By William L. Watts, MarketWatch
Last update: 5:51 a.m. EST Jan. 30, 2009
DAVOS, Switzerland (MarketWatch) -- Times are tough in the private equity business, but the industry will survive, Kohlberg Kravis Roberts founding partner Henry Kravis insisted Friday at the World Economic Forum's annual meeting.
"Private equity is not dead," Kravis said in a panel discussion on the global financial system at this year's gathering of corporate executives, politicians, regulators and others in the Swiss Alps.
Credit constraints have made deals more difficult, but not for the first time, he said, recalling a prime rate of 21% in 1979 accompanied by then-Federal Reserve Chairman Paul Volcker's subsequent decision to slap on credit controls that barred non-purpose lending.
"That was tough," Kravis said. Things weren't much better during the savings-and-loan crisis of 1990-91 when credit essentially dried up.
It's a similar situation today in the wake of the banking crisis, but money is available from a range of sources, he said, and there are opportunities for private equity.
The next three years will see about $1.7 trillion in debt in the United States come due, with about $1.5 trillion of that investment grade. Over five years, the figure is $3 trillion, he said.
Unless credit markets thaw, "there's going to be a real need for private equity," Kravis said.
Commitments by sovereign wealth funds and other sources mean around $400 billion is available for private equity firms, he said.
And private equity firms can still raise long-term debt, albeit on a smaller scale and from different sources, Kravis said. Sovereign wealth funds and pension funds, for example, are willing to invest in debt.
Finally, the amount of leverage needed buy stakes in companies has "obviously come down substantially" due to much lower purchase prices.
William L. Watts is a reporter for MarketWatch in London.
Friday, January 30, 2009
Tuesday, January 20, 2009
Venture capital fund-raising down sharply
Venture capital fund-raising dropped sharply last year, with U.S. venture firms collecting a total of $27.9 billion from limited partners, a 21.4 percent decline from the $35.5 billion raised in 2007, according to figures from the National Venture Capital Association.
Go to Article from The Boston Globe»
Go to Press Release from the National Venture Capital Association (PDF)»
Go to Article from The Boston Globe»
Go to Press Release from the National Venture Capital Association (PDF)»
Thursday, January 08, 2009
Credit Markets’ Spring Awakening May Help Mergers
Posted by Heidi N. Moore at Deal Journal, WSJ.com:
While much of the country languishes in a post-New Year’s, dead-of-winter coma, it feels like spring in the corporate debt market–spring 2008, that is.
The collapse of Bear Stearns in March 2008 froze the credit markets. It is only now, after several more companies went under, a $700 billion bailout was put in place and the auto industry was saved, that companies have been able to find buyers for their debt in the public markets in any appreciable number.
This week already is the best week for corporate debt sales since May 18, 2008, with proceeds totaling $19.9 billion, according to Thomson Reuters, though it still doesn’t match the $33.1 billion of that week in May. The second quarter of 2008 was a record for the debt markets as companies paid banks $5.5 billion in fees in just three months, according to Dealogic data.
The biggest debt issuance this week comes courtesy of a big takeover: InBev’s acquisition of Anheuser-Busch. Anheuser-Busch Inbev, rated BBB+, raised nearly $5 billion Wednesday, according to Thomson Reuters.
In addition, junk-rated Cablevision Systems Corp.’s CSC Holdings Inc. launched the first junk bond offering of the year Thursday and is expected to sell $500 million of bonds in the afternoon at a discounted price to yield 11% or more.
For banks, this is good news on two fronts. Most obviously, they can start making money by selling debt on the markets. Banks took a big hit as that business evaporated last year. Debt capital markets generated revenue of $13.6 billion in 2008, down 38% from 2007. Investment grade issuance earned banks $5.9 billion in fees–for the whole year–down 21% from 2007, while high yield issuance earned banks $1.0 billion in fees, down 69%, Dealogic reported.
InBev’s creditworthiness surely helped, as highly rated companies come back to the markets. Credit-worthy issuers with AAA ratings accounted for $6.7 billion of this week’s issuance, the highest level since the week of April 13, 2008. The good news there is that it means that nearly two-thirds of this week’s issuance, or $13.2 billion, comes from companies that aren’t necessarily the highest-rated. That signals that the gates on the credit markets may finally be starting to open.
One sector that stands to benefit from an ability to sell debt is the pharmaceutical industry, which appears poised for a wave of mergers. Pfizer and Merck have both indicated they are searching for companies to buy. Generics giant Actavis appears headed for the auction block according to our brother Health Blog, and its potential buyers include Big Pharma players Pfizer, Sanofi-Aventis, Novartis and GlaxoSmithKline.
While much of the country languishes in a post-New Year’s, dead-of-winter coma, it feels like spring in the corporate debt market–spring 2008, that is.
The collapse of Bear Stearns in March 2008 froze the credit markets. It is only now, after several more companies went under, a $700 billion bailout was put in place and the auto industry was saved, that companies have been able to find buyers for their debt in the public markets in any appreciable number.
This week already is the best week for corporate debt sales since May 18, 2008, with proceeds totaling $19.9 billion, according to Thomson Reuters, though it still doesn’t match the $33.1 billion of that week in May. The second quarter of 2008 was a record for the debt markets as companies paid banks $5.5 billion in fees in just three months, according to Dealogic data.
The biggest debt issuance this week comes courtesy of a big takeover: InBev’s acquisition of Anheuser-Busch. Anheuser-Busch Inbev, rated BBB+, raised nearly $5 billion Wednesday, according to Thomson Reuters.
In addition, junk-rated Cablevision Systems Corp.’s CSC Holdings Inc. launched the first junk bond offering of the year Thursday and is expected to sell $500 million of bonds in the afternoon at a discounted price to yield 11% or more.
For banks, this is good news on two fronts. Most obviously, they can start making money by selling debt on the markets. Banks took a big hit as that business evaporated last year. Debt capital markets generated revenue of $13.6 billion in 2008, down 38% from 2007. Investment grade issuance earned banks $5.9 billion in fees–for the whole year–down 21% from 2007, while high yield issuance earned banks $1.0 billion in fees, down 69%, Dealogic reported.
InBev’s creditworthiness surely helped, as highly rated companies come back to the markets. Credit-worthy issuers with AAA ratings accounted for $6.7 billion of this week’s issuance, the highest level since the week of April 13, 2008. The good news there is that it means that nearly two-thirds of this week’s issuance, or $13.2 billion, comes from companies that aren’t necessarily the highest-rated. That signals that the gates on the credit markets may finally be starting to open.
One sector that stands to benefit from an ability to sell debt is the pharmaceutical industry, which appears poised for a wave of mergers. Pfizer and Merck have both indicated they are searching for companies to buy. Generics giant Actavis appears headed for the auction block according to our brother Health Blog, and its potential buyers include Big Pharma players Pfizer, Sanofi-Aventis, Novartis and GlaxoSmithKline.
RiskMetrics Group Releases 2009 Board Practices Study
Submitted by: Sarah Cohn, Communications
RiskMetrics has released the 2009 edition of its annual Board Practices study, which analyzes the structure and composition of boards of directors at S&P 1,500 companies. Most notably, the study finds a continuing increase in the prevalence of companies with board chairs who are not the CEO—46% now have that structure in place, with more than 150 companies having adopted the practice in the last five years.
Each year, RiskMetrics evaluates the practices of boards of directors to identify the latest trends. To access the key findings from RiskMetrics’ 2009 Board Practices study, please visit here. The entire study can be purchased here.
RiskMetrics has released the 2009 edition of its annual Board Practices study, which analyzes the structure and composition of boards of directors at S&P 1,500 companies. Most notably, the study finds a continuing increase in the prevalence of companies with board chairs who are not the CEO—46% now have that structure in place, with more than 150 companies having adopted the practice in the last five years.
Each year, RiskMetrics evaluates the practices of boards of directors to identify the latest trends. To access the key findings from RiskMetrics’ 2009 Board Practices study, please visit here. The entire study can be purchased here.
U.S. Private Equity Firms Raise $265.6 Billion in 2008, 18% Less Than 2007 as Fund-Raising Pulls Back in 4Q
Dow Jones Private Equity Analyst: U.S. Firms Raise $40 Billion in 4Q08, Down 60%; Fund-Raising May Decline Further As Firms Cut Fund Sizes, Delay Closings
NEW YORK, Jan. 8 /PRNewswire/ -- After three strong quarters of resistance, private equity fund-raising slowed to a virtual standstill in the fourth quarter of 2008, according to analysis released today by Dow Jones Private Equity Analyst.
Based on statistics from the LP Source database (www.privateequity.dowjones.com), the newsletter reports that 99 funds raised approximately $43 billion in the fourth quarter, down significantly from the nearly $100 billion raised by 208 funds during the same period in 2007. Overall, 363 U.S.-based private equity funds raised $265.6 billion in 2008, 18% below the recorded $325.8 billion raised by 506 funds in 2007.
"The drop in fund-raising we saw in the 4th quarter marked a dramatic reversal from the first three quarters of the year, when private equity firms had been running slightly ahead of 2007's fund record pace," said Jennifer Rossa, Managing Editor of Dow Jones Private Equity Analyst. "While 2008 was still easily the second-best year on record, the decline we saw in the most recent quarter may steepen in the coming months, as some large buyout shops are considering fund size cuts and many limited partners are going to have trouble finding money to commit."
Economic Pains Felt Across Most of Private Equity Industry
According to Dow Jones Private Equity Analyst, very few areas of the private equity industry have proved immune from the economic crisis triggered by the Lehman Brothers bankruptcy in early September. In particular, the buyout industry has seen its problems compound with fund-raising down 26% from $244.6 billion across 222 funds in 2007 to $181 billion across 143 funds in 2008--on par with levels seen in 2006. At the nine-month mark, the buyout sector was only down 3% year-over-year.
For the first time in many years, buyout firms' proportion of overall fund-raising declined, from 75% in 2007 to 68% in 2008.
Venture capital fund-raising, which had been up by around 4% at the end of the third quarter, also saw a drop-off by the end of the year. Venture firms raked in $24.7 billion across 150 funds in 2008, down 25% from $33.1 billion raised by 182 funds in 2007. This also marks the lowest fund-raising total for the venture industry since 2004.
Mezzanine fund-raising was the lone bright spot, as fund-raising in this sector soared to record heights on the back of Goldman Sachs Capital Partners' $20-billion GS Mezzanine Partners V LP fund. Funds of funds and even secondary funds, normally considered well-positioned to benefit from market chaos, posted weak fund-raising totals, down 55% and 36%, respectively.
To learn more about Dow Jones Private Equity Analyst, view a sample issue or subscribe, visit www.privateequity.dowjones.com or call (877) 633-8663.
NEW YORK, Jan. 8 /PRNewswire/ -- After three strong quarters of resistance, private equity fund-raising slowed to a virtual standstill in the fourth quarter of 2008, according to analysis released today by Dow Jones Private Equity Analyst.
Based on statistics from the LP Source database (www.privateequity.dowjones.com), the newsletter reports that 99 funds raised approximately $43 billion in the fourth quarter, down significantly from the nearly $100 billion raised by 208 funds during the same period in 2007. Overall, 363 U.S.-based private equity funds raised $265.6 billion in 2008, 18% below the recorded $325.8 billion raised by 506 funds in 2007.
"The drop in fund-raising we saw in the 4th quarter marked a dramatic reversal from the first three quarters of the year, when private equity firms had been running slightly ahead of 2007's fund record pace," said Jennifer Rossa, Managing Editor of Dow Jones Private Equity Analyst. "While 2008 was still easily the second-best year on record, the decline we saw in the most recent quarter may steepen in the coming months, as some large buyout shops are considering fund size cuts and many limited partners are going to have trouble finding money to commit."
Economic Pains Felt Across Most of Private Equity Industry
According to Dow Jones Private Equity Analyst, very few areas of the private equity industry have proved immune from the economic crisis triggered by the Lehman Brothers bankruptcy in early September. In particular, the buyout industry has seen its problems compound with fund-raising down 26% from $244.6 billion across 222 funds in 2007 to $181 billion across 143 funds in 2008--on par with levels seen in 2006. At the nine-month mark, the buyout sector was only down 3% year-over-year.
For the first time in many years, buyout firms' proportion of overall fund-raising declined, from 75% in 2007 to 68% in 2008.
Venture capital fund-raising, which had been up by around 4% at the end of the third quarter, also saw a drop-off by the end of the year. Venture firms raked in $24.7 billion across 150 funds in 2008, down 25% from $33.1 billion raised by 182 funds in 2007. This also marks the lowest fund-raising total for the venture industry since 2004.
Mezzanine fund-raising was the lone bright spot, as fund-raising in this sector soared to record heights on the back of Goldman Sachs Capital Partners' $20-billion GS Mezzanine Partners V LP fund. Funds of funds and even secondary funds, normally considered well-positioned to benefit from market chaos, posted weak fund-raising totals, down 55% and 36%, respectively.
To learn more about Dow Jones Private Equity Analyst, view a sample issue or subscribe, visit www.privateequity.dowjones.com or call (877) 633-8663.
Wednesday, January 07, 2009
I.P.O. Chill May Last Through 2010, Analysts Say
The frozen market for initial public offerings won’t thaw in 2009 — or even the year after that, according to Bernstein Research. Bernstein’s analysts say they do not expect the market for new stock sales to bottom out until 2010 at the earliest, followed by a modest recovery.
If they are right, the result will be less fees for underwriters like Goldman Sachs and Morgan Stanley and hard times for companies and venture investors that have been patiently waiting to cash out by going public.
Companies tend to go public when stock markets are rising, volatility is low and equity fund flows are healthy. That clearly was not the case in 2008, as the global credit crisis roiled world markets and sent investors fleeing to the sidelines.
Last year, the number of initial public offerings experienced a huge downswing, with total I.P.O. volume declining 45 percent compared with the previous year. A record-setting 86 I.P.O.’s were canceled, and the average size of the I.P.O.’s shrank significantly.
Equity capital markets professionals at the investment banks shouldn’t expect a quick recovery, Bernstein says. Based on an analysis of historical data, Bernstein said it expects I.P.O. volumes to fall an additional 25 percent in 2009, followed by a 10 percent decline in 2010. This implies a 60 percent peak-to-trough decline in I.P.O. volumes from 2007 to 2010.
These predictions of an extended drought come as investment banks are suffering slowdowns in nearly every other segment of their business (merger advice, convertible and risk arbitrage, prime brokerage, asset management and retail brokerage).
Equity underwriting is one of the highest-margin businesses on Wall Street. Goldman Sachs and Morgan Stanley each generated about 4 to 5 percent of their total revenues from equity underwriting. That profit center will be taking quite a hit. Bernstein expects combined equity underwriting revenues for the two firms to decline by 35 percent annually in 2009 (after a 19 percent drop in 2008) and then fall by another by 5 percent in 2010, before a modest recovery of 15 percent in 2011 and 2012.
And then there are the private equity shops and venture investors that hoped to cash out of their investments and take their portfolio companies public.
The money these firms have wrapped up in their current investment will have to stay put until the I.P.O. market recovers, meaning there will be less money available for new projects. Entrepreneurs, who fear the shortage of funding could stifle innovation, are surely hoping Bernstein’s dire predictions don’t pan out.
– Cyrus Sanati, NYT DealBook, January 7, 2009
If they are right, the result will be less fees for underwriters like Goldman Sachs and Morgan Stanley and hard times for companies and venture investors that have been patiently waiting to cash out by going public.
Companies tend to go public when stock markets are rising, volatility is low and equity fund flows are healthy. That clearly was not the case in 2008, as the global credit crisis roiled world markets and sent investors fleeing to the sidelines.
Last year, the number of initial public offerings experienced a huge downswing, with total I.P.O. volume declining 45 percent compared with the previous year. A record-setting 86 I.P.O.’s were canceled, and the average size of the I.P.O.’s shrank significantly.
Equity capital markets professionals at the investment banks shouldn’t expect a quick recovery, Bernstein says. Based on an analysis of historical data, Bernstein said it expects I.P.O. volumes to fall an additional 25 percent in 2009, followed by a 10 percent decline in 2010. This implies a 60 percent peak-to-trough decline in I.P.O. volumes from 2007 to 2010.
These predictions of an extended drought come as investment banks are suffering slowdowns in nearly every other segment of their business (merger advice, convertible and risk arbitrage, prime brokerage, asset management and retail brokerage).
Equity underwriting is one of the highest-margin businesses on Wall Street. Goldman Sachs and Morgan Stanley each generated about 4 to 5 percent of their total revenues from equity underwriting. That profit center will be taking quite a hit. Bernstein expects combined equity underwriting revenues for the two firms to decline by 35 percent annually in 2009 (after a 19 percent drop in 2008) and then fall by another by 5 percent in 2010, before a modest recovery of 15 percent in 2011 and 2012.
And then there are the private equity shops and venture investors that hoped to cash out of their investments and take their portfolio companies public.
The money these firms have wrapped up in their current investment will have to stay put until the I.P.O. market recovers, meaning there will be less money available for new projects. Entrepreneurs, who fear the shortage of funding could stifle innovation, are surely hoping Bernstein’s dire predictions don’t pan out.
– Cyrus Sanati, NYT DealBook, January 7, 2009
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