With the deal market drying up, private equity firms need to find unique niches. One player that has been quite successful at this is Silver Lake Partners, which focuses primarily on tech deals. Some of its transactions include Flextronics, Avaya, Sabre Holdings and SunGard Data.
Silver Lake is now expanding its franchise. The firm recently hired Charles Giancarlo, the former Chief Development Officer at Cisco (NASDAQ: CSCO). Keep in mind that he was apparently a candidate for the CEO spot.
Then today, Silver Lake announced big news -- the firm has entered a "long-term strategic partnership" with the California Public Employees' Retirement System (CalPERS). The transaction calls for a 9.9% stake in Silver Lake and there will likely be more investments in future funds.
Acxiom Corp. on Monday made a small peace offering to investors when the data services firm said it would repurchase $75 million of its stock. Despite the move, the company's shares remain at roughly half the price Acxiom would have received under a proposed $3 billion buyout that collapsed last month.
Private equity firm Silver Lake and hedge fund ValueAct Capital Partners LP on Oct. 1 withdrew their offer to buy Little Rock, Ark.-based Acxiom for $27.10 per share, one of a number of big acquisitions that foundered amid the credit crisis. The buyers paid Acxiom a breakup fee of only $65 million, with critics slamming the company for not having negotiated stricter terms for the deal, which was announced in May, to ensure its completion. On Monday afternoon Acxiom shares closed up 3%, to $13.40.
On July 20th I highlighted the "Dream Come True" in Avaya Inc. (NYSE: AV). At the time, I thought the $17.50 acquisition price could be bested by a competing bidder and the current acquisition price served as a floor. Since this post the stock has managed to trade off several percentage points but I believe the situation has only become more attractive.
The deal is still expected to close in the fall. Assuming the deal closes December 1st (most likely a very conservative estimate) the current annualized rate of return on the deal is roughly 16% -- a very attractive yield if you believe the deal should go through.
Should you believe in this deal's prospects? In my opinion, the answer to this question is an emphatic yes. Interestingly, two of the company's executives agree as they recently bought $1.4 million of stock going into this deal. As a Wall Street Journal article reports [subscription] today, insiders rarely buy stock before their company goes private. This buy exemplifies confidence in the deal's prospects from the inside. The buyers -- TPG and Silver Lake -- have already arranged financing, according to the WSJ piece.
If the chances of the deal being completed remain good, then why would the stock sell-off, you might ask. I think the answer to this question is two-fold. First, nearly every company in the process of an LBO sold off as the credit market showed signs of weakness during the last two months. Additionally, many funds have been cutting their merger arb exposure, likely forcing liquidations in Avaya, among other companies.
Avaya is still an interesting situation. At the current price, you are set to earn a 4-5% absolute rate of return on your money (roughly in-line with Treasuries and CDs). But you would expect to make this in 2-4 months instead of twelve. With the company's executives loading up on shares and the private-equity buyers already having financed the deal, I think the likelihood of this deal being completed remains strong.
Interestingly, 3Com has Citadel Investment Group involved as an activist investor. Citadel, which is Kenneth Griffin's investment vehicle, owns 8.4% of the company as stated by this 13D filing. And one must wonder whether these buyout offers are attributable to this 13D letter from Citadel, which makes it clear that the firm believes that 3Com is deeply undervalued. It's also interesting that Robert Chapman, an activist known for his vicious attacks on management, owns the stock in his fund but doesn't have an activist role.
3Com seems like an interesting acquisition candidate because it looks cheap on a sales basis when compared to its industry. Although the company has trouble actually earning money on its sales, this might interest private equity firms because many believe they can run the company "better" if its privately owned and not publicly traded. 3Com doesn't have any debt after backing out the cash on the balance sheet, and as a result potential acquirers could perform a leveraged buyout and not risk overloading the company's balance sheet with debt.
If you take a look at KKR's prospectus, the firm spends quite a bit of time hiring top-notch talent. And, as private equity deals get huge, it's now a necessity. So, this week, First Data Corporation (NYSE: FDC) said it has retained Michael D. Capellas as its CEO. The company is currently undergoing a $27 billion buyout and the suitor is KKR.
Capellas is a seasoned tech executive. Some of his prior gigs include the CEO of MCI, which he sold to Verizon Communications Inc. (NYSE: VZ). He also was the CEO of Compaq and went through the process of selling the company to Hewlett-Packard Company (NYSE: HPQ). Oh, and he serves on the board of Cisco Systems, Inc. (NASDAQ: CSCO).
In other words, Capellas certainly knows how to prep companies for exits. He also has a strong background with selling complex technologies – and that will be a big help at First Data.
Interestingly enough, he has spent some time as a senior advisor to Silver Lake Partners, which is a top-tier private equity firm.
For more information on the First Data deal, click here.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
The Washington Post thinks the recently announced deal by Silver Lake Partners and Texas Pacific Group to take telecommunications equipment maker, Avaya, Inc. (NYSE: AV), private indicates a perilous decline in credit standards. And the Post thinks this decline will contribute to the end of the takeover boom.
I always feel a bit skeptical when I read these kinds of articles. It's not so much that the logic is flawed, but the timing is often hard to pin down. I am guilty of doing the same thing myself since I wrote something similar last August. And yet the takeover boom refuses to bend to the will of the pundits.
The Post believes there are three reasons why the takeover boom has peaked:
Investors will receive $17.50 a share. That's 4.7% more than yesterday's closing price and 28% more than before speculation about a purchase surfaced on May 29.
This is the latest in a string of high tech LBOs. Recent ones include:
Acxiom Corp. (NASDAQ: ACXM): This computer and database services provider said May 16 it's being bought by Silver Lake and ValueAct Capital Partners LP for about $2.24 billion.
I am not sold on the competitive advantages that will result from this deal. Maybe there's some overhead to be cut but I question how much private equity is willing to invest in R&D to jump start Avaya's product pipeline.
Avaya's stock has been trading in the $13 range. Word is that a buy-out might bring $17.
Avaya has a long legacy in the telecom industry. It has been at one time or another part of the original AT&T and Lucent, which merged with Alcatel last year.
Whether Nortel ends up owning Avaya or not, it is probably a better strategic fit than almost any other acquirer. While Avaya sells the telecom equipment that large companies use, Nortel sell the equipment that large telecom companies use. The odds that there is overlap in R&D and management costs is fairly high. There is also a duplication of public company costs.
With Avaya's stock already above $17, either a buy-out will be announced in the next few days, or there will be some very disappointed shareholders.
Over the past year, the activist hedge fund ValueAct Capital Partners waged a proxy fight against Acxiom Corp. (NYSE: ACXM) and ultimately got a board seat. By having a board seat, not only did ValueAct have some leverage, but I'm sure had a much better understanding of the company.
Well, now for the payoff: Acxiom has agreed to a $2.25 billion buyout.
Interestingly enough, ValueAct has partnered with the traditional private equity firm Silver Lake Partners to pull off the deal.
Acxiom has extensive databases and analytics to help companies with their marketing programs. In fact, it's similar to Alliance Data Systems (NYSE: ADS), which agreed to a $7.8 billion buyout today from the Blackstone Group.
These types of companies tend to have long-term contracts and cater to necessary business functions. Thus, it makes it easier to pile on debt and do leveraged buyouts.
On news of the deal, Acxiom's stock price spiked 15.29% to $27.29 per share. Although, the buyout offer is for $27.10. Thus, it looks like the Street thinks another bidder may come to the table.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
Alliance Data Systems (NYSE: ADS) is a data junkie. The firm tracks consumer behavior and helps clients develop cost-effective loyalty and marketing programs.
Now, the company has decided to go private for $7.8 billion; the private equity buyer is the Blackstone Group.
Interestingly enough, ADS is the result of the financial engineering of Welsh, Carson, Anderson & Stowe. Back in 1996, this private equity firm put together a variety of acquisitions to build the marketing giant. Then in 2001, ADS went public.
Now the firm has 600 customers in sectors like financial services, utilities and specialty retailers. What's more, the contracts tend to be long-term (lasting from three to five years). This is the kind of stability that always gets the attention of private equity firms.
Recently, ADS has suffered from a slowdown in earnings and this has resulted in a lagging stock price. I suspect that Blackstone will engage in some cost cutting to get things back on track.
On the news of the deal, ADS's stock price surged 25.73% to $79.16. Blackstone's offer is for $81.75 a share. Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
On March 30th, private equity firms Silver Lake Partners and Texas Pacific Group (TPG) completed the buyout for Sabre Holdings. The company has a variety of travel assets, such as Travelocity, Sabre Travel Network and Sabre Airline Solutions.
The deal required $5.4 billion in financing (including fees). Here's the break-down:
Equity from TPG, Silver Lake
$1,386,205,738
First lien senior secured revolving facility
$500,000,000
First lien senior secured term loan facility
$2,400,000,000
Second lien senior secured term loan facility
$700,000,000
Deal background:
Over the past few years, there has been lots of dealmaking in the travel industry. But perhaps the factor that encouraged Sabre to sell out was Blackstone's $4.3 billion buyout of Travelport in June.
By September, Sabre's bankers -- Goldman Sachs Group (NYSE: GS) and Morgan Stanley (NYSE: MS) -- started to place calls to several private equity firms. There was also interest from a strategic party.
By December, Sabre received two formal bids. But it was the offer from Silver Lake/TPG that was the most attractive. The price was for $32.75 per share.
According to the valuation from Goldman Sachs, here's how the deal stacks up with other transactions:
Enterprise Value Multiple of LTM (last 12 months) EBITDA
Total Debt Multiple of LTM EBITDA
Citicorp Venture Capital Equity Partners L.P. and Teachers Merchant Bank/Worldspan, L.P. (March 2003)
5.0x
3.1x
BC Partners and Cinven Funds/Amadeus Global Travel Distribution, S.A. (January 2005)
7.8x
5.4x
The Blackstone Group /Travelport Ltd. (June 2006)
7.6x
6.3x
Travelport Ltd. (a portfolio company of The Blackstone Group) / Worldspan, L.P. (December 2006)
5.5x
4.5x
Sabre Holdings Corporation (based on management estimates for LTM as of December 2006)
10.2x
7.8x
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
Over the past few months, there has been a ton of takeover talk about Palm Inc. (NASDAQ: PALM). The company is certainly attractive. It has lots of cash and a strong global footprint. Today there was a report in Unstrung that says a deal could be wrapped up this week.
The buyers may actually be two major private equity firms: Texas Pacific Group and Silver Lake Partners. Of course, Palm would be a nice fit for a strategic party like Motorola Inc. (NYSE: MOT) or Nokia Corp. (NYSE: NOK). In fact, a deal with Motorola may actually quell some of the ardor of its big shareholder, Carl Icahn.
To add even more drama, Palm is going to report its earnings on the 22nd. Unstrung says the offer for Palm is likely to be above $20. And, given all the suitors, I think a high price is likely. Currently, Palm is trading at $19.01.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
BloggingBuyouts is provided for informational purposes only. Nothing on the service is intended to provide personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. You are solely responsible for any investment decisions that you make. The contributors who provide the content of BloggingBuyouts may, from time to time, hold positions in the securities discussed at the time of writing and they may trade for their own accounts. Such holdings will be disclosed at the time of writing. By using the site, you agree to abide to BloggingBuyouts' Terms of Use.
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.
For more coverage of America's favorite publicly traded stocks, check out BloggingStocks
With the deal market drying up, private equity firms need to find unique niches. One player that has been quite successful at this is Silver Lake Partners, which focuses primarily on tech deals. Some of its transactions include Flextronics, Avaya, Sabre Holdings and SunGard Data.
According to the 
Over the past year, the activist hedge fund ValueAct Capital Partners waged a proxy fight against 
Alliance Data Systems
Over the past few months, there has been a ton of takeover talk about Palm Inc. (NASDAQ: 
