Not one to mince words, KPS Capital's Michael Psaros offers a ...

20-35_Roundup.qxd 4/6/09 5:39 PM Page 30LBO WatchDownsizedPrivate equity firms are laying off employees as the creditcrunch grinds down the deal businessBy Kelly Holman“We are goingto see morelayoffs inprivate equity.”Private equity firms are well-known for enactingcost-cutting measures in their portfolio companies,including the firing of employees. Rarehas been reducing the head count at leveraged buyoutshops themselves; at least until now.A number of large financial sponsors and middlemarketgroups have taken such measures. Four wellestablishedglobal private equity firms moved todownsize their staffs before the New Year, includingBlackstone Group, The Carlyle Group, Investcorpand 3i Group. Washington DC-based Carlyle is makingperhaps the most drastic move, trimming its1,000-employee staff by 10%, while London’s 3iGroup said it would eliminate 100 positions, or 15%of its global staff, citing “significantly changed marketconditions.”Blackstone intends to lay off roughly 70 employees,sources told sister publication Investment Dealers’Digest, while Investcorp, a Bahrain-, New York- andLondon-based firm, is cutting its work force by 60 positions,or 90 spots, if retirements and other unfilled positionsto be eliminated are taken into account.“In response to the current global economic turmoil,Investcorp has had to realign its business, bothto increase its resilience during the mid-term recessionaryperiod and to position itself to take advantagein this changed environment,” says a spokesman forInvestcorp. “This has resulted in job reductions in itsNew York, London and Bahrain offices. These redundancieswere selected on the basis of which roles wererequired to fit the future business model.” (Investcorpowns SourceMedia, the parent company of Mergers& Acquisitions.)The lack of debt for leveraged transactions is behinda major slowdown in dealmaking, which some industryobservers blame for the layoffs in private equity.Denise Palmieri, director of client relations at PinnacleGroup International, a Scottsdale, Ariz.-based privateequity recruitment firm, says Pinnacle has receivednumerous resumes from anxious, but employed, privateequity executives, and investment professionalswho have been fired. “We are going to see more layoffsin private equity,” she predicts.Palmieri notes that not all buyout firms havestopped hiring, of course. Instead, they are being farmore careful in their selection of job prospects. “Theprocess is getting longer and deeper. Firms want the‘supermodel’ candidate; the bar is higher and the competitionvery heavy,” she says.Behrman Capital is one of a handful of middle-Buyout Bits fromOdyssey Completes SM&AAcquisitionSM&A, a management consulting firm,has been acquired by Odyssey InvestmentPartners for about $119.6 million. SM&Astockholders will receive $6.25 in cash foreach share of SM&A that they owned immediatelyprior to the merger. Caltius Mezzanineprovided financing for the transaction, includingsenior notes, senior subordinated notesand an equity co-investment.Huntsman Terminates BuyoutHuntsman Corp. has terminated its$6.5 billion agreement to be acquired byApollo Management’s Hexion SpecialtyChemicals Inc. and settled litigationagainst the private equity firm for $1 billion.Under the settlement with Apollo,Huntsman will receive a $325 millionbreak-up fee. Hexion said it had commitmentsfrom Credit Suisse and DeutscheBank to fund the termination fee. Affiliatesof Apollo will also make cash payments toHuntsman totaling $425 million.CCMP Closes Fund IIICCMP Capital Asia has raised $1.2 billionfor its third buyout fund, Asia OpportunityFund III L.P. Limited partners include theAsian private equity arm of Goldman Sachs inaddition to public pension plans and sovereignwealth funds. CCMP Capital Asia alsosaid it was changing its name to Unitas Capitalwhen its affiliation with CCMP ends onJan. 30, 2009. Asia Opportunity Fund II L.P.,the $1.59 billion buyout fund raised by CCMPCapital Asia in 2005, invested in several areasincluding clean technology, services, environmentalprotection, retail and automobilesin China, Japan, South Korea, Singaporeand Australia.30 MERGERS & ACQUISITIONS February 2009