TPG is causing some consternation in the UK. You see, the private equity firm has agreed to invest £179 million in Bradford & Bingley (B&B), a beleaguered financial institution.
Essentially, B&B investors are worried that TPG has structured an airtight deal to prevent other bidders from coming to the table. Another concern is an anti-dilution clause which protects TPG if B&B's stock price falls.
Shareholders will vote on the deal on July 7th. So yes, there should be some drama.
And TPG isn't taking any risks. Actually, the firm plans to go on a major roadshow with investors. I'm sure it will be intense – but also helpful.
However, it looks like B&B is in a tough spot. In light of the deterioration of its business, the firm needs to work fast. And if the TPG deal falls through, it's a good bet that B&B's stock price will go into a tailspin.
Last year, the Chinese government invested a cool $3 billion into The Blackstone Group LLP (NYSE: BX). It was before the IPO and seemed to be a good bet.
Of course, it wasn't. Shares of Blackstone have plunged since.
Despite this, China is still hungry for private equity. In fact, according to a report in the Financial Times, the State Administration of Foreign Exchange of China has agreed to invest $2.5 billion in TPG's latest fund (which may reach as much as $20 billion).
Simply put, China is overflowing with cash, so why not seek out higher returns?
True, private equity is ailing right now, but then again, the investment horizon is for the long-term. And with lower valuations, private equity firms are positioned nicely to pick up some attractive buyouts.
Something else: TPG has a strong track record. And by all accounts the firm is continuing its winning ways, such as with its latest score in selling Alltel to Verizon Wireless, a joint venture of Verizon (NYSE: VZ) and Vodafone (NYSE: VOD).
This week, private equity powerhouse, TPG, agreed to invest $353 million for a 23% equity stake in Bradford & Bingley Plc., an ailing UK mortgage broker. In fact, it looks like this deal could be a beachhead for many more transactions in the UK financial services sector (this is according to a piece in the Telegraph).
Europe also binged on credit over the past few years, and things are starting to crack. In other words, there will be a big need for capital infusions to shore up balance sheets.
A variety of financial services companies in the UK are selling at distressed levels (that is, large discounts to book values). For example, mortgage player, Paragon, trades at a third of its book value. No doubt, there are rumors that the company is attracting private equity interest.
Of course, TPG is not the only firm licking its chops. It looks like The Blackstone Group LP (NYSE: BX), JC Flowers and KKR are also prepping for some deals.
Besides Paragon, it appears that Alliance & Leicester and Northern Rock are in play for private equity deals.
Back in the 1980s, David Bonderman was the chief dealmaker for Robert Bass, a Texan billionaire. He helped to structure the $550 million buyout of American Savings and Loan Association of California, which was caught in the S&L morass. It was a complex deal, requiring lots of negotiations with federal regulators. But it ultimately turned out to be a great investment. In fact, the bank became a vehicle to finance other deals.
Well, Bonderman is coming back to the future. Now, as the chief of TPG, he's one of the top players in private equity. And he wants to do some finance deals. To this end, he's raising $7 billion for a financial service fund. The investments will range from minority stakes to control situations.
Actually, Bonderman has already been busy with bank deals. For example, he recently assembled the $7 billion equity infusion for Washington Mutual (NYSE: WM). He also approached Merrill Lynch (NYSE: MER) to do an investment, which, so far, hasn't gone anywhere.
Yet, there are many financial institutions that need cash. Moreover, having TPG as a partner is usually a good thing.
As should be no surprise, it looks like TPG is getting traction on the capital raise, with commitments from the New Jersey State Investment Council and the government of Singapore.
A report inthe Financial Times says that Merrill Lynch & Co. Inc. (NYSE: MER) is holding talks with TPG about forming closer ties. This may include the possibility of the private equity firm investing in Merrill Lynch if the investment bank needs more capital. John Thain met with key executives from TPG according to the report.
The companies have apparently been in discussions since last fall. One affiliate had offered to put in as much as $3 billion into Merrill Lynch. Merrill Lynch raised some $12+ billion in funds elsewhere for different terms.
What is interesting here is that the article notes that TPG doesn't want to appear too close to Merrill Lynch, because of the appearance of being too close to a competitor.
The company has also raised additional funds this month by selling fixed income and preferred securities.
John Thain's suspenders and belt might be a little tighter since he went on record saying Merrill Lynch will not need any more capital.
A recent article out of The Economist that was featured on CFO.com this morning, "The Comeback of Private Equity," discusses that private equity firms could be an uncertain remedy for the credit crunch.
The private equity industry possesses two main characteristics as of late. First, huge leveraged buyouts are being replaced with purchases at distressed prices with less leverage. The second private equity factor lies in the fact that these companies have a lot of cash and capital to spend. With all this capital and all the distressed debt, private equity firms can buy loads of debt at low prices.
TPG has just gone after a major finance deal and The Carlyle Group recently closed a $1.4 billion fund that capitalized on low prices. TPG, Blackstone and Apollo are currently negotiating with Citi to pick up $12 billion in frozen loan off their balance sheet. Yet another example-Apollo, a firm with a historical focus on distressed debt, plans to go public.
While this shift in the market may help alleviate some of the credit crisis and earn private equity some returns, the jury is still out. Some regulators are wary of this new trend in private equity, wondering who will run the banks.
The article also points out that the true value of a private equity firm depends on its ability to improve portfolio company performance, not in "working magic" for financial institutions.
While I agree on the verdict still being out, this is actually a relief to see. Frankly, the cash has to be put somewhere and the good news is the debt markets have thrown out the baby with the bathwater. There will be real winners and real losers in this. There always are. But this will kick back a steady flow of funds or will at some point, and those funds will either be paid to partner/client groups or will be used to fund investments when a better climate is present. We won't be seeing any major club deals like we used to for $10 billion and $20 billion or more.
Someone has to act as a vulture. The issue always boils down to "at what price is this worth the risk?".
Citigroup (NYSE: C) would like to get a number of troubled loans off its balance sheet before its reports earnings. Accordingly, it is close to selling $12 billion in leveraged loans and bonds to private equity firms Apollo Management, Blackstone (NYSE: BX) and TPG. The debt would be sold at "an average price slightly below 90 cents on the dollar," according toReuters.
Citi has, by its own calculation, about $43 billion of these loans on its balance sheet. It is anxious to get rid of as much of the exposure as possible. But the potential deal raises a point. If the haircut on the loans is only 10% and the smartest equity firms in the world want the paper, why is Citi so anxious to sell it?
The answer is panic. At this point American banks are taking so much risk off of their balance sheets that some assets, which are only modestly impaired, are being sold along with those which have relatively low inherent value.
In Citi's haste to solve its problems, the baby may be exiting with the bathwater.
There is good news and bad news in a financing pact for Washington Mutual (NYSE: WM) that has been outlined this morning. It has outlined details of a financial aid or rescue finance package.
The company is raising a total of $7 billion via direct stock sales to an investment vehicle managed by TPG Capital, which includes other top institutional holders.
While this financing pact is great in that it provides needed liquidity, the share placement price is essentially at the low of the stock since the malaise began. The company has also slashed its dividend down to $0.01 and outlined details of its losses.
TPG as the anchor will buy $2 billion in newly issued securities. WaMu is issuing 176 million shares at $8.75 and 55,000 contingently convertible perpetual non-cumulative preferred stock at a purchase price and liquidation preference of $100,000.00 per share with an exercise price of $8.75 per share.
This financing package is more similar to an old fashioned rights offering that is at a deep discount and highly dilutive. You can read the full story from 247WallSt.com..
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.
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.
Harrah's Entertainment (NYSE: HET) closed yesterday at $87.12. HET accepted a $90 share bid from Apollo Management and Texas Pacific Group on December 19, 2006; the deal is expected to close soon. HET overall option implied volatility of 29 is above its 26-week average of 18 according to Track Data, suggesting larger price risks.
M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
The ailing private equity market got some relief today. TPGagreed to shell out $1.3 billion for Axcan Pharma (NASADQ: AXCA). There was also debt financing from Bank of America (NYSE: BAC) and HSBC Holdings Plc.
Founded in the early 1980s, Axcan has built a solid franchise in the field of gastroenterology. The company's products help with things like inflammatory bowel disease, cholestatic liver diseases, and irritable bowel syndrome. Their market has been mostly in North America and Europe.
Axcan also reported its full-year results today. Revenues increased 19.4% to $348.9 million and net income was up 68.4% to $1.33 per share.
To continue the growth -- and justify the hefty valuation -- it looks like TPG will get more aggressive in global markets. In light of the company's innovative product line, this strategy should get some traction.
So far in today's trading, Axcan's stock price is up 24% to $22.55.
Despite all the rumors, the $24.7 billion buyout of Alltel (NYSE: AT) got done. With the credit crunch and botched deals, the stock definitely showed volatility. But, the private equity folks at Texas Pacific Group and Goldman Sachs (NYSE: GS) certainly didn't lose interest in the company. The stock price on the transaction was $71.50.
No doubt, Alltel made some key strategic moves to make itself attractive to private equity sponsors. Perhaps the most important initiative was the spin-off of its wireline business in 2006. Basically, this provided more focus for the company.
To get some more perspective on the deal, I checked out the proxy disclosures. Alltel took the approach of a quicker auction – so as to minimize leaks as well as try to get a better valuation.
Alltel had its financial advisors put together a summary LBO (leverage buyout) analysis. The estimates ranged from $59.75 to $70.50. This assumed that the company could fetch 6.5x to 8x multiples on EBITDA by 2012, which would produce a return ranging from 17.5% to 22.5% per year.
All in all, this looks like a textbook example of a quality deal. Yet, there are certainly risks. After all, Alltel will need to manage a debt load of $23 billion.
Chinese investors feel that they got burned when they took a stake in big private equity firm Blackstone (NYSE: BX). That IPO did not do well, so the disappointment is understandable.
But, the Chinese may be back. According to a report in the FT, the China Social Security fund, which manages over $62 billion in assets, has its eyes on KKR, Carlyle, and TPG. The fund is interested in a stake of 9.9% in at least one of the companies. The British newspaper quoted one analyst on the potential investment: "'China's interest in buying into overseas financial intermediaries is clearly part of a deliberate strategy,' said Isaac Meng, an analyst with BNP Paribas in Beijing. 'The government is hoping to do a better job in exporting its capital than the Japanese did in the 1980s.'"
That may all be well and good, but members of the US Congress are already concerned about the investment of China's Citic Securities in Bear Stearns (NYSE: BSC). It is unclear how such an investment would compromise US interests, but Congress could try to block these deals on the grounds that large investment and LBO firms control a huge portion of the investment capital in the US. They would not want any Chinese influence in the process.
The Congressional posturing on the matter is a red herring, but meddling by the federal government could simply make the Chinese wary of moving capital into the US. But, if Congress leaves the matter along, Wall Street firms are likely to have Chinese shareholders.
Douglas A. McIntyre is an editor at 247wallst.com.
Yesterday's $11.5 billion debt offering for Energy Future Holdings, formerly known as TXU Inc, proceeded nicely considering the market turmoil of the last few weeks, according to TheDeal.com.
It's still just a small portion of the $36 billion commitment, but the discounts were smaller than expected. This must come as a relief to KKR and Texas Pacific Group, which launched the $44 billion buyout in February.
Does this mean the debt markets are recovering? Perhaps. Meanwhile, there's still a lot of debt to sell.
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TPG is causing some consternation in the UK. You see, the private equity firm has agreed to invest £179 million in Bradford & Bingley (B&B), a beleaguered financial institution.
Back in the 1980s, David Bonderman was the chief dealmaker for Robert Bass, a Texan billionaire. He helped to structure the $550 million buyout of American Savings and Loan Association of California, which was caught in the S&L morass. It was a complex deal, requiring lots of negotiations with federal regulators. But it ultimately turned out to be a great investment. In fact, the bank became a vehicle to finance other deals.
Citigroup
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.
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.
Harrah's Entertainment
The ailing private equity market got some relief today. 
Despite all the rumors, the $24.7 billion buyout of 
