PE Sales to Strategic Buyers Defy Weak Exit Market

WSJ DealJournal, August 25, 2008:

With a lackluster IPO market and continued weakness in the appetite of financial buyers, strategic acquirers have been a key source of liquidity for firms that look to sell assets.
U.S. sales to strategic, or corporate, buyers by private-equity firms are up 46% to $63.1 billion through Aug. 20, from $43.1 billion a year earlier, according to data provider Dealogic. though the number of such deals fell to 70 from 88.
This theme is playing out more modestly around the globe. Sales to corporate buyers world-wide are up 8% to $107.5 billion from $99.4 billion, with the number of deals falling to 255 from 356. By contrast, secondary buyouts–or sales to other PE firms–are down 93% in the U.S. and 83% globally.
Buyout shop executives and intermediaries alike say since the credit markets seized up, strategic buyers have come back with a vengeance, after previously losing auctions repeatedly to cash-rich financial sponsors. For PE firms, it is a silver lining in an otherwise bleak exit environment.
Chicago Growth Partners and ClearLight Partners stand to receive more than three times their money when their sale of campus-services company U.S. Education to education concern DeVry for $290 million is complete. while Carlyle Venture Partners, Wachovia Capital Partners and Spire Capital Partners sold security company Sonitrol to Stanley Works last month for $276 million, or about 10 times earnings before interest, taxes, depreciation and amortization. That is more than twice what the PE firms paid for Sonitrol in 2004 and on top of a sonitrol dividend the sponsors paid themselves in 2005.