Apollo closes Atlas Air deal; PE portfolio companies review cash on hand after SVB collapse

Apollo-investor group completes Atlas Air buyout.

Good morning, Hubsters. MK Flynn here with the Wire.

This just in …. an investor group led by Apollo and including J.F. Lehman and Hill City Capital just announced the closing of the previously announced $3.2 billion take-private buyout of Atlas Air Worldwide, a Purchase, New York-based provider of outsourced aircraft and aviation operating services.

Fueling the deal is “long-term demand for global air cargo services,” said the buyers.
Beyond private equity, bank deals are dominating the headlines today, between UBS buying Credit Suisse (WSJ) for more than $3 billion and New York Community Bancorp’s Flagstar Bank taking on nearly all of Signature Bridge Bank’s deposits (FT).

I’ve been asking our sources for insights on how the collapse of Silicon Valley Bank may be affecting private equity deals, and I’ve received some interesting insights.

We’ll also take a deep dive into a water deal and hear insights about women in private equity in our Women’s History Month series.

Cash on hand
Small and midsize businesses, including private equity-backed companies, are rethinking how they’re handling cash on hand in the wake of SVB’s collapse.

How are PE firms advising their portfolio companies?
“Our companies are generally profitable and/or have revolvers, so cash on hand isn’t usually excessive (e.g., fewer than 15 percent of our micro-cap companies have more than $5 million of cash on hand),” a partner at a large PE firm that invests in companies in the lower middle market told me. “In general, cash deposits on hand for LBOs would usually be single digit percentage of enterprise value, while for a VC-deal it could be more likely that it’s a double-digit percentage of enterprise value.”

Even so, said the firm, “SVB/Signature/etc. is causing us to review where we keep deposits. Half our companies already had their deposits at a top-5 bank. For the others, we asked those at the small handful of banks whose stocks were fluctuating wildly to move money over to a major bank account while the dust settles.”

What, if any, impact will there be on loans for PE-backed deals?
“Hard to say whether this will cause an impact to the cost of loans but don’t think it should really change the math necessarily,” said the firm. “Loan costs have already shot up over the last year.”

Brad Haller, a senior partner in the M&A practice of West Monroe, a Chicago-based PE advisory firm, weighed in.

“This event created a great deal of uncertainty when certainty was just starting to get a bit better,” Haller said.

“There’s nothing M&A hates more than uncertainty so just the nature of it dampens activity in broader M&A markets and PE,” Haller said. “The PE-backed companies that use middle market banks may experience a bit of turbulence in terms of credit terms and credit facilities until the dust settles over this. However, the tightening of credit terms will be a headwind for transactions. This could also drive more targets seeking equity raise, which is positive for PE and for debt funds. West Monroe’s sell side advisory team is busier than ever, which typically forecasts greater M&A activity in three months’ time.”

If you’ve got insights to share, send them to me at mk.flynn@peimedia.com.

Evaluating strategic alternatives
The March 17 Chapter 11 filing for SVB Financial Group, the holding company for Silicon Valley Bank, created the context for an expected battle between SVB Financial’s creditors on the one hand and the FDIC on the other, reports Private Debt Investor’s Christopher Faille.

The bankrupt company will presumably generate cash through the sale of its businesses and assets, which include subscription credit facilities, and both the FDIC and the creditors will make claims on those proceeds.

SVB Financial said in a statement announcing the bankruptcy filing that it plans to use the process, in the US Bankruptcy Court for the Southern District of New York, to give its five-member restructuring committee an opportunity to “evaluate strategic alternatives” while preserving value.

Silicon Valley Financial chief restructuring officer William Kosturos said that the Chapter 11 filing does not include either SVB Capital – a venture capital and private credit fund platform – or SVB Securities, which he called its “prized businesses,” or general partner entities, which will all continue operations in the regular course, “led by their longstanding and independent leadership teams.”

In the statement, Silicon Valley Financial said it continues “to have access to sources of funding, including subscription credit facilities and investor and general partner commitments” other than SVB Capital.

Silicon Valley Financial said it “believes it has approximately $2.2 billion of liquidity.” Its outstanding debt is $3.3 billion.

Water, water everywhere
Earlier in March, Aetos Capital acquired WestWater Research, a consulting firm that provides advice on water entitlement valuation, trading and M&A. Clients include municipalities, agriculture participants and Native American tribes.

PE Hub’s Obey Martin Manayiti spoke with Aetos CEO Chris Allwin about the deal.

“The combination of climate change and population flows have made water a scarce resource in the western states, and there has been a dearth of principle capital invested in the space for quite some time,” Allwin said. “Our strategy is focused around increasing supply, access and building out infrastructure that will allow for increased sustainability of water.”

To grow WestWater, Aetos is looking to add more consultants and break into new markets through M&A.

“The economic environment of higher prices has created both an emphasis on the consulting firms to source the lower-cost water but also for the investment firms to build out infrastructure to provide increased supply of water,” Allwin said. “A lot of the folks who are harmed by a lack of access and an increased cost of water are low-income communities, and so I am thrilled at the opportunity to increase capacity.”
50 percent of the population

Throughout the month of March, we’re featuring women dealmakers.

Today, we’ve got an interview with Sunaina Sinha Haldea, global head of the private capital advisory group at Raymond James, by PE Hub Europe editor Craig McGlashan.

Sinha Haldea had some strong words about the opportunities for women in private equity, particularly when it comes to winning senior positions.

Sinha Haldea hears the same arguments from GPs on diversity, including that they can’t find any women. “Really? It’s 50 percent of the population last time I checked.”
“I hear all those remarks. Most of them are excuses. You have to be deliberate about how you seek out female talent.”

First, she said, identify potential women hires, introduce yourself and track them. Second, recruit from pools of talent where diversity is higher, such as female-only universities. Third, be more patient. “I’ll often say to the recruiters, this talent pool isn’t diverse enough. Take a few more weeks, find a few more resumes to bring diversity to the talent pool.”

Retention is also key. Senior level is “where the rubber meets the road, when women want to go off and have children, when they want to live their lives. That is the compromise that GPs have to make. They must have an off and on ramp for that talent or it won’t come back.”

Women of influence
Time is running out to nominate candidates for PEI Group’s third annual Women of Influence in Private Markets list, which recognizes trailblazing women in alternative assets.

The deadline for nominations is Wednesday, March 22.

The list – which will include women from private equity, infrastructure, private debt, real estate and venture capital – will be published in July by Private Equity International, Private Debt Investor, Infrastructure Investor, Venture Capital Journal and PERE.

Click here to learn more.

On that note, I’ll sign off for today, but I’ll be back with more tomorrow.

Happy dealmaking,