Filed under: Deals, Raising money, Private equity industry

According to research firm Dealogic, the M&A market is in a big-time downward spiral. For November, the U.S. market saw a 71% drop in deal values to $58.1 billion.

If history is any guide, the M&A market is a feast-or-famine business, and the transition can happen fairly swiftly.

Of course, a key factor is the credit crunch. It takes gobs of debt to get deals done, especially for private equity. Also, with an uncertain economy, strategic buyers may also be holding off - even if the valuations look compelling.

Interestingly enough, five of the top 10 deals in November were from foreign-based buyers. With sovereign funds bulging with U.S. dollars, the trend should continue. Even though, some of the latest deals have been minority investments, such as the $7.5 billion Citigroup (NYSE: C) transaction from Abu Dhabi Investment Authority.

However, without the juice from private equity, it’s hard to make a case for a strong 2008 (the average deal size was a measly $127 million in November). So, for M&A dealmakers, they might want to be thinking of getting another career.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

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Filed under: The Carlyle Group, Private equity industry

One of the pioneers of private equity is The Carlyle Group. The firm has minted billions and is a major force in finance, managing about $76 billion.

But lately things have cooled off. For example, Carlyle’s Blue Wave hedge fund is down 9.3% for the year (this is according to a piece on Bloomberg.com). The problem was exposure to pesky mortgage investments.

So it should be no surprise that Carlyle’s co-founder, David Rubenstein, is kind of glum. He recently commiserated for the folks at the American Enterprise Institute (there was also coverage in TheDeal.com, which is a paid publication).

Rubenstein thinks that private equity may be facing some tough times, and looks at the parallels of the conglomerates of the 1960s.

It’s a pretty apt analogy. After all, as private equity firms get bigger and larger, they look like bloated entities of disparate business units. In other words, might there be lots of complications in managing all this?

I think so.

Besides, the other huge issue is finding liquidity for these private companies. Keep in mind that the IPO market has yet to recover from its boom days of the 1990s. And, M&A appears to be tailing off. Oh, and with the credit crunch, how will private equity funds get financing for deals?

So far, there aren’t many clear answers. Or, at least Rubenstein isn’t giving us any ideas so far.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar On the internet Guide to Decoding Financial Statements. He also operates DealProfiles.com.

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Filed under: GS Capital Partners, Venture capital industry, Private equity industry

This would not happen in the U.S., or most other places for that matter. But, China is China, and the rules there are different. Goldman Sachs (NYSE: GS) “China partner, Fang Fenglei, is moving forward with plans to set up a private-equity fund that could complicate his relationship with Goldman as both hunt for investments in China,” according to The Wall Street Journal. Fang will probably get to keep his title as chairman of the investment banking joint venture, Goldman Sachs Gao Hua Securities.

But why? Feng is about to take dollars out of Goldman’s pockets. Feng’s new fund will be partners with an investment arm of the Chinese government. Who is going to get first look at the best deal, Goldman or a fund run by the locals? The Journal points out that insiders already have an advantage. “Foreign private-equity investors have found their capability to close deals hampered amid booming Chinese stock prices and mounting concern within China about foreigners buying into important industrial assets.”

Yes, the Chinese want to keep the ideal part of the steak for themselves. It is a closed system, so it can do that. But, Goldman does not have to make it easier.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: The Blackstone Group, Private equity industry, Blackstone, IPO, 2007

The chart to the right shows the performance of Stephen Schwarzman’s Blackstone Group (NYSE: BX) since its IPO earlier this year. Just by looking at the stock price, you can tell that Mr. Schwarzman has some explaining to do.

At the time of the much-anticipated IPO, a lot of people, myself included, were warning investors to stay far, far away. It didn’t appear that there was any reason for Blackstone to go public other than to allow insiders to cash in some of their chips at the absolute top of the private equity boom.

Of course, that’s exactly what happened, and the IPO’s poor performance has only added to Schwarzman’s less than stellar reputation. In a current speech covered by The New York Times, Schwarzman ran through all the traditional arguments about why private equity is good for the economy. He also added a somewhat bizarre twist, saying that the industry will help to mitigate the negative consequences of globalization.

Schwarzman can, and should, defend his industry all he wants. But the fact that he took the company public in what looked like a pretty self-serving money grab — the IPO valued Schwarzman’s stake at more than $7 billion — will probably sully his reputation forever.

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Filed under: Private equity industry, Activist investing, Value and lack thereof

Wendy’s International (NYSE: WEN) might not see an auction-style sale after all. After months of speculation about the fate of the global burger flipper, the sale of the company might be on indefinite hold due to continued turmoil in the credit markets. What this means is that Wendy’s will remain for sale after a short intermission. The length of that intermission may be six months or longer.

Although bids on the company are due today at 5:00 pm EST, the company might pull the rug out from under the bids it has received so far and put the sale of the company on hold. Activist investor Nelson Peltz, who stated he has been interested in buying the company (and who pushed for a sale) will most likely
have to go home empty-handed today.

The problem is the financing provided by the banks servicing Wendy’s at this time. Apparently, the conditions of such a sale by the chain’s two largest bank creditors contain details that could leave a nasty taste in the mouth of bidders; a sales contract clause gives the two banks (JPMorgan and Lehman Brothers) the right to withdraw financing if the credit markets continue to deteriorate further. Without a crystal ball, who knows when or if that’ll happen. My guess: the credit market will sink further into 2008. Get ready to ride the wave.

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Filed under: Deals, The Blackstone Group, Rumors, Financials and analyticals, Engagements, Private equity industry, Investments, Public or private?

Allegheny Tech (NYSE: ATI) is recently up $2.60 to $96.83 on renewed buyout chatter. ATI, a diversified specialty metals producer, has a market cap of $9.4 billion. ATI November 105 calls have traded 155 times on transaction volume of 2,017 contracts, above its open interest of 1,813 contracts. ATI November 95 straddle is priced at $7.50. ATI December option implied volatility of 53 is above its 26-week average of 43 according to Track Data, suggesting larger price risks.

Alliance Data Sys (NYSE: ADS), a provider of loyalty and marketing solutions derived from transaction-rich data, announced on 5/17 it would be acquired for $81.75 in cash ($7.8 billion) by Blackstone Capital Partners (NYSE: BX). ADS is recently trading at $76.91. ADS call option volume of 5,935 contracts compares to put volume of 28,841 contracts. BX is expected to shut on the purchase of ADS before the end of the year. ADS December option implied volatility of 26 is above its 19-week average of 16 according to Track Data, suggesting larger risk.

Merger Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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Filed under: KKR, Private equity industry, Public or private?

When KKR filed its IPO, the firm mentioned that it was exploring activities beyond its core private equity business.

Well, it’s getting started. As pointed out in a current piece in the Wall Street Journal [a paid service], KKR is edging into the IPO game. That’s, the firm is the joint book-running manager on an equity offering for Rockwood Holdings (NYSE: ROC), which is a major specialty chemicals manufacturer. The company plans to issue 10 million shares.

Basically, KKR will help to drum up investors for the offering. No doubt, it’s a lucrative business (where commissions have held steady over the years). In fact, KKR is a major shareholder in Rockwood (always nice to double dip, huh?)

Despite the fact KKR is getting competitive with Wall Street investment banks, that’s not having much impact on this deal. After all, Goldman (NYSE: GS) and UBS (NYSE: UBS) are participating.

And, with private equity cooling off, it seems KKR has no choice but to expand its business — turning itself more into a full-fledged financial services firm.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar On the web Guide to Decoding Financial Statements

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