September 2010 - Association for Corporate Growth

THE OFFICIAL PUBLICATION OF 

SEPTEMBER 2010 

AlixPartners’ 

Albert Koch, 

who helped 

oversee the 

automaker’s 

revival, identifies 

the takeaways 

from the 

turnaround 

Navigating 

GM’s 

Four-Point 

Turn 

THEMIDDLEMARKET.COM 

PLUS 

The Intricacies of Buying a Sports Franchise 

Second-Lien Financing’s Encore 

The ILPA’s PE Principles, One Year Later

Contents 

September 2010 | Volume 45 | Number 09 

Cover Story 

Navigating 

GM’s Four- 

Point Turn 

AlixPartners’ Albert 

Koch, who helped 

oversee the automaker’s 

revival, identifies the 

takeaways from the 

turnaround 

24 

Cover Photograph by Fabrizio Costantini 

The Watercooler 

6 Private equity and IRR face new attack; 

the case of the missing deal; sponsors 

look to pluck their greys; and talk of 

airline re-regulation picks up again, plus 

other news deal pros are talking about. 

Outlook 

12 Little Deal, Big Buyer 

14 Strategic Acquirers Revisit a Dated Pipeline 

16 Retail Landscape Gains Clarity 

LBO Watch 

18 The Slow Climb 

20 A Principled Fight 

Debt Monitor 

22 Second Lien Encore 

Features 

30 Profile: Rebel Yell 

After some false starts, SunTrust says the 

time is right to make its investment 

banking division a major factor on 

Wall Street 

32 Q&A: An Unlevel Playing Field 

DLA Piper’s Charles Baker discusses 

some of the vagaries of trying to buy a 

professional sports team 

34 Aerospace Upturn Nears 

Market tailwinds likely to accelerate the 

pace of M&A 

36 People 

Changes at the Top 

Association for 

Corporate Growth 

4 Who’s Who 

5 Letter to Members 

42 The Pulse 

44 Community Commentary 

September 2010 

MERGERS & ACQUISITIONS

Inside Word 

 

My first car was a 1980 Oldsmobile Cutlass Supreme. I think I paid in 

the range of $600 to $800 for the vehicle, which was well past 150,000 

miles. Even with gas under a dollar a gallon at the time, the cost of fueling 

its V8 engine eclipsed the purchase price within a couple of months. 

Like most people that drove GM cars from that era – or at least drove them 15 

years after they were built – the car’s most distinctive attribute was the ceiling fabric 

that detached from the roof, and sagged down onto passenger’s heads. The car also 

attracted moths. At any given moment, there’d be at least a dozen or so fluttering 

around the vehicle. It made it easy to find in a crowded parking lot, but wasn’t 

exactly the best ride for a date. 

The speedometer, as I remember, only went as high as 85, but there are at least 

a few of my friends who’ll attest that we got it up past a buck. On snowy days, the 

rear-wheel drive made it the perfect vehicle for fishtails, which to a high-schooler in 

New Hampshire is considered an amenity. 

An embankment on the way to school always made for a good detour. We called 

it “violating the hill,” until the town of Atkinson saw fit to place four boulders in 

front of it. Every fender bender I’ve been involved with in my life has been in that 

car – the perils of a high school parking lot. (Neither were my fault). And the back 

right wheel well of the Olds was victimized by my first tire change. The jack held 

the car up for exactly a second and a half before the metal crumpled over it. 

The thing is, in four years, the car never failed an inspection and it never failed 

to turn over. And when I sold it upon entering college, I was able fetch $400 from 

a pair of mechanics who were giddy over the prospect of fixing the thing up. 

In our cover story this month, AlixPartners’ Al Koch talks about his work with 

GM. Over the past decade, the company had put off instituting any real fix, until 

the credit crisis forced the issue, creating one of the more unique restructurings 

you’ll ever see. Koch explains how GM’s turnaround is relevant to the mid-market 

executive or sponsor overseeing assets under any state of duress. The story can be 

found on page 24. 

Also this month, our new senior reporter, Tamika Cody, explores the changing 

dynamics in retail, where the demarcation between buyers and sellers has become 

more distinct as health returns to the sector. 

As always, if you have any thoughts or comments, please don’t hesitate to reach 

out. 

Thanks, 

Ken MacFadyen 

Editor 

September 2010 Volume 45, Number 09 

Editor 

Senior Reporters 

Contributing Editors 

Contributing Reporters 

Ken MacFadyen 

ken.macfadyen@sourcemedia.com 

Jonathan Marino 

jonathan.marino@sourcemedia.com 

Tamika Cody 

tamika.cody@sourcemedia.com 

Danielle Fugazy 

danielle.fugazy@sourcemedia.com 

Carol Clouse 

carol.clouse@sourcemedia.com 

Matthew Sheahan 

Aleksandrs Rozens 

Richard Kellerhals 

EVP & Managing Director Capital Markets Division Michael Stanton 

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Joshua Goolsby 

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MERGERS & ACQUISITIONS September 2010

WHO’S WHO 

ACG Board 0f Directors 

Chairman* 

Michael A. Carr 

Partner, BAC Investments, LLC 

ACG Los Angeles 

Term expires 2011 

Vice Chairman* 

Andrew W. Rice 

Senior Vice President, The Jordan Company 

ACG Chicago 


President & Chief Executive Officer* 

Gary A. LaBranche, CAE 

ACG Headquarters 

Chairman of Finance* 

Cliff Braly 

Partner, Deloitte Tax LLP 

ACG Dallas/Fort Worth 


Secretary 

Tom Walton 

Managing Director, Hanley, Hammill, Thomas 

ACG Wisconsin 


Chairman of InterGrowth 2011 

Jack Helms 

Chairman, Lazard Middle Market 

ACG Minnesota 


Chairman of InterGrowth 2012 

Doug Tatum 

CEO, The Co-Investment Partnership LLC 

ACG Atlanta 


Immediate Past Chairman 

Dennis J. White 

Senior Counsel, McDermott, Will & Emery LLP 

ACG Boston 


Chapter Representative Directors 

Tracy Albert* 

Managing Director, Houlihan Lokey Howard & Zukin 

ACG Orange County 


Dan Amadori 

President, Lamerac Financial Corp. 

ACG Toronto 


Spencer J. Brown 

President, Spencer J. Brown & Associates 

ACG Portland 


Vanessa Brown Claiborne 

President, Chaffe & Associates 

ACG Louisiana 


Richard P. Jaffe* 

Partner, Ballard Spahr LLP 

ACG Philadelphia 


John Kerschen 

Managing Director, The Charter Group 

ACG Western Michigan 


Charles Morton 

Partner, Venable LLP 

ACG Maryland 


Wendy Neal* 

ACG Cleveland 


Clifford R. Pearl 

Of Counsel, Hensley Kim & Holzer LLC 

ACG Denver 


Ashley Rountree 

Managing Director, C.W. Downer & Company 

ACG France 


Tom Tullidge 

Managing Director, Cary Street Partners 

ACG Richmond 


Directors At Large 

Les Alexander 

Senior Vice President, Advantage Capital Partners 

ACG Louisiana 


Erik Dykema 

Principal, Lineage Capital LLC 

ACG Boston 


Ed Fisher 

Managing Partner, SouthPointe Ventures 

ACG Atlanta 


Michael Gibbons 

President, Brown Gibbons Lang & Co. 

ACG Cleveland 


Patti Gillenwater 

CEO, Elinvar 

ACG Raleigh Durham 


Penny Hulbert 

Managing Director, Links Financial 

ACG Tampa Bay 


Stuart Johnson 

Partner, Barnes & Thornburg, LLP 

ACG Atlanta 


Cory Mims 

Managing Director, ICV Capital Partners 

ACG New York 


Stephen V. Prostor 

Director, Citi Private Bank 

ACG New York 


* Member of the Executive Committee 

ACG Honorary Directors 

Robert G. Coffey 

Alan B. Gelband 

ACG Chapters 

ACG 101 Corridor 

acg.org/101 

ACG Arizona 

acg.org/arizona 

ACG Atlanta 

acg.org/atlanta 

ACG Austria 

acg.org/austria 

ACG Boston 

acgboston.org 

ACG Calgary 

acg.org/calgary 

ACG Central Texas 

acg.org/centraltexas 

ACG Charlotte 

acg.org/charlotte 

ACG Chicago 

acgchicago.com 

ACG China 

acg.org/china 

ACG Cincinnati 

acg.org/cincinnati 

ACG Cleveland 

acg.org/cleveland 

ACG Columbus 

acg.org/columbus 

ACG Connecticut 

acg.org/connecticut 

ACG Czech Republic 

acg.org/czechrepublic 

ACG Dallas/Fort Worth 

acg.org/dallas 

ACG Denver 

acg.org/denver 

ACG Detroit 

acg.org/detroit 

ACG France 

acg.org/paris 

ACG Frankfurt 

acg.org/frankfurt 

ACG Holland 

acg.org/holland 

ACG Houston 

acg.org/houston 

ACG Indiana 

acg.org/indiana 

ACG Kansas City 

acg.org/kc 

ACG External Affairs/Media Manager 

Greg Fine, gfine@acg.org 

Matt Switzer, mswitzer@acg.org 

Peter Czyryca, peter@backbaycommunications.com 

ACG Sponsorship Director 

Kris Wolcott, kwolcott@acg.org, 312-673-4981 

ACG Kentucky 

acg.org/kentucky 

ACG Los Angeles 

acgla.org 

ACG Louisiana 

acg.org/louisiana 

ACG Maryland 

acg.org/maryland 

ACG Minnesota 

acg.org/minnesota 

ACG National Capital 

acgcapital.org 

ACG Nebraska 

acg.org/nebraska 

ACG New Jersey 

acg.org/newjersey 

ACG New York 

acg.org/nyc 

ACG North Florida 

acg.org/northflorida 

ACG Orange County 

acg.org/occ 

ACG Orlando 

acg.org/orlando 

ACG Philadelphia 

acg.org/philadelphia 

ACG Pittsburgh 

acg.org/pittsburgh 

ACG Portland 

acg.org/portland 

ACG Raleigh Durham 

acg.org/raleighdurham 

ACG Rhein-Ruhr 

acg.org/rheinruhr 

ACG Richmond 

acg.org/richmond 

ACG San Diego 

acg.org/sandiego 

ACG San Francisco 

acg.org/sanfrancisco 

ACG Seattle 

acg.org/seattle 

ACG Silicon Valley 

acg.org/sv 

ACG South Florida 

acg.org/southflorida 

ACG St. Louis 

acg.org/stlouis 

ACG Tampa Bay 

acg.org/tampabay 

ACG Tennessee 

acg.org/tennessee 

ACG Toronto 

acg.org/toronto 

ACG Utah 

acg.org/utah 

ACG Vancouver 

acg.org/vancouver 

ACG Western Michigan 

acg.org/wmich 

ACG Wisconsin 

acg.org/wisconsin 

Association for Corporate Growth 

71 S. Wacker Drive, Suite 2760 

Chicago, IL 60606 

ACG Membership: 877-358-2220 

www.acg.org 

Contributors 

Gary A. LaBranche, Michael A. Carr, Andrew T. Greenberg, Byron Kalogerou, Dennis J. White 


LETTER TO MEMBERS 

Growth Stories 

Showing the Positive Impact of M&A and Private Capital 

Gary A. LaBranche and Michael A. Carr 

The 13,000 members of ACG globally 

represent more than 2,000 middlemarket 

private capital firms, over 

20,000 portfolio companies employing more 

than three million people, and thousands of 

professionals including accountants, lawyers, 

advisors and corporate development officers; 

“ACG launched the Middle-Market 

Growth Action Center.” 

it is clear that our middle-market-focused 

membership plays a significant role in global 

economic development. Yet, stories about the 

negative impact of mergers and acquisitions, 

and private equity-backed acquisitions in particular, 

appear regularly in the media. While 

these stories predominately focus on multibillion 

dollar transactions, the middle-market 

is tainted by default and is being swept up in 

calls for new legislative action. In response, 

policymakers in the U.S. and the European 

Union have recently advanced legislative and 

regulatory initiatives that might raise the cost 

of capital, increase the cost of doing business 

and reduce incentives for putting capital at 

risk in the middle market. While these proposed 

legislative and regulatory initiatives 

have mainly focused on private capital investments 

like private equity, hedge funds, 

venture capital and real estate partnerships; 

any enacted laws or regulations will certainly 

affect corporate growth and the entire ACG 

community. 


Historically, ACG has remained on the 

sidelines when it came to public policy discussions 

concerning M&A and private capital 

investment. However, in response to requests 

from our members for ACG to be more involved 

in the public policy process, the ACG 

Board of Directors recently decided to take a 

more active role. ACG will work 

to have the voice of the middlemarket 

heard when it comes to 

public policy matters affecting 

our members. Bear in mind, ACG 

is not engaged in active lobbying. 

Instead, ACG will educate our members about 

the key issues confronting the middle-market 

and provide tools to our members so they can 

engage in the advocacy process if they decide 

to do so. 

Recently, ACG launched the Middle-Market 

Growth Action Center 

(www.midmarketgrowthaction.org), a tool 

created to educate our members and enable 

their participation in the public policy process. 

This online resource provides information on 

key issues and gives members the ability to 

directly contact elected officials. Many ACG 

members have already used the Action Center 

as a tool for telling the story about middlemarket 

growth investment. A great example 

is where an ACG member, through the Center, 

invited Members of Congress to visit portfolio 

companies in order to see firsthand how 

private capital is directly driving economic 

growth. 

Over the coming months, ACG will work 

to capture and share growth stories from our 

members. ACG will also work to better quantify 

the positive impact of our members and 

middle-market dealmaking. With these stories 

in hand, ACG will be better positioned 

to respond to those in the media and elected 

officials as they look to shape public policy 

affecting the middle-market. 

Middle-market M&A and growth investment 

stories are compelling. Now is the time 

to get those messages out. We encourage 

members of the ACG community, to learn, 

share, decide and act. No one else can or will 

tell our stories. 

Gary A. LaBranche, CAE 

President & CEO 

President & CEO 

Michael A. Carr 

Chairman 


Watercooler 

PE, IRR Back in the Hot Seat 

“Artful obfuscation” is how a new study 

critical of private equity describes the industry’s 

reliance on internal rate of return 

Private equity again came under attack, this time from a 

former Morgan Stanley investment banker, Peter Morris, 

who authored the report “Private Equity, Public Loss” on 

behalf of the UK think-tank The Centre for the Study of Financial 

Innovation. 

Morris took aim at some familiar targets, such as the twoand-20 

fee structure employed by most GPs and the use of IRR 

as the metric of choice when measuring private equity fund performance. 

The charges Morris levels against the industry, in some cases, 

recycle past criticisms. The hazards of IRR, for example, have 

been targeted for years. Previous research by Ludovic Phalippou, 

out of the University of Amsterdam, three years ago highlighted 

how IRR can distort incentives for the “timing of cash 

flows” and can be “significantly upward biased.” 

Others have even tried their hand at a new formula. HEC 

School of Management’s Oliver Gottschalg and advisory firm 

Peracs LLC, last year, coordinated their efforts to create a performance 

metric incorporating IRR, cash-on-cash return multiples 

and fair value assessments of current holdings. The new 

metric was designed to account for the shortcomings of IRR. 

Morris, meanwhile, cites that 

private equity fund managers 

have capitalized on the vagaries of 

measuring performance through 

“artful obfuscation.” 

Observers may be reminded 

of another study from Gottschalg 

in which in which he calculated 

that out of 500 LBO funds raised 

in the two decades leading up to 

2005, 386 of the funds, or 77%, 

could claim to be a top-quartile 

performer through manipulation 

of the numbers. 

In response, the Private Equity 

Council’s Douglas Lowenstein 

called Morris’ study a “seriously flawed analysis” in a letter to 

the editor of the Financial Times. 

Conceal the Deal 

Executives of GDC Acquisitions, in spite of 

the company’s name, tried to pass one off on 

its lenders by hiding its M&A activity 

One company apparently found a solution to the credit 

crisis and its impact on M&A. A criminal complaint 

from the United States Attorney’s Office charged the 

executives of GDC Acquisitions, LLC with bank fraud, claiming 

the defendants issued false financial statements to obtain 

POLITE CONVERSATION 

“Of course we have policies about the use of appropriate 

language and we are always looking for ways to ensure that they 

are enforced.” 

– A spokesperson for Goldman Sachs, as quoted by the Wall Street Journal. The paper 

reported that the bank has installed new screening software to ostensibly censor references 

to “s--- deals” and other blue language following the Senate hearing in April. 

$21 million in loans from Amalgamated Bank. Among the 

charges, the accused allegedly bought a company, contrary to 

the terms of the buyer’s loan agreement – and tried to hide the 

acquisition from its lenders. 

Executives Courtney Dupree, Rodney Watts, Thomas Foley 

and Frank Patello were all arrested on conspiracy charges. 

GDC is a holding company that controls lighting businesses 

Unalite Electric & Lighting and JDC Lighting and furniture 

distributor Hudson Bay Environments. 

The complaint alleges that the conspirators also inflated 

the holding company’s accounts 

receivable by more 

than $16 million. 

If convicted, the defendants 

face up to 30 years 

in prison. The case is being 

prosecuted by assistant US 

attorneys Michael Yaeger 

and Evan Weitz. 


FaceBook for M&A 

Retrading on a bid would probably qualify as 

cause to be ‘unfriended’ 

The M&A landscape has no shortage of online marketplaces, 

where buyers and sellers can source and market transactions 

from their local Starbucks or anywhere else with WiFi hotspot. 

The industry also isn’t lacking for web-based networking platforms. It’s 

just that nobody ever thought to combine the two. 

A group of former bankers is aiming to do that with the launch of 

PE-Nexus. 

Anthony Hill, a co-founder, describes that integrating the networking 

component into the platform allows PE- 

Nexus to be more dynamic than rival online 

marketplaces. 

He cites as an example the platform’s 

“whisper campaign” function, which allows 

potential sellers to solicit direct feedback on 

the feasibility of a deal. Users can also track 

how many times a deal has been looked at, 

saved or forwarded to other members. 

“As a former banker, this was important 

to me, because you can never really tell objectively 

how much time people spend looking 

at a deal or what their overall interest is,” Hill describes. 

The hope, Hill says, is that the site will emerge as the Facebook for 

M&A, albeit with a lot more protections around privacy. 

THEMIDDLEMARKET.COM 

Find Mergers & Acquisitions’ September’s web 

exclusives at TheMiddleMarket.com, the only online 

destination dedicated solely to middle-market M&A. 

Readers can also follow Mergers & Acquisitions 

Journal on Twitter at http://twitter.com/TheMiddle- 

Market. 

Bullish on Canada 

Not a single Canadian bank failed when the 

credit crisis hit in 2008; it’s no wonder PE north 

of the border is showing 

strength. 

American Capital on 

the Mend? 

Following the firm’s 

restructuring, observers 

weigh in on whether the 

BDC can write an American 

tale of redemption. 

CLOs Reemerge from 

Economic Rubble 

A $300 million CLO arranged 

in July surprises 

the market, while providing hope for borrowers. 

Plucking the Grays 

Sponsors start to clear out the older assets 

in their portfolios 

As the M&A market opens up, even just a crack, private 

equity firms anecdotally have begun shuttling some of 

their longer-term holdings. 

In one day in early August, Behrman Capital concluded 

its 12-year investment in fire safety wholesaler Brooks Equipment 

through a sale to Freeman Spogli; Vestar Capital Partners 

received clearance from the Federal Trade Commission to 

complete a sale of its 10-year old hospital bed platform Joerns 

Healthcare; and The Riverside Co., after eight years, sold its 

stake in Whitney Automotive Group through a $27.5 million 

sale to US Auto Parts. A day later, DLJ Merchant Banking, 

through a sale and a restructuring, walked away from its investment 

in DeCrane Aerospace after 12 years. 

To be sure, holding periods for many assets were extended 

by two years by the credit crisis and ensuing downturn. With 

the return of debt and a percolating demand from both fellow 

sponsors and corporate buyers, PE firms are capitalizing by 

pruning their portfolios. 

In some cases, such as the DeCrane exit, the sponsors may 

be cutting ties and recouping what they can from an investment 

that never reached expectations. Still, an extended holding period 

doesn’t imply lackluster returns, either. Vestar, for instance, 

floated device maker DynaVox in an April IPO that recorded an 

11x return on paper for the 10-year old investment. 



Watercooler 

TOMORROW’S DEALS 

Benihana on the Block 

The possible sale of the Japanese steakhouse 

chain leads to bickering among family 

members over a proposed proxy fight 

Benihana Inc. initiated a major move in July, saying it was 

exploring strategic alternatives, which could include a 

possible sale. The move comes as the Japanese restaurant 

chain faces unrest among some of its large shareholders reluctant 

to buy into the company’s renewal program. 

In a published statement, Benihana CEO Richard Stockinger 

reiterated the company’s stated intention to expand through development 

or acquisitions. He noted, however, that liquidity to 

pursue those efforts has been hard to come by. 

“Growth would be predicated on raising additional capital, 

and the company is reluctant to issue new equity at current price 

levels,” Stockinger said, adding that “several large shareholders” 

have bumped heads with management over the strategic direction 

and threatened possible board changes. 

The news of the potential sale preceded word that the company’s 

same-store sales reversed a steep decline from the yearago 

period, registering a 2.4% jump for the quarter. But the 

company has still struggled to raise new debt. According to a 

research note from CL King & Associates, found on Thomson 

One Analytics, its current credit facility matures in January, and 

Benihana’s outstanding bank line has just $17.7 million outstanding, 

which “will need to be refinanced before March 15, 

2011.” 

The division between company management and certain 

shareholders took root in February when Benihana merged 

with a subsidiary, issuing 12.5 million new shares in the process. 

The family of late Benihana founder Rocky Aoki, in addition 

to hedge fund Coliseum Capital, contested the move on the 

grounds that it diluted their ownership. Aoki’s surviving family, 

through a trust, controls 38.13% of Benihana’s shares. 

A twist in the proceedings is the battle for the family trust. 

According to the New York Post, Aoki’s third wife is pursuing a 

lawsuit to gain control, citing a disagreement over the proposed 

slate of candidates for the Benihana board. 

Observers may be reminded of the situation engulfing the 

Hooters’ sale. In February the restaurant chain also began looking 

at a possible sale, four years after the passing of founder 

Robert Brooks. An estate battle between Brooks’ son and his 

second wife was said to be a precursor to a potential deal. 

Benihana, in fiscal 2010, reported Ebitda of $13 million on 

sales of $314 million, a slight improvement over 2009. 

Centre Packages Bumble Bee 

Following the path of Starkist and MW 

Brands, Centre Partners looks to cash in on 

its tuna play 

The San Diego, California-based canned tuna company 

Bumble Bee Foods retained J.P. Morgan Securities to explore 

strategic alternatives. 

Should a sale of the assets result, it would mark Bumble Bee’s 

fourth ownership change in the past seven years. Bumble Bee, 

once owned by ConAgra, was sold to Centre Partners in 

2003. By 2005, the private equity firm executed a partial 

exit by merging Bumble Bee with then publicly held Canadian 

fish producer Connors Bros., Income Fund. Three 

years later, Centre took Connors private in a deal valued at 

$600 million. 

If recent activity serves as a guide, interest for the assets 

could come from overseas. Thai Union Frozen Products (TUF), 

for instance, recently agreed to acquire French tuna canning 

business MW Brands from Trilantic Capital Partners. The deal 

was valued at $884 million. Meanwhile, when Del Monte sold 

Starkist in 2008, South Korea’s Dongwon was the buyer, paying 

around $300 million for the company. 

Published reports stated that rival tuna company Bolton 

Group and private equity firms Blackstone Group and Permira 

Advisers are among the bidders. The three also reportedly 

made bids for MW Brands. 

Others active in the seafood space include 

private equity firm Paine & Partners. 

Its team previously backed Icicle Seafoods 

in 2007, when it was part of Fox Paine 

& Co. 

Bumble Bee sits in Centre’s fifth fund, 

Centre Partners V, which is still actively 

investing. 


Watercooler 

BELTWAY MONITOR 

Could Airline Regulation be Next? 

One banker is in favor of government intervention even if 

it ends consolidation among the carriers 

When SkyWest subsidiary Atlantic Southeast Airlines agreed to buy ExpressJet 

Holdings in a $133 million all-cash deal in August, calls for 

re-regulation were sounded from observers both in and out of the industry. 

Robert Roach Jr., general vice president of the International Association of 

Machinists and Aerospace Workers, fired off a statement within hours of the deal’s 

announcement, decrying the “lack of any appreciable regulation” in the airline industry. 

“It is not a surprise that the mergermania 

roiling the major airlines is spreading 

to regional carriers,” he wrote in the 

statement. 

What may be a surprise is that Mc- 

Gladrey Capital Markets president Hector 

Cuellar, to some degree, shares this 

sentiment. While most bankers tend to 

cheer consolidation, Cuellar has come out 

against it, at least in the case of the shrinking 

airlines sector. In July, a month ahead 

Congressman James Oberstar could be the one who 

makes reregulation a reality for airlines. of the ExpressJet deal, Cuellar joined a 

growing chorus calling for re-regulation 

of the airlines, saying the sector deserves “utility-like” treatment to “avoid further 

consolidation” and improve the financial health of those in the sector. 

To be sure, the re-regulation of the airline industry isn’t a subject necessarily 

dominating Beltway conversation these days. Still, Congressman James Oberstar, 

who chairs the House Transportation and Infrastructure Committee, and Congressman 

Jerry Costello, chair of the Aviation Subcommittee, have held hearings on the 

possibility of such legislation. 

In speaking with Mergers & Acquisitions, Cuellar cited a number of factors contributing 

to the industry’s woes -- fuel costs, labor, an out-of-whack pricing model, 

and current bankruptcy law among those. To align competitive pressures, those in 

support of re-regulation generally believe new entrants should have higher capital 

requirements to alleviate their advantages over legacy airlines, with higher health 

and pension costs. 

Moreover, critics say the pricing model throughout the industry should be adjusted 

so carriers cannot sell tickets below cost. As it relates to bankruptcy, those in 

favor of re-regulation contend airlines should not be allowed to remain in operation 

during the restructuring. Cuellar, for instance, cites that bankrupt airlines capitalize 

on Chapter 11 filings to undercut the competition with lower fares, creating a ripple 

effect felt throughout the industry. 

Most on Wall Street probably cringe at the idea of re-regulation, especially after 

financial reform. Cuellar believes ultimately the problems facing the airlines will 

become a taxpayer expense. “We’re going to bail them out one way or another.” 

A Coordinated 

Effort 

A Brooklyn, Ohio Hugo 

Boss plant re-opens in 

July following a sustained 

browbeating 

campaign 

Ohio lawmakers, successful 

in their fight to keep 

a Brooklyn, Ohio-based 

Hugo Boss plant in operation, 

were on hand in July when the facility 

re-opened. 

News last December that the 

Permira Advisors-owned clothing 

company would be closing the 

Ohio plant in April sent shockwaves 

throughout the state. Congressman 

Sherrod Brown and 

Ohio Governor Ted Strickland 

embarked on a letter-writing campaign 

to Permira, while pensions, 

such as the $68 billion Ohio Public 

Employees Retirement System, 

threatened to not invest in future 

funds from the firm. Even Hollywood 

actor Danny Glover piled 

on, leading a boycott of suits made 

by the manufacturer ahead of the 

Academy Awards. 

The knockout punch may have 

come from Congressman Brown, 

who in March, threatened to 

conduct a hearing of the US Senate 

Banking Subcommittee on 

Economic Policy to “examine the 

Hugo Boss situation and the role 

of private equity firms that acquire 

manufacturing facilities.” 

By April, an agreement was 

forged to keep the facility open. 

Later that month, the hearing 

went on as planned, although representatives 

from Permira weren’t 

called on as witnesses. 

10 MERGERS & ACQUISITIONS September 2010

Outlook 

 

 

 

 

“ 

 

 

 

 

 

 

” 

All dealmakers know the tale of the corporate 

orphan – the unit nobody wanted that 

bloomed as soon as it was freed from its parent 

company. This is the rationale behind most private 

equity carveout transactions, but also serves as a backdrop 

to smaller companies’ misgivings about selling 

to a larger strategic. Increasingly, these misgivings are 

fading, even for relatively tiny companies confronting 

sales to Fortune 500 companies. 

To wit, when Cobblestone | Harris Williams 

managing director Harold Williams won the assignment 

to sell E-Mon, a manufacturer of sub-metering 

products and systems, he specifically targeted larger 

strategic buyers. 

E-Mon owned proven technologies that most 

companies within the energy space would want to 

own. In the end, Williams wasn’t at all surprised when 

the $33-billion-marketcap conglomerate Honeywell 

International emerged as the winning bidder. 

The acquisition didn’t even register with the analysts 

who follow Honeywell’s stock. The buyer, however, 

should be able to offer a more complete portfolio 

in the green energy space as the deal supports its 

smart-grid offering. 

E-Mon was already an equipment manufacturer 

for Honeywell, so the synergies of the combination 

made sense to the seller. Moreover, the opportunity to 

cross sell to Honeywell’s clients, which include Lockheed 

Martin, Pepsi and other Fortune 500 companies, 

opens up more opportunities for E-Mon than perhaps 

a sale to a private equity firm would have yielded. 

Just as crucial, especially when it comes to the energy 

space, E-Mon currently has one employee tasked with 

keeping tabs on Washington, while “Honeywell has 

relationships all over the government,” according to 

Williams. 

Of course, there is always the chance a smaller 

company could get lost in a corporate behemoth with 

the size and scope of Honeywell. It happens all the 

time, especially when buyers pursue a deal in the interest 

of precluding a competitor from gaining access 

to a technology or client. 

Still, in today’s market, corporate acquirers have 

again ascended to the favored status, even among tiny 

businesses, ever wary about being overlooked. 

In the late 1990s, strategics were an appealing buyer 

because they were willing to pay so much more for 

assets on the basis of ambitious synergy expectations. 

Anecdotally, this is not the case today. 

“Strategics are valuing the deals similarly to their 

financial counterparts, but they have the ability to 

come to a deal with no financial contingencies,” says 

Chris Hammond, a managing director with Green 

Manning & Bunch. He adds that that alone provides 

a “significant advantage.” 

Another aspect, perhaps unlike previous eras, is 

that strategic buyers seem to be more accountable for 

how they deploy capital. The $1.8 billion sitting on 

corporate balance sheets is a number often repeated 

by market observers. 

But in the context of record amounts of debt, unfunded 

pension obligations, and perhaps inflation 

fears, strategics are watching where every penny is going. 

This may suppress valuations to a certain degree, 

but it guarantees attention for smaller companies post 

close. 

And with a captive audience comes trust from the 

sellers that a strategic intends to follow through on 

harnessing the synergy promised from a deal. In January, 

Brickman, a nationwide landscaping business 

with more than 160 branches in 29 states, acquired 

The Green Plan, a small landscaping business with 

two locations in Colorado. Based on revenues, it was 

a $700 million company swallowing a $10 million 

regional player. 

Jeff Pope, owner of The Green Plan, says that 

Brickman, despite its substantial scale, was the best 

fit for his employees and customers. “I realized that 


in order to grow the company further, it meant either retooling the 

business model completely or partnering with a larger company,” 

Pope says. 

CCG Advisors managing partner Brian Corbett worked on the 

Brickman transaction. He notes that there can often be some hurdles 

to cross when such a disparity in size between buyer and seller exists. 

“The owner of a smaller business is used to being a lone ranger 

with no board of directors or boss,” Corbett says, adding that it can 

create a culture shock for both management and the employees. 

On the other hand, there is also less uncertainty in many cases. 

Alluding to the difference between large corporate buyers and financial 

sponsors, Corbett cites, “The strategics are known quantities…. 

The private equity groups can be scary to smaller companies that are 

unfamiliar with them.” 

Other factors are at play that may help distinguish a large strategic 

as the right buyer. Chris Barnes, a managing director with Sarowdin 

Partners, says that oftentimes, corporate buyers may overlook 

certain attributes that would trigger red flags for sponsors. He 

recently advised on a deal in which a $200 million revenue company 

acquired a $40 million business. Ninety five percent of the target’s 

revenue was tied up with one client. 

“Very few acquirers can handle that type of customer concentration,” 

Barnes says. 

“The larger strategic was able to leverage that relationship,” muting 

the risk. 

At the end of the day, what makes strategics attractive is the fact 

that they’re out buying assets. Cobblestone’s Williams notes that traditionally 

he has seen dealflow at his end of the market split evenly 

between the corporate and financial sponsors. Over the past 18 

months, interest from buyers has tilted much more heavily toward 

the corporates. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 2010 MERGERS & ACQUISITIONS 13

Outlook 

 

 

 

 

 

“ 

 

 

 

 

 

 

 

” 

In the first week of August, Regis Corp., which 

owns SuperCuts and other salon-related assets, 

retained Peter J. Solomon Co. to explore strategic 

alternatives. The possible sale represents a return 

to the M&A market after about four years, when the 

company’s all-stock merger with Sally Beauty was 

abandoned after the seller got cold feet following a 

Regis earnings shortfall. 

Since then, the tables have turned. Sally’s net income 

has jumped by more than 50% since its 2005 

fiscal year, as the company posted $296 million in 

net income last year. Regis, on the other, has seen its 

fortunes move in the opposite direction following the 

aborted deal. While its revenues have climbed incrementally, 

its net income is down more than 20% over 

the same time period. Should Sally decide to revisit 

the transaction, this time as the buyer, the company 

would have to re-work most of the assumptions that 

were made back in 2006. Perhaps more important, 

Sally would have to reconsider if there is still a strategic 

fit four years later. 

As the M&A market gains strength, many who 

have been on the sidelines in recent years are indeed 

revisiting old deals that for whatever reason weren’t 

consummated in the past. Panelists speaking at the 

Argyle Executive Forum in July, including executives 

from Honeywell and Hitachi, confirmed that old 

pipelines are indeed being re-evaluated. 

Jon Brodsky, director of corporate development 

and strategic initiatives with 1800Flowers.com, tells 

Mergers & Acquisitions that this is an exercise most 

in corporate development are familiar with. 

“There are a thousand reasons why deals fall apart; 

only a very small percentage of the targets you look 

at actually turn into an acquisition,” he says. But, he 

says if buyers have a specific need, it makes sense to 

revisit past targets. 

“You’ll want to look at why it didn’t pan out,” 

Brodsky adds, noting that a new economic climate 

will also force sellers “to re-evaluate where they are.” 

To be sure, a lot things have changed. Financial 

buyers, for instance, don’t necessarily carry the same 

weight in auctions that they used to, neither from a 

pricing perspective nor a reputational perspective. 

Also, as everyone knows, valuations have come 

down substantially. 

“If you were looking at something that made sense 

at an 8x to 10x Ebitda multiple three years ago, you’re 

looking at it now with a 4x to 6x multiple in mind,” 

says Jeffrey Manning, managing director of BDO 

Seidman. 

If the Ebitda has shrunk over that time, the price 

might seem even more appealing. 

Alternatively, if the Ebitda has fallen off a cliff, it 

may have exposed a weakness that the buyer missed 

the first time around. Areas acquirers would reassess 

include changes in leadership or the losses of key accounts. 

The pool of acquirers, meanwhile, continues 

to build, probably at a faster pace than the pool of 

potential targets. Chris Ruggeri, a principal with 

Deloitte’s financial advisory services team, notes that 

from her perspective, “It looks like there are more potential 

buyers out there.” 

While the supply/demand dynamic of the M&A 

landscape probably won’t give rise to the heated auctions 

witnessed in 2006, it does mean that buyers have 

to be proactive if they’re actually going to find deals. 

“Every company, in every sector, probably has 

a handful of targets that got away,” Brodsky cites. 

“When the circumstances change, that’s the opening 

to go after them again.” 

Additional reporting by Ken MacFadyen 


Outlook 

 

 

 

 

 

 

“ 

 

 

 

” 

It is no secret that the recession caused consumers 

to hold back on their discretionary spending. 

With the lack of credit availability and a domestic 

unemployment rate near the double digits, consumer 

purse strings tightened. The response from retailers 

was to cut their losses on underperforming concepts. 

Specialty retailer Abercrombie & Fitch called it 

quits for its RUEHL stores; Aeropostale said ‘so long’ 

to its Jimmy’Z chain; and The TJX Cos. unloaded 

Bob’s Stores to distressed investors Versa Capital 

Management and Crystal Capital. Even Gap Inc. and 

Starbucks have shuttered hundreds of underperforming 

stores, while other names, like Circuit City and 

Linens n’ Things joined the pantheon of flameouts 

that include retailers like Bradlees and Kings. 

Observers believe the bloodletting has largely 

ceased. The question facing companies in the sector 

now is where will they find growth, and whether or 

not it will involve acquisitions. 

Matt Polsky, managing director from the boutique 

M&A advisory firm Net Worth Solutions, believes 

retailers are still going to re-adjust their brand 

portfolios, but as the markets stabilize, they should at 

least be able to reap some proceeds, however limited. 

“Rather than shutting down assets, we may see divisional 

transactions,” Polsky describes. 

In 2009, deals were few and far between because 

sellers were hesitant in putting their companies on the 

market. Buyers withdrew because they weren’t comfortable 

with valuations that anecdotally ranged from 

6.5x to 7x Ebitda, last year. Polsky notes that in 2010, 

retail deals are fetching between 5x and 5.5x Ebitda, 

and possibly lower. 

It’s the battle-tested retailers who have emerged 

from the turmoil and have a better sense of what 

awaits that are ready to begin exploring what’s available. 

“Retailers are a lot healthier than they were; they 

have plenty of cash and are looking for growth,” said 

Paul Traub, principal and managing director with 

Gordon Brothers. 

Polsky, meanwhile, adds that the market is better 

demarcated between the consolidators and those 

looking to sell. “There are a lot of [companies] who 

are ready to acquire or be acquired,” he cites. 

According to Traub, the large retailers are expected 

start targeting strong brands within the middle market. 

As of late summer, though, the available candidates 

seemed to be confined to companies whose backs are 

against the wall. Barnes & Noble, for instance, initiated 

a strategic review in August, while names like Radio 

Shack and BJ’s routinely pop up in deal rumors. 

Leonard Green made a minority PIPE investment in 

the latter, a deal analysts covering BJ’s stock speculated 

could be a precursor to an ultimate sale. 

Borders Group, Blockbuster, and jewelry retailer 

Zale Corp. have all hired bankers in recent months in 

the hopes that a sale could stave off bankruptcy. Zale 

managed to get some breathing room when Golden 

Gate Capital loaned the company $150 million. 

“Companies that can’t go forward are going to put 

themselves up for sale,” said Traub. 

But this raises the question of when and from 

where the strong brands will emerge in the middle 

market? The best bet, at least in terms of where the 

assets will come from, is private equity portfolios. 

Leonard Green, for instance, controls the likes 

of the Container Store, Petco, The Sports Authority, 

Tourneau Inc. and other well known brands. Restora- 


tion Hardware, Eastern Mountain Sports, Aritzia and 

Betsey Johnson are just a small example of the retail 

brands also currently residing in other PE portfolios. 

Sponsors were also proactive in buying up retail 

brands that might have been under strain or needed 

an operational fix outside of the public market. Golden 

Gate Capital, last year, acquired retailers Eddie 

Bauer and J. Jill. Advent International made a similar 

play with its acquisition of Charlotte Russe. 

The timing, as to when sponsors will look to exit, 

is anyone’s guess. As Oak Hill Capital’s sale of Duane 

Reade demonstrated, PE investors are anxious to show 

realizations to their limiteds. With valuations still so 

low, however, if they can hold out, they will. Some 

may also opt for an initial public offering, as Irving 

Place did with the Vitamin Shoppe. 

Indeed, it may be a while before the retailers without 

any warts re-enter the marketplace. That’s likely 

why companies like Aeropostale and TJX, which 

were quick to dump the underperformers, are keen 

to launch new brands in house. The former is making 

a big push, rapidly adding new locations for its PS 

from Aeropostale tween brand, while TJX, in 2008, 

launched Shoe MegaShop by Marshalls to test run the 

concept. 

Others, meanwhile, are using M&A to reinvent 

their business. GameStop’s acquisition of online social 

gaming company Kongretate, for example, opens the 

door to a new market for the retailer. The deal gives 

GameStop access to 10 million monthly players that 

on average spend roughly 23 million hours on the site 

each month. It can be risky to go after new verticals, 

but in the race for foot traffic, dealmakers are opening 

themselves up to new possibilities. 

“ 

 

 

 

 

 

” 


LBO Watch 

 

 

 

 

 

“ 

 

 

 

 

 

 

 

 

” 

For the past few years, leveraged buyouts have 

been notable for their lack of leverage. LBOs 

were routinely completed with a capital structure 

split roughly between equity and debt. The 

M&A markets continue to slowly improve, driven no 

doubt by a healthier lender universe. To some observers, 

however, the credit markets are outpacing M&A 

demand. In some cases, it can make it easy for PE 

buyers to pick up old habits. 

“Deal flow continues to disappoint so all the lenders 

are looking at everything,” describes Brian Crabb, 

a co-managing director of sponsor coverage in Fifth 

Third Bank’s leveraged finance group. “When good 

deals come along, the lenders start fighting over it.” 

The result is that certain properties can carry leverage 

more in line with what observers saw in the years 

leading up to the bubble. 

In April, for example, WL Ross & Co. and The 

Greenbrier Cos. were able to complete a deal to lease 

nearly 4,000 railcars in a transaction valued at about 

$230 million. The investment was roughly 90% levered. 

On average, though, it would be a hard case to 

make that leverage today resembles anything close to 

the bubble era. According to multiple sources, most 

middle-market deals are getting done with between 

2.75x and 3x senior with a turn or a turn and a half of 

mezzanine. For companies with north of $10 million 

of Ebitda, the multiples may move up a quarter to a 

half a turn. Standard & Poor’s Leverage Commentary 

and Data reported that average debt multiples were 

hovering at about 3.8x in the first quarter of 2010, 

down from its recent peak of 4.9x in 2007. 

While a number of players have pulled out of the 

middle market lending arena, those that are active 

are familiar faces. Madison Capital Funding, Fifth 

Third, Golub Capital and GE Antares, “along with 

some regional banks,” look at most deals out there, 

according to one private equity investor, speaking 

anonymously. 

But the frothiness of the market moves in fits and 

starts. Madison Capital Funding’s Christopher Williams, 

a senior managing director at the firm, suggests 

that the market remains sensitive to macroeconomic 

concerns. 

“Leverage levels were getting aggressive until the 

European issues started creating uncertainty,” he says. 

Williams adds while things aren’t as frothy as they 

were earlier in the year and concern over Europe may 

linger, “the middle market is still doing alright.” 

As it relates to equity contributions, around 40% 

to 45% of the purchase price seems to be normal for 

middle market acquirers. In the larger market, where 

more liquidity exists, around 30% equity could be 

considered a typical contribution. To call those figures 

the new normal, however, would imply that sponsors 

won’t attempt to contribute less when they can. 

One investor on the debt side told sister publication 

Leveraged Finance News (LFN), that while lenders 

may expect minimum equity contributions, their 

expectations soften as competition ramps up. 

“Minimum sponsor equity contributions are driven 

largely by market supply and demand; when too 

many lenders are chasing too few deals, the percent 

requirements go down,” the New York-based investor 

told LFN. “The bias is in that direction today, but not 

dramatically so.” 

Of course sellers may have expectations too. This 

might be the reason all-equity deals continue to pop 

up. In May, healthcare products provider Covidien 

sold its Specialty Chemicals business to New Mountain 

Capital for $280 million. New Mountain funded 


the purchase without any third-party debt. In the 

third week of July, meanwhile, Boulder, Colo.-based 

private equity firm Revelry Brands took a stake in Icelandic-style 

yogurt maker Siggi’s in an all-equity deal. 

“When private equity firms can get a deal done with 

all equity it can be a nice differentiator,” notes Fifth 

Third’s Crabb. Beyond eliminating the stress of covenants 

and the strain of leverage, all-equity deals tend 

to move faster for sellers and reduce the contingencies 

that can create headaches leading up to the close. 

The typical middle market deal, though, probably 

looks something similar to Onex Corp.’s taking private 

of Texas-based Sport Supply Group. The firm, 

according to a definitive proxy statement filed in July, 

contributed $89.6 million in equity, while lining up 

$74.6 million of senior debt, a $26.5 million subordinated 

credit facility, and a $25 million revolver, the 

proceeds of which were used to fund a portion of the 

deal. The equity contribution represents a shade over 

41 percent. 

Even as the improving credit markets have yet to 

translate into significantly higher leverage levels, it has 

juiced the deal market to some degree. Only 7,318 

M&A deals were completed in all of 2009, according 

to Dealogic. In just the first half of the year, buyers 

completed a total of 5,284 transactions in 2010. 

Dealmakers are interested to see what happens 

when dealflow really picks up. There is a line of thinking 

that leverage levels could again fall, as lenders 

won’t have to “fight” over the good deals. Of course, 

without leverage, valuations may not be compelling 

enough to entice sellers to sell. It all suggests sponsors 

may have to get used to 40% contributions for at least 

the near term. 

“ 

 

 

 

 

 

” 


LBO Watch 

 

 

 

 

“ 

 

 

 

 

 

 

” 

It’s been a year since the Institutional Limited Partners 

Association issued its Private Equity Principles 

and as of the end of July 2010 more than 

120 LPs had endorsed them. As private equity firms 

struggle to raise funds there’s little doubt that the LPs 

are calling the shots. From the LPs’ standpoint the 

Principles have indeed played an important role helping 

them negotiate better terms. General partners, 

however, aren’t so quick in extending credit. 

Outwardly, an impact seems evident. Take the 

fundraising efforts of Aquiline Capital Partners. The 

firm is seeking roughly $2 billion for its second fund, 

a follow-up to its $1.1 billion, 2007-vintage debut 

effort. According to the minutes from a late April 

meeting of the Oregon Investment Council, the OIC 

committed $100 million to the new Aquiline fund 

– but not before the pension was able to shakedown 

Aquiline for certain concessions. 

As the minutes from the meeting detail, Aquiline 

agreed to allocate 100% of any transaction fees back 

to the fund, versus the 80/20 split of its predecessor 

vehicle. Moreover, Aquiline will deposit 20% of its 

carried interest distributions into an escrow account, 

ostensibly for potential clawbacks. The firm has also 

agreed to include writedowns of unrealized investments 

when calculating the carry. 

The OIC, which is being advised by PCG, also 

said it would “continue to negotiate terms.” For this 

newfound power, the pension credited the ILPA’s 

Principles. 

Observers and market participants, though, aren’t 

so sure it’s the ILPA’s Principles that are necessarily 

dictating the terms. One GP, who recently finished 

raising a new fund, notes that in the past, generally, 

most LPs weren’t receiving “the respect they deserved.” 

With the credit crisis, the GP/LP relationship 

has shifted, but the pendulum was heading in that 

direction regardless. 

“The Principles have gotten some issues out there 

and pushed for change, but the best GPs aren’t just 

rolling over,” says the source. “There is no real template 

for how to raise a fund.” 

Moreover, the source adds: “The changes from 

GPs are less a function of the Principles and more 

a function of the marketplace. There are more GPs 

looking for money and fewer LPs investing.” 

Indeed, during the second quarter 82, private equity 

funds raised $41.3 billion globally, the lowest total 

since 2003, according to Preqin, which noted that 

the anticipated recovery in the fundraising markets 

had yet to occur. The data provider also noted that it 

is still taking longer for firms to close funds and the 

number of firms looking to raise capital continues to 

decrease as many have put their fundraising efforts on 

hold or abandoned fundraising altogether. 

Although the many larger firms won’t talk about 

it, GPs like TA Associates and The Blackstone Group 

had more trouble raising their latest funds than they 

had in the past. Both reportedly made concessions to 

the terms of their partnerships to help attract more 

investors. While the Principles weren’t mentioned, 

some LPs feel certain they are the reason the firms 

changed their terms. 

Kelly DuPonte, a partner with Probitas Partners, 

agrees that the ILPA Principles provide a good starting 

point. He says, however, that they aren’t a driver 

of change. He notes there a plenty of firms who could 

comply with the Principles and still have trouble attracting 

LP interest. 

“In a capital-starved market, any effort to improve 

terms would have had an impact,” he says. “In talking 

to LPs, many see the Principles as a good starting 

point for discussion and a number are asking their 

attorneys to benchmark proposed LP agreements to 

the Principles as a point of comparison.” 

While GPs may be remiss to credit the Principles, 

they would be lying if they said they don’t take the 

suggested guidelines seriously. DuPonte notes that 


ahead of any fundraise, GPs are also going to ask their 

fund formation attorneys cross reference their terms 

with the Principles, “so that they know exactly where 

they stand going into the process.” 

DuPonte adds that a number of sponsors will 

make changes ahead of a new fund to become more 

ILPA friendly. He insists, though, that 100% compliance 

won’t make a difference for lower quartile funds. 

That GP “is not going to get funded.” 

As LPs are prone to point out, a multi-million private 

equity commitment doesn’t lend itself to bargain 

hunting. 

For the first time, perhaps in history, there is no 

shame in not raising a larger fund than previous vehicles. 

Blackstone Group’s latest fund, at $13.5 billion, 

is off by more than a third from its predecessor, and 

many that test the market will be happy to walk away 

with the same result. 

But it is phenomenon of the market; it doesn’t reflect 

the fight over terms. 

“Fundraising is never easy, but it got incredibly 

difficult and it is still very hard,” says Stewart Kohl, 

The Riverside Company’s co-CEO. “There will be 

more than a few firms that do not get funded. The 

LPs will continue to be choosy.” 

According to Erica Berthou, a fund formation 

partner with Debevoise & Plimpton, the Principles 

simply put a spotlight on issues that had already been 

discussed between both sides. 

“The LPs want to know that their interests are 

aligned with that of the GP and they want proper 

management of conflicts of interest. This is not new, 

but ILPA has helped to draw the discussion out in 

some instances,” she says. 

“ 

 

 

” 

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Debt Monitor 

 

 

 

 

 

 

“ 

 

 

 

 

 

” 

Second-lien term loans are making a comeback 

and this has cheered market observers seeking 

more financing options. 

“It’s good to see growth in the market and that 

issuers have alternate sources of junior capital to augment 

what the bond market and mezzanine markets 

will do,” said one New York-based banker who declined 

to be named. “I don’t think we will see an avalanche 

of these deals, but if the deals are well-priced 

and structured, they should sell.” 

As of July 27, there had been 14 second-lien 

tranches totaling $2.7 billion so far in 2010, according 

to Dealogic. Last year, 32 tranches totaling $4.3 

billion were syndicated. Market participants anticipate 

seeing second-lien volume approach that total in 

the remainder of the year. 

“There is a lot of life in the market for secondlien 

term loans,” a Chicago-based banker said. “In the 

middle market, there are a lot of firms focusing on 

this product right now.” 

In the last week of July, Credit Suisse, Barclays 

Capital, Morgan Stanley and BMO Capital Markets 

arranged a $1 billion debt package consisting of a firstlien 

and a second-lien term loan to finance the merger 

of Pierre Foods and Advanced Foods. The structure 

of the deal, as well as pricing on the two loans, hadn’t 

been determined by press time. 

(Moody’s Investors Service placed all ratings of 

Pierre Foods, including its B2 corporate family rating, 

on review for possible downgrade. The rating 

agency said the review will focus on both the amount 

and terms of the debt employed in the new company’s 

capital structure, and the financial risks associated 

with completing the merger.) 

Also in July, Credit Suisse syndicated a $105 million 

second lien for IT security provider SonicWALL 

at Libor plus 1,000 basis points, with an original issue 

discount (OID) of 97 and a 2% Libor floor. That 

loan, along with a $155 million first-lien term loan 

was used to back SonicWALL’s acquisition by Thoma 

Bravo and the Ontario Teachers’ Pension Plan. The 

SonicWALL deal came right on the heels of a $150 

million, second-lien term loan arranged by Goldman 

Sachs for former Lion Capital portfolio company 

American Safety Razor, which filed for Chapter 11 

in July. 

From a borrower’s perspective, second-lien term 

loans provide incremental financing that is typically 

less costly than equity or traditional mezzanine financing. 

In a distressed situation, second lien loans 

can provide incremental rescue financing that the 

company probably could not have raised on an unsecured 

basis. 

From a lender’s perspective, second liens provide 

a greater return than first liens, with only modest additional 

risk since the loan rarely exceeds the collateral 

value. In a distressed situation, second-lien financing 

can provide lenders attractive mezzanine-like returns 

on their capital. 

Second lien financing is also typically the fulcrum 

security, providing downside protection in the event 

the borrower becomes insolvent. 

“Second-lien loans fill a niche and in the right 

situations are quite useful,” the investor source said. 

“In general, second-lien loans represent mezzanine 

money with important collateral protection for the 

provider.” 

Before the SonicWALL and American Razor deals, 

banks shopped two other second-lien term loans — a 

$125 million second lien for US Gas & Electric and a 


$65 million second lien for Hoffmaster. 

US Gas & Electric is using the proceeds from the 

loan to refinance existing debt. Hoffmaster, an Oshkosh, 

Wis.-based producer of specialty disposable tabletop 

products, is using the proceeds from the loan, 

along with a $160 million first-lien term loan, for a 

dividend payment to Kohlberg & Co. and to repay 

the balance of an existing term loan. 

Recent deals like these are indicators of “the buy 

side’s appetite” and “issuers looking for alternative financing 

options,” one Canadian investor describes. 

With that said, not everyone is keen to sing the 

praises of second liens. 

One critic sums up, “Second liens are effectively 

high yield bonds with less liquidity and less return.” 

Another, a New York-based investor, adds that 

second lien capital doesn’t necessarily represent new 

money coming into a deal. “Oftentimes they are a 

way for people to avoid paying proper high-yield call 

protection.” 

Still, with CLO activity muted and leverage tough 

to come by for other lending vehicles, marketwatchers 

anticipate that second liens may replace high yield 

offerings on smaller issues that are either too expensive 

or not as well received by investors. 

Another debt market source adds that second lien 

financings can portend trouble. 

“Even though [the financings] don’t increase default 

rates by being second liens, they’re a bit of a flag 

on capital structure because someone needed to create 

that slice even if there isn’t a world of demand for 

it.” 

“ 

 

 

 

 

” 


Cover Story 

Navigating 

GM’s 

Four-Point Turn 

WWhen General Motors’ Camaro was unveiled in 

the 1960s, the car’s first commercials depicted a 

white automobile, complete with rally racing stripes, 

ascending from a volcano. Set amid smoke, rocks 

and small explosions, with a music track seemingly 

borrowed from the TV show “The Land of the 

Giants,” the SS350 was Chevy’s answer to the Ford 

Mustang. More than 40 years later, the commercial — 

albeit not the message — is still fitting, as GM finally 

climbs from the ashes of a monumental turnaround

AlixPartners’ Albert Koch, who 

helped oversee the automaker’s 

revival, identifies the takeaways 

from the turnaround By Ken MacFadyen 

Photographs by Fabrizio Costantini

Cover Story 

“ 

 

 

 

” 

that had been put off for decades. 

The resuscitation of General Motors is unlike any 

turnaround or restructuring ever witnessed. From the 

scale of the problem to the Senate hearings and subsequent 

government funding, it can be hard for any 

executive to relate. 

SSG Capital Advisors’ J. Scott Victor, founding 

partner and managing director at 

the firm, says in his view, “There is 

no correlation, whatsoever” between 

GM’s restructuring and what most 

distressed middle-market companies 

may encounter. 

But as GM’s performance starts to 

reflect the labors of the turnaround, 

others believe important lessons can 

be pulled from the effort. AlixPartners’ 

Albert A. Koch, vice chairman 

and managing director at the firm 

who helped oversee the turnaround, 

notes that even the distinctiveness of 

the GM situation underscores a key 

theme in this kind of rehabilitation 

work. “They’re all unique,” he says. 

“Big or small, any turnaround is 

about figuring out what the issues are, and then solving 

them quickly. It’s like fixing an airplane in midflight.” 

Koch, 67, should know. Before he signed on to 

work with GM, he accumulated a track record that 

included turnaround mandates for Kmart, where he 

served as interim chief financial officer; Polar Corp., 

where he served as chief executive for three years ending 

in 2007; and Champion Enterprises, again as interim 

CEO as the company went through an out-ofcourt 

restructuring in 2002 and 2003. 

Currently, Koch serves as the president and CEO 

of Motors Liquidation Co., tasked with disassembling 

GM’s old business, including shuttered factories and 

brands such as Pontiac and Hummer. 

A retelling of GM’s story probably isn’t necessary. 

It was nearly impossible for anyone with access 

to a television or radio to not follow the company’s 

descent into bankruptcy. From there, a new GM 

emerged, owned primarily by the US Treasury, with 

the United Auto Workers union, the Canadian government 

and GM bondholders together assuming the 

40% balance. 

As GM returns to health, its story is still hard to 

avoid. From the 25% jump in sales for GM’s four 

strongest brands (Chevy, Buick, GMC and Cadillac), 

announced in August, to the sticker price of GM’s 

newest hybrid line, the Volt, taxpayers are kept wellinformed 

as to the status of their investment. Even 

the back-and-forth talk of a possible IPO seems to 

be in real time – the UAW said paperwork would be 

filed with the automaker’s upcoming earnings statement, 

while CEO Ed Whitacre in August mitigated 

expectations, telling the Wall Street Journal succinctly 

“We’re not there yet.” 

The part of the story that doesn’t necessarily reach 

the masses is the way in which GM’s turnaround is 

like every other distressed situation. 

Koch, for instance, cites four indicators of corporate 

decline that are present in nearly every distressed 

situation. He points to weakening revenue or profit 

margin; poor industry dynamics; either too much 

debt or inadequate capital; and insufficient information 

systems. 

GM, of course, operated in an industry facing intense 

global competition, which wasn’t saddled with 

the labor and healthcare costs that weigh down the 

Detroit automakers. Rising raw material costs also cut 

into GM’s profits, while rising gasoline prices made 

certain lines of its automobiles irrelevant almost overnight. 

The result was a roughly 30% decline in domestic 

car sales. Incentives to lure in consumers chipped 

away at the company’s margin, and by the time GM 

declared bankruptcy, its cash burn was roughly $1 billion 

a month. In the company’s last quarterly filing 


with the SEC ahead of its bankruptcy, GM disclosed 

that it had over $54 billion in total debt. 

The progression to true distress, Koch says, typically 

starts with strategic issues, and within nine to 18 

months, without intervention, those issues can evolve 

into profitability concerns. At that point, questions 

about liquidity can pop up in under nine months if 

nothing is done to solve the mounting issues. As distress 

progresses, it tends to spiral, and for operators, 

the degree of freedom only shrinks. This is why when a 

turnaround pro like Al Koch discusses the keys to their 

business, it almost always comes down to speed. 

Three of Koch’s four key indicators of decline are 

fairly obvious. The one that might get overlooked is 

also the most important when it comes to effectuating 

a turnaround. If a company’s information system 

is inadequate, its ability to process and act on specific 

factors is compromised. 

GM, for its part, relied on customized, complex 

legacy systems. It didn’t make the turnaround any 

easier as executives had to identify which components 

of the company would stay with the new GM and 

which would be shuttled to the liquidating company. 

Koch, though, points to his experience at Kmart as a 

better reflection of the difference a reliable information 

system can make. 

“If you had a question about inventory or whether 

merchants were taking markdowns to move it, it was 

extremely difficult to get that information,” he says. 

The fix wasn’t easy, but the resolution introduced a 

level of accountability. Decision making improved, 

and management had a basis to build off of as it reworked 

Kmart’s strategy. 

Koch saw a similar situation at Oxford Health- 

“ 

 

” 

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Cover Story 

plan, a mandate he worked in the late 1990s. Following a 

systems breakdown, executives couldn’t readily distinguish 

between the profitable and money-losing contracts. “You 

had to dig through, and do it manually. What we discovered 

was that it was abundantly clear which accounts 

weren’t worth keeping.” 

Reliable information also allows executives to act with 

speed and certainty. A factor in many instances of distress, 

Koch says, is that managers tend to be in denial. 

“They may rationalize that a company or unit is just going 

through a difficult quarter,” he says. 

While hope is what drives growth, in a deteriorating 

situation it becomes the void that 

creates the spiral. Hence, executives miss opportunities 

re-align their business. To play 

catch-up after a certain point managers will 

have decisions made for them. “With the passage 

of time, your options burn off,” Koch 

notes, contrasting that tendency with those of 

successful companies that “are always looking” 

for weaknesses. 

The GM bankruptcy provides a case study in overcoming 

distractions. Consider the period between mid February 

and mid April, last year. The company devised four 

options as part of its bankruptcy prep program, devising 

“cram-down,” “pre-pack,” “NewCo” and “out of court” 

strategies. Executives were able to procure a bridge loan 

from the Canadian government, while negotiating the final 

loan package. This was roughly around the same time 

that GM started exploring the feasibility of a 363 sale. 

Amid all of this, Rick Wagoner was forced to step down 

by the US government’s Auto Task Force, clearing the way 

for Fritz Henderson to assume the role. 

On the same day GM submitted its third plan of viability 

to the government, the Auto Task Force responded 

by criticizing the scale of the plan, and set the clock at 60 

days for the company to come up with something new. 

Throughout all of this, GM was working with the UAW 

to finalize a new contract; negotiating to sell brands such as Hummer 

and Saab; working with Delphi to assure the liquidity of the 

parts maker, but still had to take steps to procure new sourcing arrangements 

should Delphi be forced to liquidate. 

This two-month stretch drives home the unique nature of the 

GM bankruptcy. Yet Koch cites that every turnaround has its distractions 

– “it’s unavoidable.” As cash dries up and covenant violations 

approach, attention is suddenly directed to lender presentations, 

finding sources of liquidity or calls to comfort the supply chain. It’s 

paramount that executives navigate around the distractions and stay 

focused on the business. 

Viewing the Turnaround Through an 

M&A Lens 

General Motors’ M&A strategy was centered around one number – 10.5 million. 

That’s the number of units GM has to sell to breakeven under its new 

strategy. According to Koch, the number was established using a conservative 

estimate of North American auto volume and GM’s marketshare, constructed 

for five years. 

“That drove decisions around what assets would 

go to the new company and those that would be left 

behind,” Koch said. The result has been a string of 

sales and exits involving one-time formidable brands, 

such as Saab and Hummer. 

GM went back on the offensive in July, acquiring 

Americredit for $3.5 billion; a deal that again positions 

GM for growth after two years of rationalizing. 

But GM’s revitalization extends well beyond the auto giant. The rationale behind 

the government’s funding was that a GM collapse would reverberate throughout 

the sector, all the way down to the smallest suppliers. Kevin Marsh, a director and 

co-founder with Michigan-based investment bank Angle Advisors, notes that the 

company’s return to health has had the same effect. 

“I’m not sure GM would’ve been able to do it as quickly without the government’s 

help, but the turnaround has delivered a tremendous amount of liquidity to 

the suppliers,” Marsh says. 

He notes, however, that the liquidity hasn’t yet translated into abundant deal 

volume. It has allowed suppliers such as Hayes Lemmerz and Cooper Standard, 

among others, to exit bankruptcy. Visteon, as of late July, was nearing an exit as 

well. Actual deal activity, though, has yet to really gain momentum. 

“The challenge is still credit availability,” Marsh adds, noting that lenders still 

view the automotive space as toxic. 

If there is a benefit to a crisis, it’s that it forces companies to confront 

issues. In today’s environment, in which flat is the new up, 

businesses can either be content to muddle along or management 

can take the initiative and be proactive about forcing change. 

Koch notes that he’s seeing a lot more companies address their 

turnaround plans before it hits crisis stage. There are a few caveats to 

starting early, however. Beyond not having the advantage of bankruptcy 

to clean the slate, it can also be harder to get employees to buy 

into a turnaround. “If there’s no ‘crisis,’ people are much less inclined 

to get excited,” Koch says. Still, the transition from mere “strategic 

issues” to “liquidity concerns” has never been shorter. If GM teaches 

the market anything, it’s to fight the tendency to put off a fix. 


Profile 

 

 

 

 

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” 

ome dealmakers like a round of golf; 

others enjoy sailing or skiing. Hugh S. 

“Beau” Cummins III, the head of Sun- 

Trust’s investment bank, prefers nothing 

better than riding his skateboard in his 

backyard up and down a plywood half pipe. 

The 47-year-old dealmaker skateboards — despite 

a litany injuries since childhood — to stay in shape 

for snowboarding. 

Cummins takes risks in his professional life, too. 

In 2005, he stepped down as Bank of America’s head 

of debt capital markets and investment grade and 

liquid products origination. He moved his family to 

Atlanta and became head of the debt capital markets 

business at SunTrust Robinson Humphrey. This year 

he became the sole head of corporate and investment 

banking at SunTrust, one of the largest US banking 

companies, and the chairman and chief executive of 

its investment banking arm. 

He wanted to build up an investment bank rapidly, 

but the credit markets didn’t cooperate. Now 

Cummins wants to build a team to rival that of Wall 

Street’s bulge-bracket firms. 

SunTrust’s investment bank is expanding with 

hires in M&A, debt and equity capital markets, and 

other types of advisory work. He adds that the $170 

billion-asset company isn’t afraid to use its balance 

sheet to bring in mandates. 

In a telephone interview, Cummins highlighted 

the finer points of his strategy. He saw an opportunity 

to take the company’s M&A operations and “reorient 

it from a boutique business that was Rolodex-driven 

to one that was organized by sectors or industry 

expertise.” That would make it easier to align with 

the firm’s banking business, which “would be sector 

driven.” Ultimately, Cummins describes that he and 

his colleagues, “took the old Robinson Humphreys, 

the old debt capital markets piece and the corporate 

banking piece and snapped them together to create a 

universal banking model.” 

Last year, the firm’s investment banking operations 

made more than $272 million, according to 

documents filed with regulators. In 2005, the year 

Cummins came aboard, it made $216 million from 

investment banking. 

The Robinson Humphrey brand goes back to 

1894. SunTrust, the sixteenth largest US bank by 

asset size, purchased Robinson Humphrey’s capital 

markets group in 2001 from Salomon Smith Barney, 

which retained the retail brokerage. The capital markets 

group handled equity research, institutional sales 

and trading and investment banking. 

SunTrust Robinson Humphrey’s business lines include 

equity and debt research, sales and trading, and 

M&A and capital structure advice. It does the majority 

of this work for companies with revenue of $500 

million to $5 billion, though it also works with firms 

with revenue outside that range. 

“We have very close relationships,” Cummins said, 

referring to the firm’s clients. “We have a lot of balance 

sheet extended to them, both in the large corporate 

space and the commercial middle-market space.” 

In the past five years, SunTrust Robinson Humphrey’s 

head count has dropped from 1,100 to 800, in 

part because of realignment along industry verticals. 

But over the past several months, the firm has added 

senior and junior staff in debt and equity sales, debt 

origination and other areas. By yearend, it plans to 

raise its head count to 900. 

Recent hires include Sean Hickey, who arrived 

from Cantor Fitzgerald in June as a managing director 

in the financial sponsors group. In May, the investment 

bank hired Greg Sorensen from Deutsche 

Bank Securities as a managing director for healthcare 

investment banking. 

According to Cummins, nearly 250 profession- 


als have joined his investment banking team in the 

past five years; most of these have signed up through 

personal contacts so SunTrust Robinson Humphrey 

hasn’t relied on recruiters to find talent. 

In the early ‘90s, Charlotte based Wachovia 

and Bank of America had little choice 

but to import New York talent when they 

built out their investment banks. Consolidation 

in the wake of the credit crisis forced 

those operations to centralize elsewhere. 

Cummins has benefited. 

“That has been an opportunity for us,” he 

says, alluding to the Charlotte talent forced 

to weigh a move to New York. “The odds 

of finding a person who is born and bred in 

Long Island wishing to move to Atlanta are 

lower than finding somebody in Charlotte” 

willing to make that same move. 

The bankers at SunTrust Robinson 

Humphrey say they are helping to shed their 

parent company’s image as a regional bank. They cite 

transactions like a deal to place $250 million of New 

York Times Co. debt with the Mexican investor Carlos 

Slim and companies he controls. In that deal, Sun- 

Trust served as the sole placement agent. 

The fastest-growing outpost is in New York, where 

the firm has investment bankers, an equity sales and 

trading desk, and fixed income sales professionals. 

The Boston office is also expanding rapidly, while 

SunTrust’s Chicago team includes investment bankers 

and fixed-income professionals located there because 

of the office’s close proximity to the Chicago Board of 

Trade and the Chicago Board Options Exchange. 

There are also offices, with varying capacities and 

business activities, in Charlotte, Memphis, Miami, 

Nashville, Orlando, Pittsburgh, Richmond and Tampa, 

but the majority of the investment bank’s professionals 

are based in SunTrust’s hometown of Atlanta. 

Executives say that despite the firm’s international 

reach, its roots are Southern, and life in the South 

serves as a selling point. 

“The lifestyle side is positive,” says Joe Thompson, 

head of investment banking coverage at SunTrust 

Robinson Humphrey in Atlanta. “It’s not that we 

work less, because we certainly don’t, but the location 

affords you a little more flexibility in how you arrange 

your schedule, not necessarily the length of it.” 

To be sure, the firm has lined up its share of mandates 

too. In the first quarter, SunTrust Robinson 

Humphrey advised the Boston private-equity firm 

ABRY Partners on its $1.2 billion acquisition of the 

cable television provider RCN Corp. The investment 

 

bank was also the joint bookrunning manager for the 

Phoenix waste management company Republic Services 

Inc.’s $1.5 billion issuance of senior notes and 

the sole lead arranger for Healthcare Finance Group’s 

$100 million receivables securitization program. In 

July, the firm served as financial adviser to Arena Resources, 

an Oklahoma gas and exploration company, 

in its $6.8 billion merger with the Texas oil and gas 

company SandRidge Energy. 

Thompson notes that the investment bank is also 

“extremely” active in healthcare, it has already completed 

a number of transactions and has many more 

in the pipeline. He adds that SunTrust Robinson 

Humphrey is also very active in energy, media and 

communications and financial services, which he says 

is “continually busy.” 

On the capital markets side, the investment bank 

has been working with financial sponsors and large 

financial institutions. 

“The growth has been on the capital raising side, 

specifically the loan syndication business. The highgrade 

and high-yield bond business last year were all 

very strong and started out strong this year,” attests 

John Gregg, head of capital markets origination, who 

joined SunTrust Robinson Humphrey in 2006 from 

Bank of America. 

Gregg says the opportunity will be “non-investment-grade” 

products, such as leveraged loans, high 

yield and mezzanine, among other alternatives. 

Photograph by Dana Mixer 

“ 

 

 

 

 

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Q&A 

 

 

 

 

“ 

 

 

 

 

 

 

” 

he sports world, like most sectors, has 

faced its share of turmoil in recent years, 

and more questions loom as the major 

domestic sports leagues are all facing possible 

labor unrest in the coming years. 

In spite of the cloudy picture, deal activity has been 

robust, and valuations in some cases have soared far 

beyond expectations. 

In May of this year, law firm DLA Piper became 

an instant player on the sports business and entertainment 

landscape, when the law firm poached a team 

of lawyers from Nixon Peabody. Charles Baker was 

among those joining DLA Piper’s corporate and finance 

group as a partner, focusing on M&A, restructurings, 

private equity, and corporate finance, with a 

concentration on sports, media, entertainment and 

the consumer sectors. Recently, he has worked on 

deals involving the Chicago Cubs and Miami Dolphins 

and also served counsel for multiple stadium 

financings, including new homes for the New York 

Yankees and New York Mets. 

Baker spoke with Mergers & Acquisitions in July 

to breakdown what is driving deal activity across the 

realm of professional sports. 

Mergers & Acquisitions: There has been a lot going 

on when it comes to sports M&A these days. What tends 

to drive dealflow in this area? The segment seems like it 

tends to operate outside of the normal M&A cycles. 

Baker: From a transaction perspective chaos breeds 

opportunity. There are a lot of teams still carrying significant 

debt loads or ownership groups that are funding 

operating losses. You have to ask, ‘how long can 

that continue?’ 

That alone, presents a lot of opportunities for 

buyers, but you also have uncertainty created by the 

expiring collective bargaining agreements. Each of 

the four major leagues are affected. The NFL and the 

NBA are facing new labor agreements at the end of 

next season, while the NHL and Major League Baseball 

will have to deal with new collective bargaining 

agreements in 2012. 

All of this serves to create more uncertainty, 

which drives M&A, generally. 

Mergers & Acquisitions: Amid this uncertainty, the 

Golden State Warriors were still able to fetch around 

$450 million – a record price for an NBA team that 

rarely wins. Are acquirers just looking for ‘trophy’ properties 

or is there a true thesis behind these investments that 

justify the prices being paid? 

Baker: Sports teams will always be considered trophy 

properties, which is why they tend to price higher 

than other assets when you compare the multiples. 

With that said, these are viable businesses, and you 

don’t see a lot of sales in which the seller doesn’t get 

more for a property than they originally paid. Up until 

the sale of the [NBA’s Charlotte] Bobcats earlier 

this year, I don’t think there was a single case in which 

that happened in the NBA. 

If you look at Steve Ross’s acquisition of the 

[NFL’s] Miami Dolphins, I guarantee he isn’t planning 

to lose money. In fact, if you look at that market, 

an NFL franchise in Miami has to be considered a 

cash cow. 

These deals are attracting savvy investors; investors 

who have typically built a track record of being 

able to spot value. In the case of the Warriors, the 

team is in a great market and has a great fan base, so 

that probably overshadows the recent performance of 

the team to some degree. 

Mergers & Acquisitions: The Golden State sale was 

also interesting because the highest bidder didn’t even 


win. Larry Ellison came out publicly after the deal saying that he had 

the highest bid and still lost. If you consider other similar situations in 

the NFL and MLB, it seems to underscore that there’s more to an auction 

than just the valuation. 

Baker: No two examples are ever the same. That’s going to be a wildcard 

when you’re buying into any league. The commissioner of each 

league, at the end of the day, has always had the power to do what’s 

in the best interests of their league. The NBA and other leagues have 

been quite active in that regard. 

Mergers & Acquisitions: Is there a typical deal 

structure when it comes to buying a sports franchise? 

conservative, but the demand is still there. 

Mergers & Acquisitions: How do the banks view the situation going 

on with the Texas Rangers, in which the Bankruptcy Court had to step 

in to block a sale to Nolan Ryan’s ownership group, citing that the MLB 

turned away higher offers? 

Baker: The banks watched that one with interest. I’d just say generally 

that all sides have played the game with the Rangers pretty 

aggressively. 

Mergers & Acquisitions: What are the differentiators 

between an ‘A’ property and everything else 

when you’re talking about a sports franchise? 

Baker: Each league has their own set of rules relating 

to transfers, but by and large the rules govern, 

among other things, the amount of leverage 

a buyer can take on to fund a purchase. In the 

NBA, for instance, you can’t borrow more than 

a certain amount of debt if it’s secured against 

an owner’s interest in the team. If it’s unsecured, 

buyers can borrow slightly more. When you 

count the arena, there is an even higher debt limit. 

In the other leagues, you’ll see some variation 

of this formula. 

The leagues will also scrutinize the makeup 

of the ownership group. To go back to the NBA, 

for each ownership group, there needs to be at 

least one person who owns a minimum percentage of the acquiring 

entity. 

The leagues will perform a pretty thorough exam in connection 

with the sale. For example, if you have an auction with a dozen 

bidders, a seller and its advisors can narrow it down to a half dozen 

pretty quickly just by determining who can fund their bids and who 

can’t. Naturally, the league will perform diligence on any prospective 

owner or owners as well. 

Charles Baker 

Baker: Television is huge in all of the leagues. 

Most national, league-wide revenue contracts are 

split between the teams, but local revenue stays 

with the team, so the team’s local market is crucial. 

The real estate can also be important. A lot 

of these teams are sitting on undeveloped parcels 

of land or control real estate that can be turned 

into something better. A municipality that can 

afford to help, where you have taxpayer assistance 

in financing new stadiums, may also be a 

consideration for potential purchasers. 

Mergers & Acquisitions: As a fan, it can be frustrating 

to watch an ownership group cry poor when 

it comes to talent. Does winning run counter to profit generation? 

Baker: I would disagree with that premise. It is very difficult to have 

a poorly performing team and make a lot of money in this business. 

If you talk to Danny Meyer about restaurants, he’ll tell you that it all 

starts with the quality of the food and the overall customer experience, 

or the “hospitality.” The same is true in sports. It begins with 

the product on the field. 

Mergers & Acquisitions: How would you characterize the demand 

from lenders to back these deals? Is this an area where there might be 

some skepticism on the part of Wall Street? Or does that $200 million 

secured by the NBA last year from JPMorgan and Bank of America 

signal an underlying appetite? 

Baker: The banks, before the crisis, were pretty eager to back these 

assets. If you look at some of the credit arrangements in Europe, for 

the football clubs there, you could argue that things got as aggressive 

as they did for many other sectors during the credit bubble. The economic 

crisis and recession have forced banks to become a bit more 

Mergers & Acquisitions: The sports story of the summer has to be 

LeBron’s defection from the Cleveland Cavaliers. I’ve seen estimates 

range from $100 million to $200 million in terms of the impact on the 

Cavaliers’ valuation. 

Baker: Those aren’t easy estimates to make. Anecdotally, though, if 

you go to Cleveland you will see a ‘LeBron effect.’ Some of the “experts” 

coming up with those numbers seem to be pulling things out 

of the air based on the spread, but in a place like Cleveland, where 

he was the primary draw for that basketball team, you’ll see an affect 

BAKER continued on page 48 


Guest Article 

 

 

 

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hat a difference two years makes 

in the aerospace sector. Recall the 

2008 Farnborough Air show when 

oil prices were spiking to nearly 

$150 per barrel and the global financial 

markets were in the early stages of a massive 

meltdown. At the time, it was becoming clear that 

the aerospace up-cycle that was driving strong growth 

for the supply chain was facing several near-term and 

potentially longer-term headwinds. In fact, all classes 

of air traffic experienced a precipitous drop from that 

point through the end of 2009, causing the airlines 

to quickly eliminate capacity and severely wound the 

usually steady aftermarket. Deteriorating credit markets 

threatened new aircraft purchases and real concerns 

existed that much of the record Boeing and Airbus 

backlog would be erased. All of the makings of an 

abrupt cycle crash were upon us. M&A activity in the 

sector declined dramatically as a result and a period of 

great uncertainty engulfed the industry. 

In reality, the anticipated crash of the commercial 

aerospace cycle never materialized. Yes, much of the 

supply chain suffered over the last eighteen months 

due to new program delays and a significant inventory 

de-stocking. However, year-over-year deliveries 

for large commercial aircraft remained at record 

levels in 2008 and 2009 and are expected to remain 

at record levels through at least 2014. Boeing and 

Airbus maintain a substantial backlog of approximately 

7,000 aircraft and the risk of cancellations has 

decreased. 

From an M&A perspective, this brief sector 

pause did not create broad distress and therefore 

well-capitalized buyers did not find the opportunity 

to pick up assets on the cheap. Sellers remained 

patient and buyers disciplined, resulting in limited 

M&A activity. 

Today, it again feels like the beginning of another 

aerospace up-cycle. In June 2010, IATA chief executive 

Giovanni Bisignani noted a “strong rebound of 

air traffic” and forecast global passenger traffic to grow 

by 7% in 2010. In addition, IATA expects the global 

airline industry to return to profitability in 2010, 

reflecting a remarkable improvement in only a few 

months. 

As further evidence of the continued strength in 

OEM production, Boeing increased both its narrow 

and wide-body monthly production rates in 2010, 

including two 737 increases in three months. Fuel 

prices remain stable, helped by a stronger dollar, albeit 

at a level that still motivates new, more fuel efficient 

aircraft and engine purchases. Several new aircraft 

platforms -- including the 787, 747-8, A350 and C- 

Series -- are on track to be delivered to customers over 

the next several years and provide an added boost to 

long-term industry growth. And after weak orders in 

2008 and 2009, new order activity has begun to accelerate 

over the past few quarters. Boeing reported 

100 gross orders in the first quarter of 2010 versus 

only 28 in the first quarter of 2009. 

Investors have rewarded the sector for this positive 

shift in industry fundamentals. Since reaching a low 

in March 2009, the aerospace index has increased by 

120% and Ebitda multiples of publicly-traded suppliers 

have also increased substantially, resulting in a current 

median of 9x, representing a nearly 50% increase 

since March 2009. However, this impressive rebound 

in aerospace market sentiment has not yet translated 

into a meaningful up-tick in M&A activity. 

Indeed, aerospace-related M&A volume will likely 

begin to accelerate in the second half of 2010 and remain 

strong for several years. Each wave of aerospace 

M&A activity has been set in motion by one or more 

large, high-profile transactions. Several large companies 

have recently begun to test the M&A market and 

their outcomes will have meaningful ramifications on 

buyer and seller sentiment. There will be substantial 

scarcity value associated with actionable, high-quality 


assets given the lack of recent activity. 

Strategic buyers have access to substantial cash and probably 

have a better view of the strengthening market conditions. This, 

combined with their own improved valuations, is causing them to 

become more active and aggressive. In addition, several large corporations 

are reviewing their product portfolios and considering noncore 

divestitures to take advantage of improved market conditions 

and re-deploy capital into more strategic products and programs. 

Of course, financial sponsors are also looking to take advantage 

of the renewed optimism in the industry. They have access to substantial 

capital and recognize now as an opportune time to make 

a bet on the sector. In addition, PE funds own many high quality 

aerospace companies and are closely monitoring market conditions 

to monetize assets. These exits will also help to fuel this uptick in 

M&A activity. 

Two years have now passed since the aerospace market began its 

most recent pullback. The rapid industry recovery will likely bring 

continued positive developments and hopefully the beginning of a 

healthier aerospace M&A environment to come. 

Jon Nemo, managing director, heads the Aerospace, Defense & Government 

Services (ADG) Group at Harris Williams & Co. Jon has 

16 years of investment banking experience and has completed over 70 

mergers and acquisitions and corporate finance transactions during his 

career. 

Harris Williams & Co. (www.harriswilliams.com), a member of The 

PNC Financial Services Group, Inc. (NYSE:PNC), is the premier 

middle market advisor with a two decade legacy of sell side excellence 

serving clients worldwide. The firm is focused exclusively on the middle 

market providing sell side and acquisition advisory, restructuring advisory, 

board advisory, private placements and capital markets advisory 

services. Harris Williams & Co. is the trade name for Harris Williams 

LLC, a registered broker dealer. Member FINRA and SIPC. 


People 

 

 

The close of the summer brought a number of significant 

personnel changes, particularly in the private equity space. 

Castle Harlan’s Justin Wender announced his resignation from 

the firm. Wender had been appointed as the president of Castle 

Harlan four years earlier. Meanwhile, Riordan, Lewis & Haden 

lost one of its partners, when Pat Haden accepted a role as the 

athletic director at the University of Southern California, his 

alma mater. 

Also, a number of firms made moves to bolster their overseas 

presence. Advent International opened an office in Turkey, while 

Avista Capital and CCMP both bolstered their presence in the UK. 

A number of new shops also formed, including Searchlight 

Capital, made up of vets from Apollo Management, KKR and the 

Ontario Teachers’ Pension Plan. 

Advent International— The Boston private 

equity firm is bolstering its presence with an 

office in Turkey, as the country emerges as one 

of the more attractive areas in Europe at the 

moment. Dan Morgan, a director at the firm, 

will be overseeing the new office, located in 

Istanbul. 

Morgan, before joining Advent, spent 

nine years with 3i and two on the principal 

investment team of Iceland’s Kaupthing Bank. 

Morgan was initially brought on by Advent in 

2007. He was hired alongside Albena Vassileva, 

who was stationed in the firm’s Prague 

office. 

Kayril Karabeyoglu is joining Morgan 

in the new office. He arrived at the firm from 

Standard Unlu Private Equity. 

Arsenal Capital Partners— The New York 

private equity firm added Stephen McLean 

as a partner. The hiring is aimed at strengthening 

the firm’s healthcare practice, as McLean 

is being counted on to lead deal sourcing, 

evaluation and oversight of investments in the 

sector. 

McLean is a veteran of Merrill Lynch 

Capital Partners, where he was a founding 

partner. He also subsequently put in stints at 

Stonington Partners, which spun out of Merrill 

Lynch in 1994, and Arena Capital Partners. 

Avista Capital— The private equity firm 

launched a new London-based effort, Avista 

Capital Europe, poaching a trio of DLJ Merchant 

Banking veterans to oversee the new 

location. 

Newton Aguiar is joining the firm as a 

partner and will lead the new London office. 

Allen Yurko, meanwhile, is joining as an 

industry executive, while Kunal Pandit will 

serve as a vice president. 

Aguiar most recently was a managing director 

and partner at DLJ Merchant Banking. 

He actually joined the firm the same year Avista’s 

co-founders Thompson Dean and Steven 

Webster left DLJ to form Avista. Before that, 

Aguiar was a partner at European PE firm Triton 

and he had previous stints at Advent International 

and Alex. Brown & Sons. 

Yurko was previously an industrial partner 

at DLJ, and before that served in a similar 

role at Compass Partners, following a long 

career on the corporate side, which included 

stops at Joy Manufacturing and Group Siebe 

plc. Pandit, meanwhile, spent three years at 

DLJ following a stint at Lehman Brothers in its 

leveraged finance group. 

Baird Private Equity— The global private 

equity group of Robert W. Baird & Co. said 

it promoted Michael Liang to a partner of 

Baird Venture Partners, 

The firm also said it hired Jamie Bellanca 

as an executive-in-residence with Baird 

Private Equity and Lily Wang as an associate 

with Baird Capital Partners Asia. 

Liang, who was previously a principal, 

helps to oversee BVP’s healthcare and life science 

investments. He joined BVP in 2006, and 

is currently a member of the board of directors 

of Palyon Corporation and Interlace Medical 

and a board observer at Centerre Healthcare 

Corporation. 

Bellanca provides guidance on technology 

strategy and development, operational 

refinement and investment evaluation in the 

business services sector. Prior to joining the 

firm, Bellanca was the vice president of advanced 

technology for Cleversafe. 

Wang previously held summer associate 

positions in the investment banking division of 

Credit Suisse (Hong Kong) Ltd and the global 

manufacturing services group of International 

Finance Corporation in Washington, D.C. 

Black Diamond Capital Management— 

The firm announced the appointment of Philip 

Raygorodetsky as a managing director. He 

will be based in Black Diamond’s Greenwich, 

Conn., office. 

He joins Black Diamond’s controlled distressed/private-equity 

team, where he will work 

alongside the senior team, Chris Boyle and 

Chris Parker, which oversees portfolio companies 

acquired on behalf of Black Diamond’s 

controlled distressed/private-equity funds. 

Raygorodetsky has over 13 years experience 

in the distressed investments field. Most 

recently, he served as senior managing direc- 


tor in GSC Group’s equity and distressed debt 

group, where he was responsible for investing 

in distressed corporate debt, including active 

restructuring involvement and board oversight. 

CCMP Capital— The private equity firm 

hired Robert McGuire as a senior member 

of CCMP Capital Advisors (UK) — CCMP 

Capital’s UK affiliate. McGuire will also serve 

as a member of the firm’s investment committee. 

Together with Thomas Walker and 

Stephen Welton, also senior members, Mc- 

Guire will oversee the expansion of CCMP’s 

investment activities in Europe. He will be 

based in London. 

McGuire most recently was vice chairman 

of JPMorgan Cazenove, where he was 

responsible for senior client relationships with 

numerous U.K.-based companies, with a focus 

on those in the energy sector. 

Clayton, Dubilier & Rice— The private 

equity firm named Manvinder Singh Banga 

as a London-based operating partner. Banga 

formerly served as president of Unilever’s 

foods, home and personal care division and 

also served on the consumer giant’s executive 

board. 

Banga’s appointment comes shortly after 

CD&R tapped Procter & Gamble former chief 

AG Lafley as a special partner at the firm, a title 

that is also reserved for General Electric vet 

Jack Welch. 

Prior to joining Unilever’s executive 

board in 2005, he headed the company’s Asian 

home and personal care division, based in 

Singapore. Before that, he served as chairman 

and managing director of the company’s Indian 

operating company Hindustan Unilever Ltd. 

Cowen Group— The firm has a new head 

of M&A, naming Michael Costa to the position. 

Costa arrives after a long stint at Merrill 

Riordan, Lewis & Haden— 

Pat Haden was named as Mike Garrett’s replacement as the athletic director 

of the University of Southern California. Haden, who 

has spent the past 20-plus years in private equity, is 

being called on to repair the athletic program’s image 

following NCAA sanctions related to transgressions 

in the school’s football and basketball programs. 

According to Christopher Lewis, a founder of 

RLH, Haden’s departure will not trigger a key-man 

clause for its most recent fund. He cites that the departure 

created a fire drill, in which the firm had to 

reach out to its LPs before they heard about Haden’s 

move elsewhere. However, he added that all of the 

Pat Haden 

LPs were contacted and that Haden’s departure 

would not impact the firm’s investment activity. 

RLH was launched 28 years ago by Lewis and 

former LA mayor Richard Riordan, who is no longer active in the day-to-day operations. 

Haden joined the pair five years later. Initially, the firm invested its own capital, 

but in 1999 took on third-party funding for its debut vehicle. RLH raised its follow-up 

fund in 2007, collecting $265 million for RLH Investors II, LP. 

Haden’s appointment at USC became effective August 3. 

Lynch & Co., where he formerly served as a 

managing director in its M&A group. 

The move reunites Costa with his former 

Merrill colleague, Scott Ryles, Cowen’s head 

of investment banking. Costa, who is also assuming 

the title of vice chairman of investment 

banking, will report to Ryles. 

Prior to Merrill, Costa was a lawyer at 

Skadden, Arps, Slate Meagher & Flom. He left 

to join Merrill Lynch in 1989. 

Crystal Financial— The relatively new 

entrant on the commercial finance landscape 

recruited Andrew Hettinger to serve as a 

managing director of origination. Hettinger, 

who will be based in Atlanta, arrives from Cerberus 

Capital Management, where he was also 

a managing director tasked with origination 

and management of new debt investments. 

Crystal Financial was formed in March. 

Based in Boston and headed by CEO Ward 

Mooney, the firm is backed by Soros Fund 

Management LLC. Crystal provides senior 

term loans of up to $150 million and so far has 

already funded over $100 million of financing 

since its launch. 

Hettinger has experience in both cashflow 

and asset-based lending. Before joining 

Cerberus, he spent time at Houlihan Lokey and 

Deutsche Bank, originating and structuring senior 

and mezzanine loans. 

Deutsche Bank Securities Inc.— The 

German investment bank said that Greg 

Sommer will join its mergers and acquisitions 

group as a managing director and head 

of energy M&A for the Americas. He will be 

based in New York and will report to Bruce Evans, 

head of M&A for the Americas. 

Sommer will join Deutsche Bank after 13 

years at Citigroup, where he was most recently 

a managing director and head of energy mergers 

and acquisitions responsible for advising 

clients on a broad range of M&A and capital 

markets transactions across the energy sector. 

Evercore Partners— The boutique investment 

bank augmented its chemicals and energy 

coverage, naming Philip Kassin as a 


People 

senior managing director in the firm’s advisory 

business. Kassin arrives from Access Industries, 

where he most recently served as an executive 

vice president and head of M&A for the 

industrial holding company. 

The move for Kassin represents a jump 

to banking after years in the corporate realm. 

At Access Industries, controlled by billionaire 

financier Leonard Blavatnik, Kassin oversaw 

more than $30 billion of acquisitions. As 

lawsuits later revealed, he was also reportedly 

one of the dissenters in the company’s effort 

to merge its Basell unit with Houston-based 

Lyondell in 2007. 

Before Access, where Kassin spent five 

years, he also put in stints as a partner at 

PricewaterhouseCoopers and as president and 

chief executive of Greenwich Energy Advisors. 

GE Capital— The lender appointed Ryan 

Zanin as its new chief risk officer. Zanin takes 

the place of Jim Colica, who is retiring after 

serving GE Capital for 27 years. 

Zanin reports to Mike Neal, chairman 

and CEO of GE Capital. He will also hold the 

title of vice president. 

He was most recently chief risk officer 

for Wells Fargo. He also served as a chief risk 

officer for Wachovia. He has also served in 

several credit and leveraged finance positions 

with Deutsche Bank. 

Growth Capital Partners— John Bresnahan 

III is joining the firm, where he will 

serve as a managing director in the firm’s 

energy practice. Bresnahan is arriving from 

Edgeview Partners, where he previously coheaded 

the Charlotte firm’s energy group. 

Bresnahan, meanwhile, arrives at Growth 

Capital Partners with a long track record in 

the middle market. He joined Edgeview after 

a five-year stay at Harris Williams & Co. 

that concluded in 2008. Bresnahan, a former 

Marine, also put in stints at Merrill Lynch and 

Andersen Consulting before joining Harris 

Williams. 

Hilco Consumer Capital— Seven months 

after the departure of its co-founder and chief 

Castle Harlan— 

The private equity firm is moving onto its second succession plan in four years, 

as Justin Wender resigned from the firm and its 

associated companies. Howard Morgan and Bill 

Pruellage were named co-presidents, replacing 

Wender, effective immediately. Both Morgan and 

Pruellage are senior managing directors at the 

firm. 

Wender, in the press release, stated: “After 

17 years at Castle Harlan, I have made the difficult 

decision that it makes sense for me to move on… 

I expect to assess and announce my next steps in 

due course.” 

Howard Morgan 

executive, James Salter, the firm brought 

on Mitchell Berk as its CEO. He will focus on 

the firm’s current portfolio of brands as well as 

new acquisitions. 

Berk has extensive experience with consumer 

brands. About 25 years ago he founded 

Entertainment Marketing Inc., which was 

involved with entertainment, sports and lifestyle 

marketing. EMI produced campaigns to 

help launch and build products for Anheuser- 

Busch, Philip Morris, Dole Foods, Burger 

King, General Mills, Pfizer and Hanes Hosiery, 

with the help of pop musicians such as the 

Rolling Stones, Earth, Wind and Fire and Tina 

Turner. 

Before joining Hilco, Berk founded Vortex 

LLC, a consulting and capital provider for 

media and marketing companies. Early in his 

career, Berk served as a key marketing and 

He assumed the role of president at the firm 

in 2006, at the age of 37. At the time, his promotion 

was billed as a succession plan, replacing cofounder 

Leonard Harlan as president. 

Wender had moved quickly up the ranks at the firm, ascending to the role of 

senior managing director by the age of 35. 

The firm, after a lengthy stretch on the market also announced that it has officially 

closed its fifth fund, which has $700 million of capital remaining in its coffers. 

A Form D filing submitted in February had identified that the New York firm closed 

on $716 million at the time, while earlier filings had identified an original $1.5 billion 

target for the vehicle. 

sales executive for Jovan Fragrances, where he 

helped the company grow revenues by linking 

corporations up with musicians. 

Jefferies & Co.— The investment bank 

hired Tariq Hussain as a managing director 

in the firm’s global mergers and acquisitions 

group. 

Hussain, based in London, has 14 years 

of investment banking experience, including 

12 years at Dresdner Kleinwort, where his 

roles included co-head of European M&A and 

global head of the financial buyers group. 

The firm also hired Rodolfo L. Molina 

as a managing director and Head of Latin 

American coverage, as part of the firm’s expansion 

into Latin America. 

Molina joins from UBS where for six 

years he was a managing director in the Latin 


America investment banking group. Prior to 

UBS, Molina was with Salomon Smith Barney 

for six years focused on coverage of telecommunications 

companies both in Latin America 

and the United States. 

Separately, Jefferies also hired Victor 

von Mengersen as a managing director and 

head of its German financial sponsor coverage. 

Von Mengersen, formerly an MD at UBS, 

will be based in the firm’s Frankfurt office. He 

has 15 years of experience in German sponsor 

coverage and more than 20 years of leveraged 

finance experience. 

JF Lehman & Co.— The private equity firm, 

a specialist in the defense and aerospace segments, 

bolstered its operating capabilities, 

adding Michael Cuff as a managing director. 

Cuff arrives from Honeywell International, 

where he spent seven years, most recently 

as the head of the company’s helicopter and 

surface systems division. Prior to Honeywell, 

Cuff spent 28 years in the US Army, where he 

oversaw strategic planning for Middle East 

operations at the Pentagon and at one point 

managed the Army’s Crusader program, managing 

a procurement effort that included over 

60 industrial contractors. 

At JF Lehman, Cuff will be actively involved 

in all areas of the firm, from due diligence 

and evaluation to portfolio oversight. 

JPMorgan Chase— The bulge bracket 

named Jeff Urwin and Kevin Willsey new 

co-heads of investment banking for the United 

States and Canada, according to an internal 

memo obtained by sister publication Investment 

Dealers’ Digest. 

Urwin and Willsey will report to Jes 

Staley, CEO of JPMorgan’s investment bank. 

They succeed Doug Braunstein, who is 

now the firm’s chief financial officer. Nicolas 

Aguzin will continue to run investment banking 

for Latin America. 

Urwin joined the bank with the acquisition 

of Bear Stearns in 2008. He was co-head 

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Berwind Corporation 

Blackland Group 

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Cardinal Equity Partners 

Castanea Partners 

CHB Capital Partners 

Crimson Investment 

Deerpath Capital 

Dorilton Capital Advisors 

Gen Cap America 

Glencoe Capital 

GMB Mezzanine 

Grey Mountain Partners 

Harren Equity Partners 

H.I.G. Capital 

Huron Capital Partners 

Key Principal Partners 

KLH Capital 

Linsalata Capital Partners 

Marquette Capital Partners 

Mason Wells 

McCarthy Capital 

Milestone Partners 

Northstar Capital 

Norwest Equity Partners 

Norwest Mezzanine 

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Pfingsten Partners 

Pouschine Cook Capital 

Progress Equity Partners 

Prudential Capital Group 

Sentinel Capital Partners 

Serent Capital 

Smith Whiley 

Stone Arch Capital 

Stonehenge Partners 

Superior Capital Partners 

The Compass Group 

Tonka Bay Equity Partners 

TSG Consumer Partners 

Vector Capital 

Versa Capital 

VMG Partners 

W. P. Carey & Co. 

Wafra Partners 

Westbury Partners 

Wingate Partners 

Winona Capital 

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Capital Partners 

Cherry Tree Companies 

Cleary Gull 

Greene Holcomb & 

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Gunflint Capital 

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Teneca 

William Blair 

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People 

of global investment banking at Bear, which 

he joined in 1996. He previously worked at 

Lehman Brothers and Samuel Montagu. 

Willsey had been the firm’s head of equity 

capital and derivative markets. He joined the 

bank in 1989, but spent two years at Goldman 

Sachs before returning to the firm. 

Lazard Ltd.— The investment bank hired 

Jonathan Turnbull as a managing director 

in its power, energy, and infrastructure investment 

banking group. 

Turnbull will be based in New York. He 

joins from Citigroup where he was a managing 

director and global head of its infrastructure 

group in investment banking. 

Turnbull, 42, has advised public and private 

infrastructure investors and companies 

on transactions involving infrastructure assets, 

such as toll roads, energy infrastructure, 

parking systems, ports and utilities, and on 

recapitalizations and financings. He began his 

investment-banking career in 1990 at Salomon 

Brothers, which later merged into Citigroup. 

He became a managing director at Citigroup 

global markets in 1999. 

Livingstone— The global M&A advisory 

firm teamed up with Düsseldorf-based advisory 

team Alarius GmbH in a deal that will grow 

the boutique’s presence in Europe. 

The deal re-unites Alarius partners Christian 

Grandin, Jochen Hense and Ralph 

Hagelgans with many former colleagues 

at Livingstone and adds 10 new members to 

the bank’s staff. They will continue to lead the 

bank’s European business. 

Livingstone already operates offices in 

London, Madrid and Chicago. 

Moelis & Co.— The advisory firm recently 

snared Roger Wood, an infrastructure pro, 

from Rothschild. Wood was previously Rothschild’s 

head of North American utilities and 

infrastructure and global co-head of both. 

Wood will be a managing director at 

Moelis and will be based in New York. Prior to 

joining Rothschild in 2005, Wood was a managing 

director in the mergers and acquisitions 

group at Citigroup. 

Nomura Securities North America— 

The investment bank named Julie Persily 

and Steven Seltzer as co-heads of its leveraged 

finance group in New York. The firm 

has also started a “significant hiring program” 

to broaden its U.S. investment banking client 

coverage group. 

Persily joins Nomura from Citigroup, 

where she was previously co-head of leveraged 

finance and head of acquisition finance. 

Seltzer joins from North Sea Partners, where he 

marketed specialist financial advisory services 

to financial sponsors and high yield investors. 

Prior to his time at North Sea, he was global 

head of the high yield syndicate and co-chair 

of the leveraged finance committee at Morgan 

Stanley. 

Onex Corp.— The firm’s Onex Credit Partners 

affiliate has hired Jack Yang, a loan 

market veteran who helped expand Highland 

Capital Management’s credit strategies business, 

as a managing partner. This hire indicates 

that Onex is looking to expand its leveraged 

finance business. 

At Highland, Yang was most recently a 

managing partner, but he was also a director 

of the Highland Capital Management Europe 

Ltd. and president of the firm’s affiliated broker 

dealer. Prior to joining Highland, he spent 

eight years at Merrill Lynch in a number of 

capacities, including global head of leveraged 

finance products, senior member of the debt 

markets commitment committee and head of 

strategic, cash flow and asset-based lending. 

Prior to joining Merrill, he spent 11 years 

at Chemical Securities, where he was a founding 

member of the leveraged buyout and syndicated 

finance group. 

Paine & Partners— The private equity firm 

announced that Thomas Anderman joined 

the firm as a principal in the New York office. 

Anderman, who will focus on new investment 

opportunities and existing portfolio companies, 

most recently was a vice president at 

BAML Capital Partners in New York, where he 

focused primarily on investments in the consumer 

sector. 

Previously he was an associate in the New 

York office of Freeman Spogli & Co. He began 

his career as an analyst in the consumer and 

retail investment banking group at Salomon 

Smith Barney/Citigroup Global Markets Inc. 

RBC Capital Markets— The firm hired 

five senior-level professionals within its U.S. 

investment banking business. 

John Brady, most recently an executive 

partner at Menlo Park, Calif.-based private 

equity firm GI Partners, joins RBC as co-head 

of the U.S. real estate group. Brady, who has 

more than 25 years of financial services experience, 

will partner with group co-head Kevin 

Stahl to expand the practice’s coverage across 

various sectors. 

Marc Berman joins to oversee the formation 

of a U.S. insurance group. Previously, 

he was a managing director in JPMorgan 

Chase’s investment banking group. 

Jay Broaddus joins as a managing 

director in the consumer group. He was previously 

with Cantor Fitzgerald, where he led 

consumer and retail coverage efforts as part of 

the firm’s expansion into the investment banking 

business. 

And Grant Tolson, formerly an executive 

director in JPMorgan’s FIG group, joins 

as a director in the US insurance group, while 

Marc Layne, previously an executive director 

in JPMorgan’s technology investment banking 

group, joins as a director in the technology 

group. 

All five executives are based in New York. 

Ridgemont Equity Partners— Banc of 

America Capital Advisors’ private equity team 

is being spun off from the investment bank. As 

part of the move, the newly independent group 

is launching its first third-party fund. 

A target for the new fund has yet to be 

divulged. Ridgemont Equity partner Travis 

Hain did say the investor base will consist of 

“all new LPs.” Additionally, Trey Sheridan, 

another partner with Ridgemont, said the firm 

has made several hires to further its fundrais- 


ing process. 

Hain went on to say that Ridgemont is 

in the process of selecting a placement agent 

to assist it in its efforts and that the PE firm 

will have access to Bank of America capital to 

fund its deals in the interim. The principals of 

Ridgemont will continue to manage the legacy 

Banc of America Capital Advisors portfolio on 

behalf of BofA. 

Searchlight Capital— The firm, through 

a primary vehicle and a co-investment fund, 

closed on $401 million, representing a debut 

effort for a team comprised of veterans of 

Apollo Management, Kohlberg Kravis Roberts, 

and Teachers Private Capital. 

The New York-based firm, according to 

Securities and Exchange Commission filings, 

raised $200 million for its primary vehicle, 

Searchlight Capital PV, LP. The firm raised 

nearly a matching sum for a co-investment 

vehicle. 

Eric Zinterhofer, Oliver Haarmann 

and Erol Uzimeri are each listed as a partner 

at Searchlight, bringing instant name recognition 

to the fledgling firm. 

Zinterhofer is arriving from Apollo, where 

he was a partner, while Haarmann is coming 

from KKR, where he was a London-based 

partner who also helped spearhead the firm’s 

launch in India. Both spent nearly 10 years at 

their previous firms, specializing on telecom 

and communications investments. Uzumeri, 

meanwhile, had previously headed Teachers’ 

Private Capital, assuming the post vacated in 

2007 by James Leech, who became CEO of the 

pension plan. 

SK Capital— The private equity firm added 

Aaron Davenport and Jim Marden, former 

executives at Arsenal Capital Partners, to serve 

as managing directors at the fledgling New 

York private equity firm. 

Davenport and Marden, meanwhile, will 

help steer SK Capital’s investment efforts in 

selected areas of healthcare. The two previously 

led the healthcare investing efforts at 

Arsenal. 

Presents 

The Middle Market 

Corporate Growth Conference 

October 12-13, 2010 

Presents 

Source Deals 

Establish Financing 

Build Relationships 

Diamond Sponsors 

Ballard Spahr LLP 

CBIZ, Inc. 

CSC Trust Company 

Curtis Financial Group 

Drinker Biddle & Reath LLP 

Griffin Financial Group, LLC 

IntraLinks 

Janney Capital Markets 

KPMG LLP 

McGladrey, Inc. 

Morgan Lewis & Bockius LLP 

ParenteBeard LLC 

Pepper Hamilton LLP 

Pitchbook 

PNC Bank 

SAP 

Platinum Sponsors 

Argosy Private Equity 

Capital IQ, Inc. 

Duff & Phelps 

Eisner LLP 

Ernst & Young LLP 

Fesnak and Associates, LLP 

LLR Partners Inc. 

Mufson Howe Hunter & Company LLC 

Philadelphia Business Journal 

Pine Hill Group 

PricewaterhouseCoopers LLP 

Reed Smith LLP 

Stifel Nicolaus Weisel 

TD Bank 

Versa Capital Management 

With more than 1,200 dealmakers 

who gather at M&A East 

Keynote Speakers 

A.G. Lafley 

Former Chairman, 

Procter & Gamble 

Charlie Rose 

Broadcast 

journalist 

Marvin Zonis 

Global Economic 

Expert 

Co-hosts 

For a complete list of sponsors, programs and the agenda 

visit our web site. 

Online Registration Ends October 8 | Save $25 - use promo code MAJ10 | www.mandaeast.com 


THE PULSE 

Measuring the Impact of Gulf Spill 

Dealmakers weigh in on how activity in the energy sector is going to be affected by the spill and 

what new risks have emerged in the sector since the Deepwater Horizon blowout 

Uncertainty abounds in the traditional 

energy sector with: Congress proposing new 

forms of regulation, the turmoil of changes at 

the old Mineral Management System, the administration’s 

public involvement in the boardroom 

and continuing questions surrounding 

geopolitical crisis in oil-producing nations. Investors 

in the energy industry are asking the 

question, “What will the industry hold?” The 

cost of capital for traditional E&P companies 

last year was 7-11 

percent. Now industry 

experts are 

suggesting it may 

be as high as 15- 

22 percent. That 

shift in the cost of 

capital indicates 

the risk that the 

market perceives, 

not from reality, 

Shimon Steinmetz 

but from a lack 

of clarity as to 

what the crystal 

ball holds. November’s mid-term elections 

could hold the answer. Or a simple shift in 

the Middle East could send oil prices to levels 

where the risk/return ratios rebalance. This 

uncertainty that now plagues the traditional 

energy sector will continue to ignite investment 

interest in the alternative energy sector. 

I think the future of energy deals in the wake 

of BP is a tale of one catalyst telling two stories, 

one of cautious slow moving investors 

and the other of nimble investors seeking to 

capitalize on uncertainty. 

—Shimon Steinmetz, Senior Associate, 

Corporate Advisory & Restructuring Services, 

Grant Thornton LLP 

The primary impact of the Gulf oil spill on 

dealmaking in the energy sector is that it has 

highlighted the 

greatest risk of 

all – political risk! 

So long as we 

have this administration 

and this 

c o n g r e s s i o n a l 

leadership with 

control, it is foolhardy 

to invest 

in U.S. energy. 

Investors with 

James Craig expertise in, and 

capital allocated 

to the energy sector, would be wise to look 

overseas. 

—James Craig, Vice President, 

Middle Market Healthcare, Fifth Third Bank 

What me worry? There are two parts to 

the energy equation - energy generation and 

transportation. 

Only 0.6 percent 

of the nation’s oil 

consumption is 

used to generate 

energy and so I 

do not anticipate 

the oil spill having 

much impact 

on energy prices, 

even though the 

energy companies 

Pat Mulligan may use it as an 

excuse to inflate 

them. Also it will have little impact on shortterm 

oil prices because this was a new well 

so the output (or lack of it) cannot be attributed 

to current supply. The biggest financial 

cost of the Gulf spill is probably going to be a 

further increase in government spending and 

debt, to give the general public the perception 

that something is being done about the 

spill. This together with a massive hit to the 

retail and tourist trade in the affected areas 

will further increase the impending inflationary 

upward spiral. 

—Pat Mulligan, Group Chairman, 

Vistage International 

Energy investors will shift their focus because 

of the regulatory moratorium on deep 

water drilling. 

Those oil and gas 

producers who 

have more onshore 

or shallow 

water exploration 

will continue to be 

rewarded in the 

financial markets 

with better multiples 

relative to 

their peers more 

Greg Heinlein 

dependent on 

deep water drilling. 

Several large and balanced (on/offshore) 

domestic producers will look to acquire deep 

water drilling rights from majors, who will 

choose to move rigs and emphasis out of the 

Gulf of Mexico, with a longer term focus on 

re-establishing deep water drilling once the 

current administration is out of office. Companies 

poised to capitalize on these shifting 


THE PULSE 

investment themes will look to acquire deep 

water Gulf of Mexico assets by non-exposed 

exploration companies. Because of the even 

greater focus on risk management resulting 

from the Horizon accident, exploration and 

service companies will take longer to develop 

new wells to ensure safe production results. 

This will cause greater upward pricing pressure 

for oil due to increasing global growth 

needs, generally slower development from 

U.S. production and declining production 

globally. Unfortunately, this will continue our 

reliance on foreign energy. As oil and oil derivative 

prices rise, America will continue to 

incentivize investments in alternative energy 

like solar, wind and others. 

—Greg Heinlein, Principal and Founder, 

Angel Investors LLC 

From my personal perspective having several 

transactions in the upstream services 

sector, deals are getting done. Although it 

is politically correct to talk about alternative 

energy (excluding natural gas), the reality is 

there are no serious alternatives to hydrocarbons 

for the foreseeable future, especially 

with the growth of the Asian economies. I 

believe that dealmaking in the energy sector, 

especially with regard to oil and gas will continue 

to be very active, but with an emphasis 

on production and MRO related opportunities, 

and less on drilling. The risks of drilling related 

businesses were borne out prior to the 

Deepwater Horizon incident when rig counts 

plummeted between 2008 and 2009 and many 

drilling related companies saw significant 

erosion in revenues and EBITDA. Those companies 

that were more focused on production 

and MRO saw much less erosion and were 

seen as more of a non-cyclical, safer play. 

The other trend that we are seeing , which 

again was occurring prior to the Deepwater 

Horizon incident, but which will now accelerate, 

will be land-based E&P plays, driven predominantly 

by the shale-rich regions in Texas 

(Barnett Shale, Eagle Ford Shale), Pennsylvania 

(Marcellus Shale) and North Dakota (Bakken 

Shale). While the Barnett and Marcellus 

Shales are natural gas driven and susceptible 

to lower natural 

gas prices (need 

to increase demand 

of natural 

gas for vehicle 

fuel and power 

plant fuel), the 

more interesting 

plays are the 

fluid or oil shales 

of Eagle Ford and 

Bakken, which 

Erik Rudolph are very hot right 

now and possess 

much less environmental and regulatory risk 

than the deepwater GOM plays. Upstream 

service companies exposed to these shale 

plays, especially with an eye on environmental, 

inspection or MRO type services, will be 

in strong demand among acquirers. 

—Erik Rudolph, Managing Director, 

Farlie, Turner & Co. 

The entire energy sector is demand 

driven primarily by developing nations like 

India and China. Supply will continue to play 

catch-up. Energy will continue to be profitable 

for the foreseeable future. There will 

be many attractive investment opportunities 

in the energy sector for PE firms. For the first 

time China consumed more energy from all 

sources (oil, gas, coal, nuclear, renewables) 

than the U.S. While per capita energy consumption 

in China and India is roughly 20 

percent of that in the U.S., it is forecast to 

increase rapidly over the next decade – with 

more cars, central heating and better food 

driving demand. Energy is a global business 

with free flows of capital to develop supply 

where the most profitable investments can 

be made. The negative impact of the blowout 

will be specific to those companies doing 

a substantial portion of their business 

in the Gulf. A risk factor is direct exposure. 

There are dozens of PE firms who have portfolio 

companies with many more privately 

held firms providing goods and services in 

the Gulf area. Depending on customer and 

geographic concentration, the negative impact 

to these firms will be large – but for 

how long? Impossible to predict. 

—Bob Kosian, Managing Partner, 

The Capital Solutions Group 

On The Agenda 

September 1 

Europe Chapter Leadership Meeting 


2010 Upper Midwest Capital 

Connection 


ACG Denver, Luncheon: 

Ray Schiavone, CEO, Quark 


ACG Boston, Fall Networking Night 


2010 ACG LA Business Conference 


ACG Board of Directors Meeting 

September 29 and 30 

ACG Richmond, Virginia capital Day 

Conference 


ACG Atlanta, Wine Tasting and 

Reception 


COMMUNITY COMMENTARY 

Deal Size Matters in 2010 

The factors that lead larger businesses to be more highly valued have enabled many of them to 

rebound more quickly 

By Andrew T. Greenberg 

Throughout 2009, GF 

Data Resources documented 

the “flight 

to quality” many deal professionals 

were seeing and 

experiencing in a troubled 

marketplace. 

Now in mid-2010, as the 

M&A market appears to be 

stabilizing and gaining some 

momentum, deal quality has 

been joined by an equally 

potent determinant of value 

– deal size. 

While it is in some ways 

a common sense observation 

to say that larger businesses 

will be valued more 

highly than smaller ones, 

the breakpoints within the lower middle-market 

became more pronounced than ever in 

2009, and have been slow to 

narrow. 

Andrew T. Greenberg 

More than 150 private 

equity firms now report to GF 

Data on deals they complete 

in the $10-250 million value 

range. 

As shown in the chart to 

the right, in the pre-recession 

years of 2006 and 2007, 

businesses with less than $5 

million of Ebitda were actually 

valued at fairly modest discounts 

to larger businesses. 

Then, as economic conditions 

and capital availability eroded over 

the course of 2008 an unprecedented gap 

Buyout Transactions - TEV/EBITDA 

2010 

EBITDA 2006 2007 2008 2009 YTD 

$0-5 million 5.9x 5.9x 5.7x 5.1x 5.2x 

> than $5 million 6.1x 6.3x 5.9x 5.9x 5.7x 

Size premium 3% 7% 4% 16% 10% 

Source: GF Data Resources LLC 

developed. The reward for size alone soared 

from low- to mid-single digits to 16 percent 

in 2009. As deal volume has picked up in the 

first six months of this year, the gap has narrowed 

slightly to 10 percent. 

The picture sharpens further when the 

other notable line of demarcation – deal 

“Businesses with less 

than $5 million of Ebitda 

were actually valued at 

fairly modest discounts.” 

quality – is put back into the mix. Our subscribers 

and contributors continually heard 

about deal quality throughout 2009. We focused 

on a subset of “above-average” financial 

performers – businesses with trailing 

twelve month Ebitda margins 

and revenue growth rates both 

in excess of 10 percent. 

Average valuations stayed 

aloft through the first half of 

last year because virtually the 

only non-distressed deals being 

completed involved these 

high-quality properties. Then, 

in the second half of the year, 

more owners of companies 

with good but not great financial 

characteristics reentered 

the market with a willingness 

to accept greater discounts in 



valuation against pre-downturn highs. The 

above-average group accounted for 62 percent 

of reported deal volume in the first half 

2010 Buyouts Only - TEV/EBITDA 

Above- 

Good Average 

EBITDA Performers Performers 

$0-5 million 4.3x 5.7x 

> than $5 million 5.7x 5.8x 

of 2009 and only 31 percent in the second 

half. As the quality mix shifted downward, 

the aggregate multiple fell from 6.2x to 5.2x. 

The chart below crosscuts buyouts data 

(e.g., excludes leveraged recaps and 

growth capital financings in our data 

base) for 2010 to date by Ebitda size 

and financial performance. We see 

that quality is still commanding a premium, 

and that smaller businesses 

with non-exceptional characteristics 

are continuing to face average valuations 

well below five times Ebitda even as the 

rest of the lower middle market is beginning 

to recover. 

For a number of reasons, we believe 

smaller middle-market businesses will be 

slow to benefit from improvement in capital 

markets and M&A activity over the balance 

of this year. 

1. Corporate performance 

Few businesses were able to avoid a 

downturn in 2009. Intermediaries around the 

country report, though, that the factors that 

lead larger businesses to be more highly valued 

have enabled many of them to rebound 

more quickly in terms of financial performance. 

Less exposure to customer concentration, 

greater leverage with vendors and 

customers, better financial information and 

controls, greater scale and ability to cut expenses 

all have tended to lead larger middlemarket 

firms to a quicker 

recovery. 

Source: GF Data Resources LLC 

2. Visibility on 

performance 

The macroeconomic environment 

remains somewhat 

uncertain. In many 

industries there is an overlay 

of anxiety over such 

political matters as tax 

policy, health care reform, 

financial regulatory reform, 

immigration policy and environmental 

policy. 

While larger firms live in this world as 

well, they are often better able to anticipate 

or see through public policy changes. For 

example, a $10 million Ebitda health care 

services provider subject to reimbursement 

from third-party insurers is more likely than 

the $3 million firm to get visibility on payment 

changes resulting from the federal health 

care legislation. 

Main Street Capital Corporation in Houston 

has continued to be an active acquirer in 

the sub-$5 million Ebitda market. Vince Foster, 

Main Street’s CEO, observes that because 

these businesses are tending to outperform 

weak comparable results for 2009, and because 

they have a limited window on current 

year results, the most relevant valuation metric 

is not trailing twelve months Ebitda or the 

2010 estimate – its run-rate Ebitda. 

3. Capital availability. 

Availability of debt remains stratified, and 

therefore a significant driver of divergent 

valuations by deal size. According to Ron 

Miller of the Cleary Gull investment bank in 

Milwaukee, “Many lenders have moved to 

a fairly absolute $10 million Ebitda mark for 

cash flow-based lending.” 

There is plenty of debate over the 

extent to which the credit market has 

improved for the $5 million to 10 million- 

Ebitda business, but there is no debate 

about the sub-$5 million tier of the market. 

Cash flow-based borrowing remains 

hard to come by. 

As long as this dynamic continues, financial 

acquirers will continue to gravitate 

to somewhat larger properties that appear 

able to generate better returns, even at 

higher valuations. “Attractive deals with 

more than $5 million of Ebitda are the ones 

being hotly contested,” says Mark Sullivan 

of Lineage Capital, a non-controlling equity 

investor in Boston. “Maybe even four.” 

“The factors that lead larger businesses to be more highly 

valued have enabled many of them to rebound more quickly.” 

Furthermore, the unprecedented valuation 

gap within the middle market will make 

the management of seller valuation expectations 

at the smaller end even more challenging 

than usual. It is one thing to explain to 

a business owner that his $3 million Ebitda 

firm will command a lesser multiple than a 

multi-billion dollar public company; increasingly 

it appears that intermediaries will need 

to explain the gap between their client’s 

valuation and that of its $8 million Ebitda 

competitor. 

Andrew T. Greenberg is CEO of GF Data Resources 

LLC and a managing director of Fairmount 

Partners, a middle-market investment 

bank. Both are located in West Conshohocken, 

PA. 



Injecting Efficiency into the Deal Process 

Project management techniques allow dealmakers to be better manage transactions 

By Byron Kalogerou and Dennis J. White 

M&A transactions have no shortage and efficiency. 

actions to bring discipline to the process and 

of moving parts. They typically Virtually every M&A engagement has a facilitate communication which is key to successful 

project management. 

present a variety of business, legal, 

goal, a general timeline and set resources 

accounting, tax and other issues that 

require complex documentation and often 

involve players spread 

making such transactions ripe for project 

management. The Project Management Institute 

has over 500,000 

The first crucial step to any well-managed 

project is establishing its scope and objectives. 

This can be done 

out across multiple time 

members advancing 

by taking the time to 

zones. Few managers 

the practice and science. 

define a statement of 

in any major company 

M&A profes- 

work or deal charter. 

would consider launching 

a multi-party, complex, 

long-term project, 

whether it be designing 

a jetliner or building 

sionals, however, need 

not become certified 

project managers to 

improve their game. 

Employing even basic 

The charter need not 

be anything overly formal, 

but is effectively 

a statement of work 

providing deal context 

an office tower, without 

project management 

to the deal team. For 

project manage- 

techniques can signifi- 

example, is the con- 

ment techniques and 

cantly streamline and 

templated acquisition 

tools. Yet heretofore, 

enhance the handling 

a “must have?” Is it 

seasoned M&A professionals 

and deal law- 

Byron Kalogerou resulting in potential 

Dennis J. White is the nature of the 

of transactions, thereby 

purely defensive? What 

yers have largely failed 

to embrace even basic project management 

techniques and tools that would equip them 

to lead deals more effectively. 

Today, however, driven by a variety of 

forces, deal professionals are adopting techniques 

used by their business brethren to inject 

greater efficiency into the deal process. 

Whether it be the in-house bar’s initiative to 

reconnect value and legal fees as exemplified 

by the Association of Corporate Counsel’s 

Value Challenge, the recent accounting 

change requiring that deal costs be expensed 

rather than capitalized, or an economic environment 

where deals are done with greater 

care and deliberation, there is a growing 

impetus to manage deals with a higher level 

of transparency, accountability, predictability 

time and cost savings. 

Project management in M&A has two elements: 

processes and technology. The typical 

processes in M&A are: 

• Defining the scope and objective of the 

deal; 

• Identifying the stakeholders and corralling 

resources to get the deal done; 

• Creating and assigning a detailed set of 

initial deal tasks, scheduling and 

managing the delivery of the tasks and 

budgeting and reporting their costs; 

• Identifying and managing the risks, issues 

and changes in scope that arise in the 

flow of a deal; and 

• Conducting a post-closing assessment. 

The technology element leverages these 

competition for the target? 

The charter will set the expectations 

and establish the framework for resourcing, 

tasking and budgeting. A well drafted charter 

will often detail what is not “in scope” (e.g., 

purchase price of greater than $X). Finally, 

the charter often describes a successful outcome: 

e.g., closing the acquisition of the widget 

product line from ABC Industries before 

the end of fiscal 2010 at a purchase price 

of not more that $X, assumption of related 

liabilities in accordance with market norms 

and employment of the business unit’s CEO 

to assure continuity, with total deal expenses 

not to exceed $Y. 

The next step, identifying the stakeholders, 

is in part driven by the scope. The principal 

stakeholders are obvious, though con- 



sideration of the less obvious stakeholders 

(e.g., unions, local communities that might be 

impacted by a plant consolidation and regulatory 

bodies) is often useful in gauging subsequent 

deal risks. Once the deal is scoped and 

a preliminary time table set, one can identify 

the necessary resources. In times past, 

the cost of external deal resources could be 

capitalized, but now with those costs 

having to be expensed as incurred, one 

must be far more sensitive to resource 

allocation. Particularly where outside 

lawyers and other professionals are engaged, 

an agreed upon staffing plan and 

detailed forecast of fees is now critical. 

Where many law firms in the past have 

resisted budgeting and reporting with 

particularity, the more progressive firms are 

adopting project management techniques 

and increasing transparency in the way they 

collaborate with clients on transactions. 

The next step in the process is to break 

down the components of the deal by task, 

delegating single point responsibility for each 

task to a team member and setting a delivery 

deadline. While every deal is different, having 

a set of standard deal process templates 

identifying the typical deal steps is a useful 

starting point. In our practice, we have developed 

process templates for asset and stock 

purchases and financing transactions. Drawing 

on those templates as a starting point, we 

are then able to customize our actions and 

tasks for a particular deal. In addition, while 

identifying tasks upfront is helpful, new challenges 

always arise and being able to identify 

the appropriate (and available) resource 

is key to advancing the deal. 

In the course of a transaction, it is important 

to be ever-sensitive to risks and issues 

that can imperil, delay or force changes in 

a deal. Identifying the potential risks at the 

outset of a transaction better enables dealmakers 

to address and counter them. What 

if required financing or an important governmental 

authorization cannot be secured? 

What if due diligence reveals that important 

intellectual property of the target company 

has not been properly protected? Acquiring a 

company is a dynamic exercise—the project 

management mechanisms must be flexible 

enough to adjust to continuing changes and 

keep team players abreast of those changes. 

Once a deal closes, it is important to conduct 

a post-closing assessment. Such “After 

Action Reviews” focus on what happened, 

“There is a growing impetus to 

manage deals with a higher level 

of transparency, accountability, 

predictability and efficiency.” 

why it happened and how the deal team can 

do it better next time. Such an exercise not 

only allows the team members to learn from 

their mistakes and make improvements to 

their process for the next deal, it can be vital 

to the businesses in question. For example, 

armed with knowledge gained in diligence 

and negotiating and closing the transaction, 

a buyer will be able to more effectively integrate 

the acquired business unit. In addition, 

deal costs should be analyzed to determine 

where efficiencies can be achieved in the future. 

These reviews should be conducted as 

soon as possible after closing to best capture 

and memorialize the teachings of the transaction. 

Where you have used outside counsel or 

other professionals, compel them (at no cost) 

to join you in these assessments. 

Helmuth von Moltke, a famous Prussian 

field marshal, famously stated that “no 

campaign plan survives first contact with 

the enemy.” The same could be said for any 

M&A transaction. While initial plans, risk 

assessments and budgets are critical, every 

deal is a dynamic process with twists and 

turns and starts and stops. To be able to effectively 

manage a significant matter with a 

large number of resources and stakeholders, 

there are a multitude of basic tools, as well 

as advanced applications and tools that can 

be used to manage and report on the status 

of a deal. 

There are many tools that enable users to 

smoothly facilitate such processes, such as a 

low tech “Information Radiator,” a large visual 

task board where a team at one physical 

location can view and update tasks, to Microsoft 

® Project, with its robust project management 

capabilities. Similarly, standalone Gantt 

charts and network diagram software 

programs are available to those who 

want to use some of the essential tools 

used by project managers. Increasingly, 

web-based collaborative tools like 

Basecamp ® and Onit (in beta testing) 

are being deployed to manage and communicate 

tasks and milestones. 

Even Microsoft Outlook’s capabilities 

can be leveraged to conduct basic project 

management. In our practice, we have developed 

a “Deal Dashboard,” which we describe 

as our one-stop collaboration and accountability 

workspace. Using the Dashboard, 

we sit down with clients at the outset of a 

transaction to identify the tasks (often using 

our process templates), set deadlines and assign 

responsibilities. On day one, we begin 

to build a closing agenda, pulling template 

documents from our form library. As the deal 

takes off, the Dashboard becomes the nerve 

center of the deal where issues are identified 

and addressed, document drafts are turned 

and stored and milestones are tracked. 

As with any large endeavor, M&A transactions 

can clearly benefit from the discipline 

of even the very basics of project management. 

Project management is a highly developed 

discipline that offers far more that can 

be applied to doing deals than has been summarized 

above. That said, using even basic 

techniques and tools can result in streamlining 

the process as well as cutting transaction 

costs and time to signing and successful 

closing. 

Byron Kalogerou is a partner and Dennis J. 

White is senior counsel with the Boston office 

of the international law firm of McDermott 

Will & Emery LLP 


BAKER continued from page 33 

on ticket sales, local restaurants, parking garages, et cetera. There will 

be an impact, and it will be pretty huge. 

Consider what he’ll do for Miami if he turns the Heat into a winner. 

All of a sudden they’re filling all of the seats; they’re potentially 

playing 14 additional games, eight of which could be home games 

if he takes them to the finals. Each game generates revenue for the 

franchise and the city. If you consider the merchandise sales and everything 

else that goes with it, there is clearly a significant economic 

impact. 

Mergers & Acquisitions: In the past, we’d see a lot of corporate entities 

own teams, whether it was Disney or the Tribune Co. These days, 

corporate ownership has dwindled, and interest from financial buyers 

has yet to materialize in any meaningful way. What is the hangup precluding 

institutional capital from really making a bigger splash in this 

segment? 

Baker: I’m actually chairing a seminar on this subject in the Fall. 

Private equity has invested in the segment before. Boston Ventures 

bought into Richard Petty Motor Sports, TowerBrook [Capital 

Partners] backed Dave Checketts when he bought the [NHL’s] St. 

Louis Blues, and I know Falconhead Capital has an endurance sports 

platform, which operates endurance running road races and other 

events. These are just a few of the investments. So private equity has 

dipped their toes in the segment; the problem is that team ownership, 

if you’re looking to make a quick profit, doesn’t necessarily fit 

into a five to seven year holding period. Also, these assets don’t lend 

themselves to a traditional PE model, where you can squeeze costs or 

pursue add-ons to create scale and enhance value. 

With that said, there are a ton of individual PE professionals who 

have either looked at these assets or bought in -- Tom Hicks, Ted 

Forstmann with IMG, and the Celtics ownership group, to name 

just a few. 

Mergers & Acquisitions: When it comes to creating value, which 

team owners provide the best model for others to follow? 

Baker: I think George Steinbrenner would be a great example. He 

cared more about winning, even if it meant overpaying for talent. 

Some will argue with his tactics, but he created incredible value for 

that franchise and he did it by focusing first on the team and its 

performance. 

I think Bob Kraft is a great owner; Mark Cuban, despite his 

theatrics, cares immensely about that team and that helped create a 

loyal fanbase. 

Presence is important for owners; putting a quality team on the 

field is paramount, and paying attention to the fans, beyond what’s 

happening on the field, is the third piece to the puzzle.

September 2010 - Association for Corporate Growth

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