset-based investments, which tend to have less leverage and lower valuations. Besides, as major banks repair their balance sheets, there should be opportunities for players like Fortress to get some choice deals.
Interestingly enough, Fortress thinks that the second half of 2008 will be quite active. And, if the company can scoop up some transactions at compelling valuations, it could position itself nicely for the next couple years, when things get back to normal. 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.
Sometimes the lighter side of Wall Street leads right into hedge funds and private equity news, and sometimes it leads to crazy antics of celebrities or politicians. It appears that Fortress Investment Group LLC (NYSE: FIG) has entered into an agreement with none other than Michael Jackson to allow him to keep the giant Neverland in California.
You can see the AOL link here to the full AP story, and in addition we did some digging back in time for some background. Low and behold, this led to a triangle with Bank of America (NYSE: BAC) and Sony Corp. (NYSE: SNE). It's also not the first hurrah between Michael Jackson and Fortress.
As odd as it seems, you know the guys at Fortress think there's money to be made here.
Well, there was some relief (it also helped that there was a big rally in equities). The company, which operates private equity and hedge funds, posted a net loss of $38 million, or $0.52 per share in Q3. Although, if you strip various elements -- such as certain tax and compensation -- the firm earned $111 million, or $0.19 per share (which is known as pretax distributable earnings).
It was a relief that Fortress indicated there was little exposure to the subprime mess. If anything, the firm sees opportunities in the sector.
In fact, Fortress has some big plans. The firm is in the process of raising funds, with assets of $10 billion to $15 billion. The initiatives will range from infrastructure, commodities, emerging markets and Asian real estate.
What's more, Fortress had a nice realization on its Crown Castle investment. The original investment came in 2002, which involved an initial $120 million stake. The total proceeds since then? A cool $1.7 billion.
Yes, it's a reminder that the private equity business can be very enticing indeed.
Blackstone Group (NYSE: BX), a global alternative asset manager and provider of financial advisory services, closed at $25.95 Thursday. BX priced 133.33 million shares at $31 on 6/21. BX traded at its record high of $38 on its first day of trading on 6/22. The Carlyle Group LP, a global alternative asset manager, sold a 7.5% stake to an investment arm of the Abu Dhabi government for $1.35 billion, indicating Carlyle might be institutionalizing in an attempt to reach out to public investors. BX October option implied volatility of 39 is below its 10-week average of 45 according to Track Data, suggesting decreasing risk.
Fortress Investment (NYSE: FIG), a global alternative asset manager with approximately $43.3 billion in assets under management, closed at $20.67 Thursday. FIG will pay a cash dividend of $0.225 per class A share for the quarter ending 9/30/07. FIG October option implied volatility of 55 is above its 26-week average of 49 according to Track Data, suggesting larger risk.
Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Since its IPO in March, the shares of private equity firm Fortress Investment Group LLC (NYSE: FIG) have plunged from $33 to $18 But, the team is trying to reverse things. In fact, this week Fortress filed an IPO for one of its portfolio holdings: Seacastle.
Basically, the company is one of the largest lessors of intermodal equipment (such as chassis, containers, and containerships). It's an important business because it allows for multiple transportation modes like ships, rail, and trucks.
In fact, according to a report from Clarkson Research, the containerized market should grow at about 10% per year (through 2008). Key drivers include: lower trade barriers, the growth of manufacturing in areas like China and India, and strong global economic activity.
Because of the long-term lease arrangements, the cash flows are fairly predictable. Last year, revenues were about $138.4 million and net income was $3.6 million.
Early this year, it looked like we'd see a flood of IPOs for hedge funds and private equity funds. But with the credit crunch -- and extreme market volatility -- this prediction looks like a bust.
Well, FT.com has a story that has some interesting buzz: Renaissance Technologies is thinking of selling a stake to outside investors. This hedge fund manages about $30 billion and has one of the world's brightest investors at the helm, James Simons.
FT.com says that Renaissance will not use a public offering; instead, it will do a private offering to institutions and wealthy investors. The system is known as Opus 5 and is a joint venture among the Bank of New York Mellon (NYSE: BK) Citigroup (NYSE: C), Lehman Brothers (NYSE: LEH), and Merrill Lynch (NYSE: MER)
In light of the awful public offerings of alternative investment firms, such as Blackstone (NYSE: BX) and Fortress Investment Group (NYSE: FIG), I think the private option makes sense.
But, with the uncertainty in the market, it seems like bad timing. Maybe wait just a little while until the dust settles?
David Rubenstein, who is the co-founder of private equity firm The Carlyle Group, has been buying and selling companies since 1987. Now his firm has 30 offices around the globe, as well as $71 billion under management.
Interestingly enough, back in the 1970s, he served in a variety of political seats -- such as the Deputy Assistant to the President for Domestic Policy (under the Carter Administration). He has also practiced law for several prestigious law firms.
So what are his thoughts on the recent turmoil in the private equity world? Well, he gave an interview for the Wall Street Journal [a paid publication]. Basically, his opinions are in-line with those of other top dealmakers, such as from the Blackstone Group (NYSE: BX) and Fortress (NYSE: FIG). That is, we won't see mega deals (because financing has vaporized).
Also, sellers will need to get more realistic on valuations, which is never easy. In fact, many just may rather wait to do deals. In other words, private equity firms will need to work much harder to get strong returns -- and it will require more patience (Rubenstein thinks this could take a couple years).
It's been a lonely place at BloggingBuyouts lately. There's been a few deals – but no mega deals. And, of course, there's lots of buzz about troubled deals, such as Home Depot's (NYSE: HD) attempted sale of its wholesale business.
Unfortunately, according to a recent piece in Reuters, it looks like the loneliness will continue for the rest of the year -- if not through a good part of 2008.
Basically, there is about $330 billion in debt to get placed – which is not easy when the financial system is in the midst of a credit crunch. In fact, on conference calls from firms like Blackstone (NYSE: BX) and Fortress (NYSE: FIG), the message is that dealmaking is in the freezer.
If anything, private equity firms are probably going to do smaller deals – or buy up discounted debt or other securities.
Of course, this is very bad news for the investment banks, which have been addicted to fees generated from LBO deals.
Although, I think these firms will try focus on other things, such as IPOs (which have lucrative fees) and also try to drum up M&A deals among strategic parties. But, there are limits here too.
In other words, I think Wall Street is going to be down-and-out for awhile.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
There's been lots of buzz that the upcoming KKRIPO is dead. In fact, a recent report from The Times of London suggested that the offering has been postponed.
Well, maybe not. KKR has indicated that the rumor is not true.
I have to admire the optimism of KKR (hey, it's probably been a key the firm's success). No doubt, it's been a crummy time lately for private equity. There's a credit crunch. And, of course, the stock prices of Blackstone (NYSE: BX) and Fortress Investment Group (NYSE: FIG) have been miserable. It even looks like Carlyle is going to forgo an IPO for 2007.
But private equity is about the long term. And it's in bad markets where the opportunities seem to pop up, especially for those firms that are well capitalized.
A key test will be KKR's upcoming financing of the mega buyout of First Data Corp. (NYSE: FDC). If the deal can get done, there may be some hope for the KKR offering.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
This week, private equity firm Fortress Investment Group (NYSE: FIG) reported its Q2 earnings. Well, as should be no surprise, compensation costs were higher (not cheap to hire investment gurus). In fact, there was a net loss of $55.1 million. Although, the firm thinks a better metric is "pretax distributable earnings," which came to $143 million in Q2.
What's more, revenues fell from $328.3 million to $268.1 million. No doubt, the private equity game can be volatile.
On the conference call, Fortress CEO Wesley Edens had some interesting things to say about the turmoil in the financial system.
He said that it's going to take some time to clear out the huge amounts of debt that have yet to be placed for buyouts. Much of the debt is on balance sheets of firms like JP Morgan Chase (NYSE: JPM), Lehman Brothers Holdings (NYSE: LEH), and Goldman Sachs Group (NYSE: GS).
On February 8, the hedge fund Fortress Investment Group LLC (NYSE: FIG) brought a $634.29 million equity offering to market amid great fanfare at a price of $18.50 per share. Although the stock closed at $31 on the first day of trading, it has since declined to $22.69.
On June 21, private equity firm Blackstone Group LP (NYSE: BX) launched a $4.13 billion IPO, priced at $31 per share. Once again, while the initial euphoria helped push the stock to a first-day close of $35.06, it has since fallen to $26.46, significantly below the offering price.
On July 18, futures and options broker MF Global Ltd (NYSE: MF) was floated by parent Man Group PLC in a $2.92 billion offering. This time around, the shares closed at $27.55 on the first day of trading, a discount to the $30 issue price, and are currently changing hands at around $26.95 a share.
At this rate, I can't wait to see what happens with the next new issue in the financial services industry.
Everything's big in Texas. Look at the state's Teacher Retirement System (TRS). In all, it has about $112 billion in assets.
Interestingly enough, the pension fund wants to devote about a third of its assets to alternatives, such as hedge funds and private equity funds. This is according to a story in the Wall Street Journal [a paid service].
Yes, when you take a look a the SEC filings of the Blackstone Group (NYSE: BX), Fortress (NYSE: FIG), and KKR, you will see that alternative investment can post strong returns.
Despite this, the TRS strategy is certainly gutsy. Keep in mind that alternative investments can be fairly illiquid. What if it gets tougher to do IPOs or get sound exits on these investments?
Or, what if there is a meltdown, as seen with the subprime hedge funds at Bear Stearns (NYSE: BSC)?
Even the pros can make big blunders. And it could be bad news for pensioners.
On the other hand, TRS's move is certainly good news for the private equity world. Simply put, there's likely to be many more assets under management -- and that means lots of juicy fees.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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BloggingBuyouts is the best resource for news, opinion, and research on the least understood, most powerful force driving financial markets today -- private equity investing. Michael Rainey, editor.
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Even with the huge federal government buyout, cash is still in short supply that the Federal Reserve recently loosened the restrictions on private equity firms in terms of investment stakes in banks.
As seen recently with the quarterly reports of the 
It's been a year since 
There was lots of trepidation on the eve of 
Blackstone Group
Early this year, it looked like we'd see a flood of IPOs for hedge funds and private equity funds. But with the credit crunch -- and extreme market volatility -- this prediction looks like a bust.
. It should be a good read.
There's been lots of buzz that the upcoming 
