Filed under: GS Capital Partners, Private equity industry, Public or private?

If you look over “at-risk” mergers, the acquisition of Myers Industries, Inc. (NYSE: MYE) looked about as hopeful as waiting for the Titanic to pull into port. This merger was announced nearly one-year ago as a $1.1billion deal, and the market cap is $478 million.

The company has announced this morning that it has received notice that GS Capital Partners, the private equity arm of Goldman Sachs (NYSE: GS), does not intend to proceed with the proposed acquisition of Myers. As a result, Myers Holdings and GS Capital have mutually agreed to terminate their merger agreement, with an effective date of April 3, 2008.

After looking back over its past earnings release, it appears that raw materials costs are probably part of the problem for the rubber and plastics maker. Myers had also received a $35 million payment from GS Capital Partners to extend the merger date to April 30.

Myers Industries continues to focus on its sound business growth plan and fundamentals directed at sustainable, profitable growth. The company noted it “is confident in its ability to continue value generation for customers and shareholders.”

The buyout price was originally set at $22.50, and shares shut on Thursday at $13.60. The 52-week trading range was $9.73 to $22.73, so this one was fairly well telegraphed that it was a goner. About the only hope here was that a lower buyout would come. Hoping in the same sentence as investing is generally one of the worst investment policies out there.

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Filed under: GS Capital Partners, Private equity industry, Public or private?

If you look over “at-risk” mergers, the acquisition of Myers Industries, Inc. (NYSE: MYE) looked about as hopeful as waiting for the Titanic to pull into port. This merger was announced almost one-year ago as a $1.1billion deal, and the market cap is $478 million.

The company has announced this morning that it has received notice that GS Capital Partners, the private equity arm of Goldman Sachs (NYSE: GS), does not intend to proceed with the proposed acquisition of Myers. As a result, Myers Holdings and GS Capital have mutually concurred to terminate their merger agreement, with an effective date of April 3, 2008.

After looking back over its past earnings release, it appears that raw materials costs are probably part of the problem for the rubber and plastics maker. Myers had also received a $35 million payment from GS Capital Partners to extend the merger date to April 30.

Myers Industries continues to focus on its sound business growth plan and fundamentals directed at sustainable, profitable growth. The company noted it “is confident in its ability to continue value generation for customers and shareholders.”

The buyout price was originally set at $22.50, and shares closed on Thursday at $13.60. The 52-week trading range was $9.73 to $22.73, so this one was fairly well telegraphed that it was a goner. About the only hope here was that a lower buyout would come. Hoping in the same sentence as investing is generally one of the worst investment policies out there.

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Filed under: Management, The Blackstone Group, KKR, The Carlyle Group, Apax Partners, Bain Capital, Permira, Private equity industry, Investments, Value and lack thereof, Public or private?

If you’ve ever wondered why so many low-P/E ratio technology companies haven’t been gobbled up, there’s a really good explanation: R&D, leverage, and volatility.

Business Week just ran a great cover story titled “When a Buyout Goes Bad” for this week’s magazine. The case in hand is the old private equity buyout of Freescale, which was the chip business from Motorola Inc. (NYSE: MOT). This speaks about a company that was turned around from the edge of the cliff by a great tech leader who created a great stock again. Then the $17.6 billion buyout came from a group led by The Blackstone Group (NYSE: BX), Carlyle Group, and Permira Advisers. This buyout came after being in a competing bid from a consortium led by KKR, Bain Capital, Apax Partners, and Silver Lake Partners.

Last year the company’s revenues fell 10% while the chip sector revenues grew by 5%, then Motorola announced a spin-off or sale of its handset business, and then there is the issue of the $9.5 billion in debt that was clumped on top of the company to get the private equity buyout done.

Unless you’re selling transistors and capacitors or just plain Jane DRAM, technology companies require heavy R&D commitments. This is why historically technology companies used to come public back before the 1990’s “get rich from tech stock option awards” became the norm. The bookkeeping changes required investor backers of a different group to mark down 15% of their $7 Billion stake as well. In fact, it notes that it is having a hard time ponying up the $1.2 billion for R&D and $400 million for capital expenditures needed for Freescale. And now there are inventory problems.

For me personally, I’m not all that surprised that Freescale was a temporary success. One night right shortly before Freescale was spun-off by Motorola, I was flying from Austin to Chicago. I spoke to two workers that stated they were low level managers for Freescale. When they called the company “Free-Fall” and told me about some of their pension or retirement issues and stock option plans getting blended up (not for the superior, at all), it left a bad taste in my mouth. Then when this one went private with that much debt and knowing what comm-chip R&D percentages of revenue were, I thought the billionaires were drinking too much of the cool-aid.

You should read that article as it puts it well into context. This is why niche technology companies generally end up being acquired by other niche technology companies or by bigger tech companies that are competitors or that can complement each other. In mid to late-2006 you started seeing the private equity frenzy go into overdrive.

If you want good news or the silver lining, I do actually have some. I think that there will be another wave of public technology companies that get acquired. But the buyers will nearly all be LARGER public technology companies. Private equity and technology can mix, but the deals need to be smaller deals with less leverage and in companies that require less R&D.

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