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Chinese private equity fund Hopu makes first investment outside China
"Beijing-based private equity fund Hopu Investment Management has made its first investment outside China, according to reports.
The firm, which was set up by ex-Goldman Sachs investors, has acquired a 4.9 per cent stake in Lippo Karawaci, a real estate and hospital developer listed on the Indonesia Stock Exchange for a reported $45m.
Lippo is one of Indonesia’s largest listed property development companies, and has built five hospitals in Indonesia to cater for the rising demand for improved medical services by the fast-growing nation’s middle classes.
Hopu was set up last year by ex-Goldman Sachs execs, and quickly became a significant player in Chinese private equity when the firm partnered with Singapore state investment company Temasek Holdings to buy a 5.8 per cent stake in China Construction Bank from Bank of America for $7.3bn.
In July, the firm reportedly co-invested $800m with China National Oils, Foodstuffs and Cereals to share a 20 per cent stake in the China Mengniu Dairy, which had been rocked alongside other Chinese dairy companies by the scandal over melamine-tainted milk."
Apollo doubles down on beleaguered casino chain Harrah’s Entertainment
"Private equity firm Apollo Management is doubling down on its investments in Harrah's Entertainment by buying bonds in the debt-laden casino chain, according to the New York Post.
The move is reported to be to give the firm more power in the event of a debt restructuring, despite the chance it would still have its large stake wiped out.
Blackstone Group and TPG, who have also backed America’s biggest casino operator, are not reinvesting.
The three private equity firms bought Harrah's in a $27bn buy-out in January 2008. Despite streamlining measures, Harrah's still owes around $18bn.
Apollo and TPG have roughly equal stakes in the casino company, while Blackstone's is smaller, the report said.
Early this year, Apollo and TPG bought Harrah's loans with a face value of $2bn at a discount, in order to reduce the company’s debt.
Casino chains are said to have been hit hard by the recession."
HIG Capital Acquires VNU Media Stake
Private investment firm HIG Capital has taken a major stake in Dutch B2B publisher VNU Media, alongside majority shareholder, PE firm 3i. Reuters.com reports that the deal comes as part of a restructuring of VNU, the parent of Nielsen Media Research. VNU took on €200 million (£170 million, $288 million) in debt when 3i bought out the company—then called VNU Business Media Europe—for €300 million (£255.4 million, $432 million)) in 2006. 3i and HIG now own equal stakes and have underwritten a €17.2 million (£14.6 million, $24.7 million) equity investment in the business and have secured a “significant reduction” in its debt. Reports in January suggested that frustrated creditors could stage a takeover of VNU. 3i wrote down the value of its VNU investment again in June after earlier valuing it at €71 million (£60.4 million, $103 million).
3i halves debt to under £1bn
Private equity group 3i remained quite cautious in the quarter to June 30, as new investments dropped 82 per cent to ₤76m and profits from selling investments fell 46 per cent year-on-year to ₤163m.
The mid-market private equity and private investment group said on Wednesday it had spent much of the period focusing on debt reduction. New chief executive Michael Queen successfully spearheaded a ₤732m share issue aimed at sharply reducing its debt. Initially contentious, the rights issue ended up winning strong support after more than 95 per cent of shareholders took up their rights.
“Our focus in the first quarter was on strengthening the balance sheet. A substantial increase in liquidity and the reduction in net debt provide further resilience in what remains a fragile environment. We have also significantly enhanced our ability to take full advantage of improved conditions as they emerge,” Mr Queen said in a statement.
As a result 3i’s net debt had dropped to ₤961m at the end of June, from ₤1.92bn at the end of March. Mr Queen appears to have achieved his stated goal of reducing net debt to ₤1bn this year, down from ₤2.1bn in December.
The interim management statement comes at a difficult time for private equity groups. Nearly three-quarters of all UK buy-out exits ended in administration in the three months to June and the value of new buyouts shrank to a 14 year low.
3i has not been immune to the general malaise. The group did not add any new portfolio companies in the quarter and its sharpest falls in both realisations and investment came in the buyout category. However, it noted that the ₤163m it realised in the quarter were from selling assets at “a modest uplift” to their March valuations.
“Given our view of the general economic outlook we will continue to take a cautious approach to new investment, maintain our focus on the portfolio and ensure that we build upon our strong positions in the mid-market buyout, growth capital and infrastructure markets,” Mr Queen said.
3i is best known for buyouts, b
Terra Firma Said to Put More Capital in EMI - DealBook Blog - NYTimes.com
Terra Firma has been forced to inject more capital into EMI, as the music label struggling under a $5 billion debt load comes close to violating loan agreements, The New York Post reported, citing undisclosed sources.
Terra Firma, the private equity firm founded by British financier Guy Hands, provided around $45 million in its second emergency financing of EMI in the less than a year, The Post said.
Terra Firma’s buyout of EMI has proved an unhappy deal for the private equity firm. The Post, citing industry sources, said that EMI may be foundering because of the debt that Terra Firma borrowed from Citigroup to finance deal.
In March, Mr. Hands gave up day-to-day control of his firm, in an effort to appease Terra Firma’s investors, after the European buyout shop reported losses related to EMI.
The private equity shop was forced to write off half its 2.6 billion euro ($3.3 billion) investment in the label. The British music group accounted for the larger part of a 1.37 billion euro impairment charge in the private equity firm’s annual review, and contributed to a write-down of 45.5 percent on Terra Firma’s holdings.
EMI’s travails have prompted speculation that the label may be sold off. Breakingviews noted in a report earlier this week that Warner Music Group, which has rejiggered its own debt arrangements, may be looking at taking a run at at a weakened EMI.
3i Group Considers Share Sale
3i Group, the publicly listed British private-equity firm, is mulling a rights offering in an effort to reduce its debt load.
3i is “considering a range of financing options including the potential issue of new equity,” the London-based company said Sunday in an e-mailed statement.
The statement came after The Sunday Telegraph reported that the private-equity firm was seeking to raise as much as 700 million pounds ($1 billion) in a share sale.
JPMorgan Cazenove Holdings and Merrill Lynch will manage the offer, the report said.
3i is struggling under a heavy debt load, which, as of December, stood at 2.1 billion pounds. The firm’s shares have lost 75 percent of their value over the last year and in March as its shares hit a record low of 174.5 pence.
Another View: The Future of Public Private Equity
Another casualty of the large-cap leveraged buyout bubble collapse seems to be the whole idea of the public private equity firm. Even that label sounds oxymoronic on its face. The concept had its critics, even as Fortress Investment Group and Blackstone Group were successfully selling a portion of their firms to the public in 2007.
Today, those shares are trading at a steep discount to their public issue price, and earlier this month, Kohlberg Kravis Roberts said it was reconsidering its 18-month, circuitous and troubled odyssey to become a public firm.
As things stand now, no one else seems to be lined up to try it any time soon.
Is the public private-equity concept dead, or is it just a temporary victim of the meltdown in the capital markets and the recession? Will the opportunity for private equity firms to go public come back with a recovery of the financial markets, and, if so, what might these firms have to do to regain the confidence of public investors?
Private equity firms found the prospect of going public attractive for a number of reasons. For the founders and other senior partners, it was an opportunity to realize a portion of the value of the enterprise that they had created and to have another source of capital to make their own contributions to their firm’s funds.
Apollo in Talks for Stake in Charter Communications
Private-equity firm Apollo Management is in talks to take a substantial ownership stake in Charter Communications Inc. as part of the cable company's bankruptcy reorganization, according to people familiar with the talks.
Apollo controls a large chunk of Charter debt, which it will swap for equity as part of the company's restructuring. Last month Charter announced that it would seek Chapter 11 bankruptcy protection by April 1
Platinum Equity Buys San Diego Daily
Private equity made a rare foray into print media, after ignoring sales pitches for now-out-of-print papers like the Rocky Mountain News in Denver and Seattle’s Post-Intelligencer. Platinum Equity bought from The Copley Press its San Diego Union-Tribune, the lone newspaper serving that metropolitan area.
The deal’s terms were not disclosed, but after Copley spent more than six months seeking out a buyer for a print operation in a state particularly hard-hit by the recession, it is certain the PE buyer got a bargain. Platinum specializes in acquiring businesses facing complex operational challenges in declining or transitioning markets. Louis Samson, the Platinum Equity principal leading the acquisition, called the Union-Tribune “a good fit for Platinum” and its operations-focused approach.
3i to sell VC portfolio (Dealscape)
Listed British private equity firm, 3i Group plc, which has been struggling after leveraging its own balance sheet to pay for a series of share buybacks over the past few years, has now resorted to putting its venture capital portfolio up for sale to secondaries investors, in the hope of raising £300 million to £400 million ($415 million to $555 million).
A source close to the situation said a report in Financial News suggesting 3i had brought in specialist private equity adviser and secondary portfolio sales agent Campbell Lutyens & Co. Ltd. was broadly correct.
Study: VC returns beat PE returns
Given the state of the economy, there aren't many silver linings for private capital firms -- or the rest of Wall Street for that matter -- to crow about. However, venture capitalists may have found something to brag about when panhandling potential limited partners for new commitments because according to a new report venture capital firms outperformed their buyout counterparts in the third quarter of 2008 -- a rare event in finance.
For only the third time in history, the return on investment of venture capital firms performed better than buyout firms, according to a study by Cambridge Associates LLC. However, both lost money, of course:
* Venture Capital: -2.8%
* Buyout firms: -8%.
The Wall Street Journal's Private Equity Beat blog notes that this is only the third time since 2005 that buyout quarterly returns trailed venture capital -- Cambridge Associates has tracked both PE and VC returns since 1986. PE Beat's Laura Kreutzer wrote of the news:
"It was the first time since the third quarter of 2007 and only the second time since 2005 began that buyout firms' quarterly returns have trailed those of their venture counterparts, as the buyout industry began to feel the impact of a weakening economy, declining public markets and mark to market accounting rules required by Financial Accounting Standards Board Rule 157."
However, before VC firms crow too much about Cambridge's study, Kreutzer also notes:
"Buyout professionals are quick to point out that quarterly returns don't carry much meaning given that theirs are long-term investments. The longer-term Cambridge Associates data shows that private equity has generated 13.3%, 19% and 11.8% returns over the past three years, five years and 10 years, respectively."
Still for VCs, who have watched a growing number of startups join the deadpool in this economy, any silver lining is worth celebrating.
Quadrangle Promotes Four Executives
The Quadrangle Group, the media-focused private equity firm, announced several promotions on Thursday, including one executive to the title of principal.
Quadrangle is the firm that was until recently led by Steven Rattner, the former investment banker who is now a senior adviser to the Treasury Department on its auto industry negotiations.
Amanda Siegel, a vice president who was named as a new principal, joined the firm in 2003 from DLJ Merchant Banking Partners. Executives being promoted to vice president include Alex Hocherman and Sebastien Briens, both formerly of consulting firm Bain & Company, and Mark Brennan, formerly of TVG Capital Partners.
3i to de-list quoted fund
3i will acquire the assets of its listed fund 3i Quoted Private Equity (3i QPEP). The vehicle is valued at £355m and 3i expects a net cash inflow of approximately £110m on completion of the transaction.
3i currently owns 44.9 per cent of the issued share capital of 3i QPEP. If the acquisition is effected, shareholders in 3i QPEP, excluding 3i, will receive cash and new 3i Shares for their interests.
The move follows 3i’s sale of seven per cent of 3i Infrastructure. Both moves will serve to boost the troubled firm’s cash flow.
“Since the onset of the dislocation to the credit markets in autumn 2007, 3i QPEP’s share price has traded at a significant discount to its NAV. 3i is offering independent shareholders the opportunity to realise their investment in 3i QPEP,” the firm said in a statement.
The terms of the scheme value each 3i QPEP share at 88.8 pence. This is equal to the NAV per 3i QPEP share as at 19 February 2009. The entire issued share capital of 3i QPEP is valued at £355.2m, which represents a premium of 32.6 per cent to its closing price on 19 February 2009.
Shareholders will be entitled to 50 pence for each 3i QPEP share and 0.1706 of a new 3i share.
3i QPEP was listed on the London Stock Exchange in 2007.
Blackstone and KKR suffer India paper losses
US buyout firms Blackstone Group and Kohlberg Kravis Roberts have suffered large paper losses on their investments in India amid the poor economic environment.
3i portfolio company faces creditors after breaking banking covenants
3i’s portfolio company VNU Business Media Europe is facing a potential takeover by creditors as it is believed to be close to breaking its banking covenant, according to The Times.
3i reportedly acquired the Dutch B2B media company for €320m in 2006, but will have to inject fresh capital or let creditors swap debt for equity.
An interim management statement for the period 30 September to 31 December shows an estimated 21 per cent reduction in the value of the firm’s top 50 investments.
Earlier today, the beleaguered listed firm announced that Philip Yea, 3i’s chief executive since 2004, has resigned from his post.
3i CEO says outlook challenging, capital precious
The CEO of British private equity firm 3i Group Plc (III.L) said on Friday the outlook for the economy and credit markets remains extremely challenging, and capital is king.
"In the next couple of years, capital is the most precious thing around," Chief Executive Philip Yea told a conference in Philadelphia organized by Wharton University. "So how we use our own capital strategically is extremely important."
3i, which owns companies as diverse as lingerie brand Agent Provocateur and laser eye correction business Ultralase, said in November that first-half revenue from company disposals were down 43 percent as the credit crunch had made it more difficult to sell companies in which it had invested.
"At the moment, our core priority is the portfolio, and will be for some period," Yea told the conference.
Significant challenges lie ahead, but it is "not the right time to write off private equity," he said.
"The economic outlook is extremely challenging; credit markets continue to be extraordinarily challenging. One hears of many corporates that have to face significant refinancing in the next six to nine months, and that's one of the biggest near-term challenges for the credit and equity markets."
He expressed concern that one reaction to the crisis might be to regulate leverage.
"If you start to regulate financial structures, you're missing the point of financial markets," Yea said on the sidelines of the conference.
3i has laid more bets coming into this period in the non-leveraged areas of growth capital and infrastructure, he said.
Yea sees big opportunities to invest in those areas still, and sees the opportunity at some point to raise a growth capital fund. That could be attractive to limited partners, the powerful investors that put money in private equity, he said.
Along with other private equity firms, 3i has been cutting costs. The company said in December it would cut headcount by about 15 percent, or 100 people, in response to tough market conditions. (Editing by John Wallace)
Crédit Agricole adds to special situations team
Crédit Agricole Private Equity has appointed former KPMG director Xavier Tassel as a partner in its four-man special situations team. In his new role, Tassel will focus on investments in distressed companies. The team, headed by Arnaud Mauduy, manages a $50m fund.
Tassel started his career at champagne producer Taittinger in 1992, where he managed the distribution of spirit brands and was head of marketing.
In 1999, he joined KPMG Consulting as a senior consultant, before specialising in refinancing and restructuring by becoming a manager at KPMG Corporate Recovery. In 2004, he was promoted to director.
Crédit Agricole Private Equity recently hired Christian Claussen as a senior partner to expand its venture capital division. He is supporting the firm’s development in Europe.
Crédit Agricole Private Equity has €375m under management.
PE Deal Flow Tanked In 2008
Private equity firms executed a record $21.2 billion of growth capital investments last year, or 252 transactions involving public and privately held businesses, according to research from data provider PitchBook Data.
The credit market retraction and economic downturn sliced the number of leveraged buyout deals arranged last year to 1,241, marking a 40% decline from the 2,097 LBO deals generated in 2007. In addition, the amount of equity and debt invested via leveraged buyouts declined to $116.5 billion in 2008, compared with $489.5 billion for the prior year.
Not surprisingly, the number of large private deals, or those valued at more than $2.5 billion, declined 75% to $86.5 billion. In 2007, mega transactions commanded $347.6 billion of capital; even so, large transactions made up close to 50% of the equity invested in deals last year.
Despite the decline in large private equity transactions, the $186.6 billion invested in 2008 represented the third-highest amount of capital ever put to work, according to Seattle-based PitchBook.
The fourth quarter of 2008 illustrates the toll that the volatile financial markets have had on private equity. For example, capital invested in the fourth quarter fell more than 85% to $24.6 billion, or 251 deals, as compared with the $184.7 billion deployed the fourth quarter of 2007.
John Gabbert, chief executive of PitchBook, said that until the credit markets are revived, financial sponsors "will have to increase the amount of equity used in leveraged transactions or continue making more minority investments.”
Leonard Green & Partners is one buyout firm that made a large minority stake deal in 2008. Last year, the Los Angeles private equity firm invested $425 million in Austin, Texas-based natural foods grocer Whole Foods Market.
Energy and financial services, meanwhile, accounted for the most private equity transactions with 60% of deals executed last year. Energy companies drew $7.6 billion of transactions, while financial service businesses represented $37.8 billion of
Private equity faces defaults time bomb-Alchemy
Close to a third of the private equity industry's mid-market portfolio companies could fail as the economic downturn across Europe turns into recession, the head of a leading mid-market private equity firm said on Tuesday.
"It really would not be surprising in this recession if 30 percent of portfolio companies in the mid-market buy-out firms actually failed," Alchemy Partners managing partner Jon Moulton told the LSE Alternative Investments Conference in London.
Moulton drew a parallel to the last recession in the early 1990s when he said receivership was the most common and most valuable form of exit from private equity deals.
He added that while mid-market firms will see a lot of failures, "they will still come out better than mega funds because they had less debt going in".
Cheap-and-easy bank debt fuelled the growth of mega buy-out deals at increasingly high multiples through the middle of this decade, culminating in KKR's European record deal to take Alliance Boots private in 2007 for 11.1 billion pounds ($15.59 billion).
Now the deals done in 2006 and 2007 are widely seen running into difficulties as worsening outlooks and falling asset prices put firms into breach of their covenants.
While Moulton acknowledged that leverage is useful for boosting returns, he said its political impact is beginning to "bite home" as staff in companies pushed over the edge by their debt burden lose their jobs.
"I think those that have overgeared themselves are going to get into difficulty and (are) not going to be able to make it," said David Fitzgerald, managing director at U.S.-based private equity firm The Carlyle Group.
"The key thing is not breaching the odd covenant here or there, the key thing is actually ensuring they can service debt."
Fitzgerald recognised the reality that some companies would fail, but said it was impossible to put a number to the potential level of default.
"In essence, there are going to be defaults, but there are going to be as many defaults in the public markets as the private market
Citi Grip on Banamex Weakens / Gavea’s Fraga Cool on Brazil Equity / Brazil PE Opportunities Abound: Fraga
Citi Grip on Banamex Weakens
Citi would rather not part with crown jewel Banamex, but the latest crisis may force its hand. Relatively, LatAm looks good versus the US and Mexico plays into Citi’s dreams of being the universal bank with geographic diversity and a lead position in higher growth markets. But Citi stock ended at $3.83 Thursday, down 15% on the day and more than 85% weaker year-on-year as some investors feared it was going the way of Lehman. The sale of Smith Barney proves Citi now has to part with erstwhile sacred cows, but the biggest challenge is finding a buyer with the $10bn-$20bn in cash that M&A experts say Banamex is worth. “The thinking is still to try to keep the Latin America banking franchise intact,” says Joseph Scott, banking analyst at Fitch. “That could change, it depends on the magnitude of the losses and if their backs are really against the wall then they might have to reconsider, say 3 or 6 months down the road,” he adds. There are very few possible buyers for Banamex, among them HSBC, Santander and JPMorgan. The latter just unveiled a 76% slump in Q4 profit, the Spanish bank is suffering Madoff exposure and HSBC is unlikely to spend 10%-20% of its net worth in a country where it already has thousands of branches. “I don’t think even Mexican captains of industry could put together that much money right now. Not without financing and you couldn’t get financing for a bank,” says a veteran LatAm banker. Some speculate that Itau or Bradesco could make a bid, but this also seems doubtful. “Really it’s tough to find buyers that would pay up for anything right now,” says Scott. Citi’s LatAm head Manuel Medina-Mora told LatinFinance in December that the region was essential to the global whole and that it would not be downsized. He did not answer requests for comment this week. Even if Citi keeps the region as is, there are nagging doubts about performance. “Earnings contribution in nominal terms is most likely to go down because they are facing more asset quality pressure in Latin America
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