Private-Equity Players Turn to Bigger Prey
Lucrative Fees From Transactions
Steer Buyout Firms to Big Deals;
Tough Hunt for Valued Targets
Buyout firm Kohlberg Kravis Roberts & Co. sent a mandate to Wall Street recently: Bring us your elephants, those deals valued at $10 billion to $30 billion. Others in the private-equity world are making similar calls to action.
"At any one time, we are looking at half a dozen deals worth at least $5 billion," said Hamilton James , president of Blackstone Group, a $14 billion private-equity fund that recently was asked to take private a company with a market value of $50 billion.
But big prey doesn't necessarily mean good prey. Indeed, most indications suggest that quality targets are few. Still, buyers aren't likely to be discouraged. That is because with ultrabig deals, the buyout firms can make significant amounts of money from fees, regardless of how the investment turns out.
The changing math comes at a time when the credit markets have become increasingly volatile, suggesting that the cheap debt that facilitated many leveraged-buyout deals in the past couple of years might not be available any longer. Indeed, the hunt for bigger deals comes as recent deals groan under debt loads and fears of rising interest rates. The shift means the private-equity firms may have to part with more of their own capital into their new investments. More equity will be good news for their latest prey -- though it will be less welcome to their own investors.
In large-dollar deals, "there are potentially all sorts of perverse incentives," said Jeffrey Hammes, head of the private-equity practice at law firm Kirkland & Ellis LLP in Chicago.
As numerous firms raise new funds of $8 billion-plus, they are scanning the horizon for big-dollar prey. The big fund-raisings are part of a new mantra guiding the very largest buyout firms: the biggest prey would also be the most lucrative because the competition would be less intense and therefore the prices lower. But the $11.3 billion SunGard Data Systems Inc. deal suggests that might not be the case.
With SunGard, there was no competition, just one $36-a-share offer from a group of seven firms, each one writing a check for $500 million. But that was at least $2 a share more than other firms, such as Warburg Pincus and the Carlyle Group, thought the integrated-software company was worth, according to people familiar with the matter. And now the acquirers are facing challenges in arranging the financing amid the credit-market volatility.
The fees, though, go some way in explaining the enthusiasm of the group of seven. In addition to the 2% management fees that these firms routinely collect from their investors, each investment brings substantial sums into the coffers of the buyout firms.
Begin with the 1% deal-completion fee, which alone is valued at more than $100 million in the SunGard transaction. Then these firms usually charge their portfolio companies fees for arranging the financing for their buyout. In addition, there are due-diligence and monitoring fees. And even when they share these fees with their own investors, it is still possible for the funds to make money, regardless of the eventual return on the investment.
"Buyout firms have generally been in business for the carry," Mr. Hammes added, referring to the 20% cut of the profits that private-equity firms get when they sell or list their portfolio companies. "But with fees so large, you can get rich on the fees alone."
Recent public deals also are a far cry from the labor intensive, value-added turnarounds from which many buyout firms made their name. For instance, Neiman Marcus Group Inc. -- which recently agreed to be acquired by a leveraged-buyout group for $5 billion -- is so well run that many analysts are struggling to understand how much value the firms can add.
But with their huge cash piles, the private-equity buyers have little choice but to put their money to work in big-ticket names. Eager to please their clients, big banks continue to lend to buyout shops.
Finding value in this space is especially difficult. That is partly because big public companies are followed and dissected by hundreds of analysts and investors. Scoring a true bargain in the midst of this efficient market is difficult, says Harold Bogle, who heads Credit Suisse First Boston's private-equity group.
Even with a great deal on the drawing board, private-equity buyers might not win a sales process. "People were predicting for years that there were going to be a lot of going-private transactions," says Robert Kindler, global head of mergers and acquisitions at J.P. Morgan Chase & Co. "But generally, these transactions are going to be limited to circumstances where there aren't strategic [other corporate] buyers." In situations with competing bidders, corporate buyers can swoop in and push top managers out of their jobs. "Managements don't want to go down that road," Mr. Kindler says.
And by some of the most obvious measures, there is a general dearth of opportunity. A computer search by The Wall Street Journal for stocks with a book value 20% below their given industry, a stock price 10% below the industry average, low debt and consistent cash flows showed just 20 companies. That list was populated by a number of companies far too large to be LBO targets, such as Pfizer Inc., Novartis AG and NTT DoCoMo Inc.
Of the remaining group, some intriguing names included chemicals maker Rohm & Haas Co., with a market value of $10 billion; $14.8 billion utility Scottish Power UK PLC; and $12.9 billion Sun Microsystems Inc. Wall Street also is bantering about some other well-known names, including Hewlett-Packard Co. and its offspring Agilent Technologies Inc., as well as Electronic Data Systems Corp. and Goodyear Tire & Rubber Co.
To find deals, private-equity players will have to push more into unfamiliar territory, such as the tech sector -- where most have resisted playing aggressively.
"Never underestimate the ability of private-equity firms to put money to work," J.P. Morgan's Mr. Kindler said.
收购投资公司对大猎物感兴趣
收购投资公司Kohlberg Kravis Roberts & Co.最近给华尔街下达了指令：找大公司过来，那些交易额达到100亿至300亿美元的。其他一些私人资本运营公司也提出了类似的收购要求。
Blackstone Group总裁詹姆斯(Hamilton James)说：“任何时间我们都能同时考虑5、6项至少50亿美元的交易。”这家私人资本运营基金共有140亿美元资产，最近收到要求，将一家市值500亿美元的公司私有化。
但大猎物不见得就是好猎物。的确，众多情况显示高质量的目标非常少。然而买家并未收手。这是因为不管投资结果究竟如何，超大型交易都能使收购投资机构获得不菲的费用。
这种思路的转变是在信贷市场变得日益动荡的情况下产生的，表明过去两年里催生众多杠杆收购交易的廉价贷款可能不再容易获得。确实，由于近期的交易面临债务负担的压力，加之对加息的担忧，大型交易受到了重视。这种转变意味著私人资本运营公司可能需要在新投资中投入更多自有资金。投资更多对被收购方来说可能是个好消息，但这些投资公司的投资者却会感到不快。
律师事务所Kirkland & Ellis LLP驻芝加哥的私人资本运营交易负责人哈姆斯(Jeffrey Hammes)说，大额交易可能蕴含著种种不当动机。
筹集到80亿美元以上新资金的公司很多，他们开始寻找更大的猎物。
筹集更多资金是因为一种新理念在指导著这些大型收购企业：最大的猎物可能也是利润最为丰厚的，因为竞争不会那么激烈，所以收购价会较低。但交易总额113亿美元的SunGard Data Systems Inc.交易表明事实可能并非如此。
在SunGard上没有出现竞争，只有7家公司组成的一个集团提出了每股36美元的报价，每家公司出资5亿美元。但据知情人士称，华平创业投资有限公司(Warburg Pincus LLC)和凯雷投资集团(Carlyle Group)等公司认为这至少比这家集成软件公司的合理估值每股高出了2美元。现在，由于贷款市场的动荡，收购方在安排融资方面遇到了困难。
但因收购交易而收取的费用在某种程度上解释了7家公司组团的热情。除了2%的管理费之外，这些企业通常还向其投资者收取费用，每次投资都会让投资收购公司赚个盆满□盈。
首先是1%的交易完成费，仅这一项在SunGard的交易中就超过了1亿美元。然后这些企业通常还收取投资组合公司费，以便为收购安排融资。此外，还有尽职调查和监督费。尽管他们与投资者分享这些费用，这些基金仍有可能赢利，不管最终的投资收益率如何。
最近的公开交易也同许多收购投资企业赖以成名的振兴劳动力密集型增值企业的传统做法迥然不同。比如，最近同意被杠杆收购企业以50亿美元收购的Neiman Marcus Group Inc.，其运营状况就令许多分析师难以理解它能增值多少。
但由于手握巨额现金，私人资本运营公司的买家别无选择，只能将资金投入到大公司中。为了取悦客户，大银行仍在继续向收购交易提供贷款。
在这个领域中发现价值尤为困难。原因之一在于大型上市公司受到数以百计的分析师和投资者的关注和研究。瑞士信贷第一波士顿(Credit Suisse First Boston)私人资本运营集团的负责人博格尔(Harold Bogle)说，在高效的市场中寻找真正物美价廉的猎物非常困难。
尽管有许多大型交易的计划，私人资本运营买家在出售过程中也不见得顺利。摩根大通公司(JPMorgan Chase & Co.)的并购业务全球负责人金德勒(Robert Kindler)说，人们多年来一直预计，将有许多私有化交易。但总体来说，在没有其他战略性企业买家的情况下，这些交易将受到限制。在存在竞标者的情况下，企业买家可能受挫，并导致高级管理人员的离职。金德勒说，管理层不希望出现这种情况。
通过一些最明显的指标，很容易发现总体机会的匮乏。《华尔街日报》(The Wall Street Journal)用电脑对帐面价值低于所在行业20%、股价低于行业平均水平10%、负债低、具有持续现金流的公司进行了搜索，结果仅有20家公司。这个清单中还包括众多规模过大，而难以成为杠杆收购目标的公司，比如辉瑞制药有限公司(Pfizer Inc., 简称：辉瑞公司)、诺华制药公司(Novartis AG)和NTT移动通讯(NTT DoCoMo Inc.)。
在剩下的企业中，值得注意的公司包括化工企业罗门哈斯公司(Rohm & Haas Co.)，市值为100亿美元；公用事业公司Scottish Power UK PLC，市值为148亿美元；以及Sun电子计算机公司(Sun Microsystems Inc., 又名：升阳微电脑)。华尔街关注的还有其他知名公司，如惠普公司(Hewlett-Packard Co.)、安捷伦科技公司(Agilent Technologies Inc.)、电子资讯系统(Electronic Data Systems Corp.)以及固特异公司(Goodyear Tire & Rubber Co.)。
为了发现合适的交易，私人资本运营公司将需要更多地进入到陌生领域，比如科技行业──此前它们一直不愿意这么激进。
摩根大通的金德勒说，永远不要低估私人资本运营公司推动资本运营的能力。
