Filed under: Taxes and regulations, Private equity industry

If you look at the history of M&A, there are a variety of waves. Some of the main forces include changes in technology, innovations in financing, economic growth and regulatory change.

So, with this year’s heated presidential election, it’s a good idea for dealmakers to take note. Actually, this is the topic of a piece in today’s Wall Street Journal [a paid publication].

If the Dems get into the White Home, we might see a backlash against the buyout folks. After all, such transactions often lead to layoffs. Besides, as businesses consolidate, there may be less competition and higher prices. Thus, the Dems might also get more aggressive with antitrust enforcement.

Oh, and something else: we might see a rollback on lower taxes, such as the favorable rates for dividends and capital gains. No doubt, this would have a large impact on dealmaking.

The problem? Well, the financial system is mired in a credit crunch and banks are holding back on transactions. So while there might be many eager investment banks hunkering for deals, it’s probably a good bet we won’t see much of a pickup anyway.

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: Deals, Private equity industry, Investments, Activist investing

A private investment firm called Savanna Investment Management, LLC announced this morning that it has recently acquired $120 million in debt on seven office, residential and retail properties throughout Manhattan, Long Island and Connecticut. The real estate and development firm bought these loans from four “major Wall Street banks” at discounts of what it stated was up to 30 percent.

The press release even describes this as a vulture investing strategy. It described it as the firm’s opportunistic private equity investment strategy designed to take advantage of the credit crisis dislocation by acquiring subordinate bank notes. If that isn’t “a vulturing we go” strategy, then nothing else is either.

But there’s even a more interesting theme here rather than a small $120 million piece. The firm is noting that there are literally hundreds of potential debt deals to pursue. Furthermore, it recently shut its “Savanna Real Estate Fund I” to investors and plans to acquire approximately $1 billion in new investment and development opportunities throughout the Middle Atlantic says and the Northeast with targets in office, residential, industrial, retail, land and development deals.

If there are “literally hundreds of opportunities” and the company recently closed on its fund, you can probably expect more vulture investing. There have been several other vulture vehicles that have come public or that have filed to come public. Just because people are investing doesn’t mean that a bottom has been set in stone. But at least the vultures are starting to circle.

Some people fault vultures, but someone has to do it.

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Filed under: The Blackstone Group, KKR, Raising money, Texas Pacific Group, Apollo Management, Bain Capital, Private equity industry

With the severe credit crunch, the private equity world has come to a screeching halt. Sure, there is some dealmaking - but nothing enjoy it was just a year ago.

So, what are the private equity folks doing? Well, they are raising billions of dollars. This is according to a piece in the FT.com (subscription required).

Although, the typical investors in private equity funds, such as pension funds, are actually losing their appetites. There are concerns about lower returns as well as bigger concentrations of portfolio risk. Just look at the recent write-downs at KKR.

Yet, the top-tier private equity firms are still having little trouble raising money. TPG plans to snag $15 billion and Apollo should also get the same amount. And, as for Bain and Blackstone (NYSE: BX), it looks like they’ll get $20 billion apiece.

OK, so where is the big money coming from? Yep, it’s the sovereign wealth funds. With bulging coffers - especially from oil - the money needs to go somewhere. And, with lower valuations and distressed companies, it could be spot-on timing for those with a long-term perspective.

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. He also operates DealProfiles.com.

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Filed under: KKR, Private equity industry

KKR is the firm that pioneered the private equity business getting its start in the mid 1970s. Over the years, the firm has established 14 funds and generated average returns of 20% (net of fees).

Lately, though, KKR has come under attack (as have many other private equity operators). So, when the firm’s Private Equity Investors group, which is publicly traded in Amsterdam, had its conference call recently, Henry Kravis talked about the say of private equity.

It wasn’t an simple speak since the fund had to mark down the valuations of seven holdings. In fact, the return of the portfolio was a horrible -0.1% last year, and the fund is trading at a 38% discount to its net asset value.

Simply put, Kravis says that dealmakers will need to be creative. This means locating capital from alternative sources, such as private investors and hedge funds. There will also be more minority investments.

Kravis also stressed that KKR will continue to stick to its investment philosophy. This means focusing on companies that have stable revenues, diversified global platforms and room for operational improvement.

More importantly, Kravis stated that the private equity business is about the long-term. If anything, the ideal opportunities are when markets are in the midst of dislocations - which is certainly the case now.

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: Engagements, Venture capital industry, Private equity industry

Investment conferences are usually pretty dull stuff. A dozen or so execs from small firms get 20 minutes each to stand up at the podium, run through a PowerPoint presentation and try to convince investors to throw some cash their way. Many investment banks hold them, often specializing in a particular sector.

Now the porn industry is getting what might be its first investment conference. Investment firm AdultVest has announced that it will schedule a series of ongoing meetings to bring potential investors together with business opportunities in the adult entertainment sector. This represents what might be the first go-to gathering for investors interested in adult-oriented businesses. If you’re interested, here’s your chance to be a porn mogul.

These two-day events will no doubt be a little spicier than the usual investment conference fare — and in a sign of how popular AdultVest anticipates them to be, the firm will hold them each month. The press release also promises that, as the popularity of these meetings grows, they’ll be held in new venues like, “hotel meeting rooms, private estates, and private members clubs.”

For the first meeting this week, however, AdultVest execs will present the ‘business opportunities’ themselves to 10-15 invited investors. CEOs from the porn businesses will be invited to later meetings — presumably when they have been properly taught how to present to a Wall Street audience. Meetings will occur on the last Wednesday of each month.

According to the company, attendees will include private equity managers, hedge fund managers, venture capitalists, and angel investors. Also invited are individual investors, investment bankers, financial advisors, and the AdultVest committee that’s in charge of managing the AdultVest Bacchus Investment Fund and the Priapus Investment Fund.

The company also noted that some 647 adult companies have submitted investment proposals, with some 3,380 investors in the pool of “interested parties.” There have been 1,833 due diligence requests made by potential investors. While it is reviewing all opportunities, it appears that the company is looking for internet opportunities and gentlemen’s clubs with annual revenues exceeding $1 million. AdultVest is meeting with roughly 20 porn businesses this day to assess the viability of each.

There has always been a seedy side to Wall Street, but this seems to be taking it to a new level. This just goes to prove that investment banking can be a lot like dating. There really is someone out there for everyone. Who knows, maybe now Paris Hilton can legitimately become the star everyone already seems to think she’s.

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Filed under: Raising money, Private equity industry, Investments

Egyptian buyout firm Citadel Capital may actually be coming public. A report out of DealBook from the New York Times discusses that the firm plans to raise $150 million to $200 million from a public offering later this year.

The firm currently manages $7 billion in assets and intends to use the capital for ventures in the energy, food and manufacturing industries.

This article also noted that according to managing director Mr. el-Houssieny, Citadel is in discussions with four undisclosed international banks regarding the offering. It also notes that it is looking into whether it should list in London, Cairo, or Dubai.

In 2007, the company purchased Rally Energy Corp, a Canadian oil company, for $849 million and was involved in the Egyptian Fertilizer Co.’s $1.41 billion sale.

This would be an interesting change of pace. Imagine a private equity and LBO firm in the U.S. announcing it would come public. They would be told to go away until next year. Now imagine if you were selling this only to Americans and it was an Egyptian company wanting to do this. Maybe the decoupling argument isn’t as ludicrous as we think.

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Filed under: Venture capital industry, Private equity industry, Investments, Public or private?

There is an interesting article out of the International Herald Tribune that is discussing the competitive environment in Asia that has essentially pitted private equity investment money against venture capital investment money.

As economies in South Asia have rapidly expanded over the last decade, U.S. investors have jumped at the opportunities to capitalize on the growth. However, venture capitalists and private equity investors alike have learned that they have to approach investments more cautiously than they do in the United States. Until the markets in South Asia mature, U.S. investors will likely continue to tread carefully when investing in early-stage growth opportunities.

This article notes that investors are putting their money into companies that have already tested the waters, avoiding early-stage investments that are subject to higher risks and regulatory issues. The size differential here’s also surprising when you read into it. Initial funding for a deal in China and India runs much higher, up to $50 million, compared to $2 to $12 million in the United States, because the companies are often already in business, requiring more first-round capital. As a result, the distinction between private equity and venture capitalists is narrowing as they compete for the same mid-stage or later-stage deals in India and China.

In the U.S., the policies are much more clearly defined. Venture Capital firms (and angels) are the ones approached here for seed, start-up, and early stages of financing for emerging companies. Private Equity firms purchase established businesses that either can be turned around and run more efficiently or they buy companies essentially for the cash flow streams.

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

After reaching an all-time low of $15.25 recently, shares of Blackstone (NYSE: BX) have staged a nice comeback. In today’s trading, the stock price is up 6.71% to $17.0.2

So, are we seeing a turnaround in the buyout market? Not necessarily.

This week, there’s a “Super Return” conference in Munich. Basically, it’s a get-together for the big-wigs of private equity. And yes, Blackstone’s chief operating officer, Hamilton James, is one of the attendees. Unfortunately, he has more bad news, according to a piece in Reuters.

That’s, the debt markets have continued to deteriorate over the past month — which will make it even more difficult to get deals done as well as work off the large buyout debt backlog. His message is that the tough times will last at least until 2009.

Even so, James thinks there is still opportunity. Basically, with low prices on buyout debt, Blackstone can pick up some bargains. More importantly, the firm has billions in fresh capital to be opportunistic.

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. He also operates DealProfiles.com.

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Filed under: Private equity industry, Public or private?

One of the after effects of the current private equity boom is a record number of buyout shop-owned companies that may find their way back to the public markets.

The Wall Street Journal’s Dennis K. Berman wrote (subscription required) about this today, saying that, “The mergers-and-acquisition markets have shut, as potential buyers wait for asset prices to decline. One can only hope that a mass of over-leveraged and overpriced assets will stay out of public-investor portfolios. But don’t bet on it. There’s too much inventory to move.”

Given that a glut of private equity cash-out IPOs seems inevitable, I think that investors should exercise extreme caution with these companies. Private equity firms won’t be taking their holdings public out of an altruistic desire to share the wealth with you: they’ll be looking to cash out and book profits when they feel they can get a compelling valuation.

In some ways, I think it’s analogous to the IPO of Blackstone Group (NYSE: BX), which amounted to a perfectly-timed effort by CEO Stephen Schwarzman to cash in his chips — at the expense of anyone who purchased in to the IPO.

Investors looking for bargains should bear in mind that private equity firms look to acquire assets at a bargain and sell them at a premium. If you’re buying assets from a private equity firm, you should anticipate that you’ll have to pay that premium.

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