April 2010: “An Overdose of Hubris and a Deficiency of Caution”

It’s been a rollercoaster of an April. Click through for a rundown of the past month’s biggest successes, failures and tales of idiocy.


[slide title=”Lee Equity Buys Papa Murphy for High Multiple”]
April 1: Lee Equity Buys Papa Murphy’s For High Multiple

The deal value is approximately $180 million, according to Deal Journal. It represents a 10x Ebitda multiple, if you go with the $18 million Ebitda figure peHUB reported in January. To demonstrate the frothiness of that multiple, compare it to any number of restaurant buyouts over recent months. THL Partners paid 5.8x Ebitda for CKE restaurants, and Friedman Fleischer & Lowe purchased Church’s Chicken for between 6x and 7.8x.

The deal multiple, and the heated auction leading up to it, company resembled a frothier era gone by. But the deal’s capital structure will likely face the realities of a financing market just beginning to recover. Lee Equity has not yet lined up a financing package; it plans to use a moderate amount of leverage on the company.

[slide title=”Surprise Surprise, HCA Going Public”]
April 8: Hospital Chain HCA Considering IPO

Hospital chain HCA Inc is considering an initial public offering in the coming months, a source familiar with the situation said on Wednesday.

Bloomberg earlier reported, citing sources, that HCA is preparing for an IPO that may raise $3 billion, and plans to interview banks to underwrite the sale in the coming weeks.

HCA is owned by private equity firms including Kohlberg Kravis Roberts & Co and Bain Capital, which both declined to comment.

[slide title=”Fundraising Still Alive, Somehow”]
April 6: Carlyle Group Raises $1.1 Billion Financial Services Fund

The Carlyle Group has held a $1.1 billion final close on its first financial services fund. The fund, led by Olivier Sarkozy, has made three investments to date: Bank of N.T. Butterfield & Son Ltd., BankUnited and Boston Private Financial Holdings, Inc. (Nasdaq: BPFH).

[slide title=”More Mega-IPOs”]
April 9: Toys “R” Us ad NXP Semi IPOs On The Way

U.S. private equity firms Kohlberg Kravis Roberts & Co [KKR.UL] and Bain Capital are preparing for initial public offerings of Toys “R” Us and NXP Semiconductors , the Wall Street Journal said, citing people familiar with the deals.

Dutch semiconductor company NXP, which was spun off from Philips Electronics (PHG.AS) in 2006, is planning to raise more than $1 billion through an IPO, the Journal said, citing people familiar with the situation.

[slide title=”Blackstone Cuts Some Fees”]
April 14: Blackstone Fee Cut Is Good… Because It’s A Fee Cut

Blackstone’s move here is clearly an effort to curry favor with LP fence-sitters, and it should have moved closer to the 100/0 split advocated by ILPA (and exhibitted by firms like Warburg Pincus). But any movement away from GP fee-hogging is a positive, so kudos to Blackstone Group today. It didn’t do perfect, but it done good.

[slideshow=”Huge! Rattner Goes Down…”]
April 15: Quadrangle Slams Steve Rattner, Settles with Cuomo and SEC

This is not a good day for Steve Rattner.

At approximately 10:05am ET yesterday morning, the political aspirations of Steven L. Rattner were pronounced dead. An autopsy revealed an overdose of hubris, and a deficiency of caution.

In a 27-page document, the New York Attorney General Andrew Cuomo lays out a narrative in which Rattner – then a partner of private equity firm Quadrangle Group – fought to secure business for the brother of New York’s chief investment officer, at the urging of now-indicted “finder” Hank Morris. Specifically, Rattner persuaded a  Quadrangle portfolio company (since defunct) sign a DVD distribution deal for the brother’s film – “Chooch” – over the initial objections of portfolio company management.

More: All About Steve

Rattner and DiNapoli Issue Statements

Lots More Thoughts on Quadrangle Situation

[slide title=”Paulson Rescues American Capital”]
April 19: Paulson To Buy 13% Stake in American Capital

Billionaire investor John Paulson is buying about a 13 percent stake in American Capital (ACAS.O) as the business development company gets a much-needed capital infusion to restructure debt, sending its shares up 14 percent.

American Capital’s $295 million stock offering to institutional investors, including hedge fund Paulson & Co Inc, was priced at $5.06 per share, a discount of 5 percent to the stock’s close Friday.

[slide title=”Exception to the LP Default “Myth”]
April 21: Yes Virginia, There Were LP Defaults in 2009

Perhaps news of no LP defaults was exaggerated.peHUB has learned that Granite Hall Partners, a Chicago-based fund-of-funds, defaulted on a $15 million commitment to TPG Capital in the middle of last year. The commitment was for TPG’s sixth mega-buyout fund, and was made just before TPG plugged around $2 billion into Washington Mutual.

[slide title=”Big Big Secondary Sale”]
April 22: BoA Sells $1.9 Billion in PE Fund Interests to AXA Private Equity

My snap verdict is that this is a win-win for both AXA and BoA. No one is disclosing pricing terms, but one can assume that AXA paid less than it would have were BoA to have opened the process to competitive bidding [Update: A source tells me that BoA did run a competitive, self-managed process, with two or three firms involved]. Moreover, continued economic recovery should help the portfolio increase in value over time (remember, people thought Lexington Partners paid too much for that $1 billion Chase portfolio back in 2000, and that worked out just fine for Lex).

BoA, on the other hand, likely made out much better than it would have were it to have sold 18 months ago (when it first began considering a sale), 12 months ago or even six months ago. Plus, the sale could give BoA some TARP-related benefits.

[slide title=”Permira Fosters Good Will With Labor Unions and Pension Funds”]
April 23: Hugo Boss Reverses Course, Will Keep Ohio Factory Open

After over a month of protests and on-again/off-again negotiations, Hugo Boss and workers at its Brooklyn, Ohio-based suit-making plant have reached an agreement that will keep the facility in business. No specifics have yet been disclosed about the new labor contract, which was ratified this morning.

To be honest, this is more than a bit shocking. When I first began covering this story last month, sources close to Hugo Boss said that the shutdown decision was final and would not be revisited. The Brooklyn, Ohio shop was profitable, they acknowledged, but not competitive in either the short or long-term (Hugo Boss does not have any other apparel factories in the U.S.).

[slide title=”Palm Miraculously Sells”]
April 24: Elevation Salvation: HP To Buy Palm for $1.2 Billion

This deal is terrific news for Elevation Partners, the private equity firm that had invested more than 25% of its $1.8 billion debut fund into Palm. No one at Elevation is going to pretend this is a homerun, or even a single, but it certainly is a save.


See all past monthly wrap-ups here. [/slideshow]

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