Farewell, Pre-Credit Crunch Deals, Hello New Gaurd

This weekend we said goodbye to the two remaining BCC (before credit crunch) deals, closing the book on both Penn National and BCE. Each found long-anticipated resolutions that seemed relatively painless for those involved. End of story.

But as we bid farewell to that era, a different deal opened up a whole new can of worms for dealmaking in today’s market. The most interesting development of the weekend, in my opinion, is The Weather Channel. The Blackstone Group, Bain Capital and NBC Universal’s buyout of the media company signals a few notable things for the future of large buyouts (which, most would argue, is anything over $1 billion.)

Some questions and answers (based on conversations I had):

Q: Blackstone and Bain got much of the financing for the deal from hedge funds they own (GSO Capital and Sankaty Advisors, respectively). Is this the only way to finance a deal these days?
A: Turns out the firms shopped the finance package to a number of lenders, but in-house backing made the most solid commitment in the eyes of the seller. GSO and Sankaty provided financing across the entire capital structure, with an emphasis on mezzanine, by the way.

Q. Landmark Communications was looking for more than $5 billion at one point. I am constantly hearing complaints that the main villain behind today’s dearth of deals is “unrealistic seller expectations.” So how did anyone convince Landmark to sell for $3.4 billion?
A: As we know, Landmark is selling all of its assets. The company’s owners were concerned with the potential change in the capital gains tax this year and didn’t want to wait for the economic environment to improve before selling, so they settled.

Q. Partnering with strategic buyers seems like the way to go these days. But when two or more entities with very different long-term goals own an asset, who is in the driver’s seat, and more importantly, what does the exit look like?

A: In the case of Weather Channel, the PE firms thought it might wither as a standalone entity, so the support and infrastructure of NBC made sense. But, in the interest of an exit, they’re keeping the business independent from Bain’s media holdings and NBC’s current weather biz, Weather Plus (though I have to wonder about the fate of that business going forward). Still, the independent status means no synergies, just cross-promotion.
As far as control goes, Bain, Blackstone and NBC will have equal board representation.
And exit-wise, rumors that GE would divest or spin off NBC make exit possibilities really interesting. Speculatively speaking, NBC could sell to Bain, Blackstone or both. NBC could be spun off and buy out the firms’ holdings. NBC could remain under GE’s umbrella and buy out the PE firm’s stakes. You get the drift.

Q: Blackstone, Bain and NBC threw in 50% equity. That’s a lot for a deal larger than $1 billion, and definitely a lot more than either of those PE firms are used to investing.
A: This type of deal won’t be easy for the firms to do often, but The Weather Channel is a “remarkable business,” with its market share more than 5 times that of any competitor. Also, its Internet business is growing at around 20%, cable growing 5-8% and its mobile business emerging quickly.