Leonard Green & Partners has won shareholder approval on an amendment to its fifth buyout fund, Green Equity Investors V LP, according to a source familiar with the firm. The firm’s investors have granted the fund’s managers approval to invest up to 25% of the $5.3 billion fund, or $1.325 billion, in public equity. That’s an increase from its 12.5% limit.
The Los Angeles-based firm proposed the amendment after the firm made a $425 million PIPE (private investment in public equity) investment in Whole Foods Market, an organic grocery chain, in November 2008. The investment brought the firm close to the fund’s 12.5% limit, and since the Whole Foods deal has been successful, Leonard Green & Partners wanted breathing room to do more PIPE deals. The news was first reported in today’s issue of LBOWire.
But even with the amendment secured, Leonard Green has no PIPE deals in the works. “Given the rally in the equity markets, that opportunity may not ever present itself,” a source familiar with the firm said. The source pointed out that since the equity and debt markets have warmed, strong companies like Whole Foods wouldn’t need to do the kind of PIPE deal Leonard Green arranged in 2008. The firm merely wants to be prepared if an opportunity presents itself.
That Whole Foods investment could pay off handsomely for the firm, which could earn roughly twice its investment on Whole Foods in a matter of a year or so. The firm purchased preferred stock which pays an 8% dividend and is convertible into common stock worth 17% of the company. At the time, the stock traded around $10 per share.
The company has the ability to force Leonard Green & Partners to convert its preferred shares to common stock when the company’s stock price meets or tops $28.50 for 20 consecutive days. Today Whole Foods stock closed at $27.79 per share. If the firm sells upon converting its shares, it would be a nice exit for investors in fund five, which is made up of relatively young investments and has no companies ripe for IPO or sale, the source said.
The firm did not immediately return calls.