THE ANNUAL REVIEW 2010 - PEI Media

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page 94 private equity annual review 2010 l e v e r a g e d b u yo u t s M&A makes a comeback A surge in fourth quarter US deal activity made clear the large LBO was far from extinct, finds Pete Gallo The history books will likely recall 2010 as a turnaround year for global M&A markets. And anecdotal evidence suggests the year’s final quarter may also have marked the return of larger private equity-led buyouts in the US market – proving wrong critics that had declared their demise. In terms of the big picture, global M&A activity weighed in at $2 trillion in 2010, showing a significant increase of 22.7 percent over the final tally for 2009. Deal count also grew at a brisk pace, rising 21.3 percent for the year, according to data from data provider mergermarket. Even so, North America lagged Europe and Asia in the global resurgence. US deal values totalled $714.3 billion for the year, an increase of only 3 percent over 2009. (European M&A activity, by comparison, grew 37 percent year-over-year in 2010, hitting $629.8 billion, while Asia hit a record $391.5 billion.) Private equity deals were no different: data provider Dealogic estimated the industry had been responsible for roughly $204 billion in deals globally last year, a 92 percent increase compared to 2009. A total of 113 US buyouts valued at more than $500 million were announced in 2010 as compared to 39 for 2009, according to mergermarket. Those totals were boosted by a surge in fourth quarter activity, when a cumulative $76 billion was invested, the best fourth-quarter showing for the industry as whole since 2007 when buyouts totalled $139.2 billion. Analysis by Private Equity International found that six US deals exceeding $900 million accounted for $16.1 billion, or roughly 21.1 percent of all fourth-quarter private equity-led buyout activity, globally. The bulk of these late-year deals involved the privatisation of publicly traded companies. For instance, in the fourth quarter the Carlyle Group reavealed a $3.9 billion all-cash bid for NYSE-listed CommScope, the wireless and communications-infrastructure company. Expected to close in the first quarter of 2011, the $3.9 billion deal easily ranks among the largest private equity-led buyouts deals of 2010. The Carlyle Group in October also announced a $2.6 billion momentum builds Some of the largest US LBOs took place in Q4 Source: PrivateEquityInternational.com bid to acquire the NYSE-listed mobilecommunications company Syniverse Technologies. That buyout deal was also expected to close in early 2011. In another large take-private, Leonard Green & Partners in December offered $1.6 billion to acquire NYSE-listed retailer JoAnn Stores through its Green Equity Investors V and Green Equity Investors Side V funds. It also was also involved in another mega retail deal in 2010, offering $2.9 billion alongside TPG Capital to buy clothing retailer J Crew. And although it was a relative laggard in global M&A activity in 2010, the US was however home to the largest private equityled buyout of the year: the $5.3 billion takeprivate of Del Monte foods by Kohlberg Kravis Roberts, Vestar Capital Partners and Centerview Partners. The uptick in deal activity is expected to continue in 2011. Whoever said the LBO was dead has surely changed their minds by now. ■ Deal size Lead sponsor Target company $5.3 billion Kohlberg Kravis Roberts Del Monte Foods $3.9 billion Carlyle Group CommScope $2.6 billion Carlyle Group S syniverse Technologies $1.8 billion Bain Capital Gymboree Corp. $1.6 billion Leonard Green JoAnn Stores $900 million TPG Capital Marathon Petroleum
private equity annual review 2010 pa g e 95 m i d - m a r ke t Defrosting the mid-market Mid-market firms in North America scrambled to stay busy in 2010, with the majority of opportunities coming to market in the second half of the year, finds Graham Winfrey Assessing the North American mid-market in 2010 was a bit like tracing the path of a curveball. While the number of announced deals fell to 249 in 2010 from 333 in 2009, their combined dollar value rose 29 percent to $22.2 billion, according to Dealogic. Mid-market investor The Riverside Company maintained its reputation as one of the most active buyers in 2010 by making 24 acquisitions on the year – 14 of which were in North America – but 2010 was still anything but typical in terms of the opportunities the firm saw. “The year was almost a tale of two cities,” says Riverside co-chief executive officer Stewart Kohl. “In the first half of the year there were not enough good opportunities. By the second half of the year, particularly as people were anticipating the [capital gains] tax law change that ended up being postponed, there were almost too many good opportunities. There were a tremendous number of excellent companies coming to market, unfortunately at surprisingly high purchase price multiples.” Companies Riverside acquired in 2010 included Sunrise Windows, a manufacturer of energy-efficient replacement windows, email marketing company Mansell Group and Employment Law Training, a provider of workplace ethics and compliance eLearning solutions. “A lot of private equity folks who didn’t sell when the world was too good to be true and then couldn’t sell during the downturn [came] back to market” says Kohl, “particularly where there were companies that had performed well thought the downturn.” Collin Roche, principal at Chicago-based GTCR, agrees. “I think there was a reasonable backlog of opportunities that would have been pursued in 2008 and 2009 but got deferred given the Frozen markets: North America’s mid-market heated up as the year progressed “There was a reasonable backlog of opportunities that would have been pursued in 2008 and 2009 but got deferred given the economic environment, the financing environment and differential price expectations” economic environment, the financing environment and differential price expectations between buyers and sellers,” he says. “From our perspective, it was a reasonably good time to be an investor and get things done.” In Canada, where the vast majority of businesses lie in the mid-market, private equity-sponsored M&A activity was on the rise in 2010, with about C$4.9 billion invested, a 21 percent increase compared to 2009. “Mid-market business building … seems to be where people are interested these days, as opposed to big LBOs,” says Jeff Parr, co-chief executive officer of Toronto-based Clairvest Group. While neither Canada nor the US have witnessed mid-market activity return to levels seen prior to the global economic downturn, 2010 was nevertheless a step in the right direction, says to GTCR’s Roche. “I’d call it a partial return to normalcy.” ■
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