Monday, July 26, 2010

New Report Asks: ‘Private Equity, Public Loss?’

NYT DealBook blog, Monday, July 26, 2010:
Just what’s going on with private equity? Activity in the industry is on the rise, so a fresh report on the industry is timely.
Enter Peter Morris’s “Private Equity, Public Loss?”, a report written for the Center for the Study of Financial Innovation, which highlights the basic misapprehensions that Mr. Morris believes many hold of the industry.
In the report, Mr. Morris says many investors are mislead to believe “interests are aligned,” a belief belied by a reality that is more complex.
The report’s chief points are these:
Realised returns are lower than advertised, even for top-quartile managers.
The quality is also lower: excluding high debt levels and general stock market performance, managerial skill accounts for only a fraction of the total return.
This calls into question fee structures, which may remove all the gains attributable toskill.
Conflicts of interest between investors and managers remain real and substantial.
Investors’ apparent failure to question the level and make-up of returns, and fees, raises questions about their collective status as “sophisticated investors”.
Perverse incentives in private equity may distort wider markets.
At the very least, private equity firms’ results should be measured more rigorouslyand made more transparent.
Go to Related Article from The Financial Times (Subscription Required) »
Go to C.S.F.I. Web site »

Wednesday, July 07, 2010

Private Equity Rides Again

NYT DealBook, Jul 07, 2010:
With an increase in secondary buyouts and a stock market more friendly toward initial public offerings, the private equity industry seems headed for something of a revival after grinding to near a stand-still during the financial crisis, The Deal Magazine writes.
As the New York Times noted in an article last month, among private equity players, competition for buyout targets has heated up and while prices are rising, from a historical standpoint, they remain attractive. Prices are well below the stratospheric levels of 2007 and 2008, according to Capital IQ.
Coupled with loosening up of credit, the industry is enjoying resuscitated dealmaking and profit taking, according to The Deal. Domestic leveraged buyout activity, which had dropped as low as $10.4 billion in the first half of 2009, passed $37 billion through June, the publication noted.
Yet, despite some pretty strong signs of recovery, private equity may not be headed to a 2007 redux, The Deal writes:
…the fact that the bidders managed to line up $10 billion in debt financing from various banks was a clear demonstration of the astonishing financial firepower that sponsors once again were able to marshal for the right deal. The debt harked back to the boom times, when $10 billion-plus LBOs proliferated. Could another era of supersized buyouts be in the offing?
The answer, all experts we spoke to agree, is no, because banks by and large remain constrained in what they can and will lend to buyouts. Nevertheless, the return of a semblance of normalcy to the business is heartening to many industry players.
Go to Article from The Deal »

Friday, July 02, 2010

Venture-Backed I.P.O.s Show Rebound as M&A Slips

From NYT DealBook, July 2, 2010:
Venture-backed initial public offerings are the highest since before the financial crisis, even as venture-backed M&A activity is slipping, according to a survey by Thomson Reuters and the National Venture Capital Association.
I.P.O.s have always been a key exit strategy for venture capital funds, a path that was essentially closed off by the moribund stock market in much of 2008 and early 2009, Reuters reported.
The number of venture-backed I.P.O.s in the second quarter is the highest it has been since the fourth quarter of 2007, according to the survey. There were 17 venture-backed I.P.O.s worth $1.3 billion in the second quarter, which was the third consecutive quarterly increase in volume and the second in dollar amount.
Electric carmaker Tesla Motors, which raised $226 million, was the largest deal of the quarter and rose more than 40 percent in its debut.
But there are still signs of uncertainty. Only five of the 17 I.P.O.s in the second quarter were trading at or above their I.P.O. prices at the close of markets on Wednesday and the deal flow is still far below historic highs. There were 86 venture- backed I.P.O.s worth $10.33 billion in the fourth quarter of 2007, the most recent peak in the venture-backed I.P.O. market.
Go to Article from Reuters »

Thursday, July 01, 2010

The Double Dip M&A Recession

By Michael Corkery, WSJ DealJournal, June 30, 2010:
Coming on a turbulent week like this, the title of the Boston Consulting Group’s latest report seems a tad optimistic: “Accelerating out of the Great Recession: Seize Opportunities in M&A” reads the headline of the report released today.
In reality, deal activity appears to be doing anything but accelerating. If anything, it appears to be scraping along the bottom. U.S. announced deal volume is down 13% in the first six months of the year from the same period last year, according to Dealogic date released today. In Europe, deal volume is down 5%.
The numbers are even more depressing considering the year-over-year comparison stretches back to a period in 2009 when economy was reeling from the worst financial crisis since the Great Depression.
Still, BCG is optimistic that the conditions for a recovery are in place. Among them: Stable capital and debt markets (despite European problems), and an expanding global economy (though the Chinese juggernaut shows signs of slowing).
The folks at BCG aren’t alone in their optimism, though. The Organization for Economic Cooperation and Development declares in a report today that “International Investment Free Fall Comes to an End.”
OECD concludes that international M&A activity is on track to match last year’s totals:
International M&A investment in 2010 totals $300 billion, putting it on track to reach 2009 levels, ending a two year streak of steep declines in 2008 (down 21% from the previous year and 2009 (down 53%). This “could signal that the bottom on the cycle has been reached,’’ the OCED report concludes.
It was only a year ago
that bankers and consultants were making similar optimistic pronouncements amid last summer’s M&A doldrums. But after a short uptick in the fourth quarter–thanks to big deals like Kraft Foods’s acquisition of Cadbury– the bulls turned out to be wrong.
There may be some debate whether the global economy is headed for a double dip recession. The picture seems much clearer in the M&A world. By most measures, it appears that M&A is mired in the second dip of a double dip hiatus.