March 2010: “A Leveraged Catch-22”

Here’s a rundown of March’s 10 biggest private equity news stories.

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[slide title=”The Great Startup City Debate”]
March 8: Is New York’s Startup Scene Surpassing Boston’s? Not So Fast

Dan writes: “I spent a bunch of time in New York City last month, including extended hobnobbing with local VCs and entrepreneurs. One thing I heard over and over again was how the locals would soon leapfrog Boston in terms of entrepreneurial activity and venture capital funding – positioning themselves in the coveted runner-up position behind perennial leader Silicon Valley.”

[slide title=”Pay-To-Play’s Latest Victim”]

March 10:  GUILTY: Ex-New York Investment Chief Admits To Role in Pay-to-Play Scandal

David Loglisci, former chief investment officer for the New York Common Retirement Fund, has pled guilty to felony charges related to the state’s pay-to-play investment scandal. He also has agreed to cooperate with the ongoing investigation, and could face up to four years in prison.

[slide title=”Financial Reform Moves Forward”]
March 15: What Dodd Bill Would Mean for Venture Capital and Private Equity
Senator Chris Dodd today unveiled the latest version of his financial regulatory reform bill which, if passed, would have some implications for the venture capital and private equity markets (despite some media suggestions that PE/VC escape scrutiny).
It’s a lot like the original bill from last fall, but with exactly 200 more pages (we’ll consider this the unabridged version). Here are the relevant highlights.

[slide title=”Finally A Final Close”]
March 16: Avista Capital Partners Closes Second Fund
Following a first close on around $1 billion in August 2008, Avista basically sat on the sidelines while the financial world – and PE fundraising environment – collapsed around it. After gaining a fundraising extension in August 2009, the firm decided to tap the market again with a lowered target of around $2 billion (it had originally sought between $2.5 billion and $3 billion).

[slide title=”Big Branded IPO”]
March 15: Apax Banks 4.5x on Tommy Hilfiger, Invests in PVH Again
Contrary to conventional wisdom, brands really can travel uphill. Apax Partners’ successful ownership of apparel company Tommy Hilfiger is living proof.
When the buyout firm took Tommy Hilfiger private in 2006, Tommy-branded apparel was being sold by warehouse outlet stores at deep discounts. Apax saw value in its international operations, and plunked down $450 million in equity for a total deal value of $1.6 billion. The firm promoted Fred Gehring from head of Europe to CEO, and embarked on two years of intense turnaround execution.

[slide title=”Obamacare Passes”]
March 23: What Does Healthcare Reform Mean for Healthcare Investing
I think that this bill, without analyzing every line on every page, will have some positive effect on healthcare investing and finance. The removal of uncertainty is good. Now that there is at least some idea of what the new rules will be, investors, and strategic participants in the business can react. … Healthcare investing, both public and private, has historically been compared to a swinging pendulum. Time the swing right, and you make money. This phenomenon has been reinforced by healthcare entrepreneurs, particularly on the services side, who have a knack for sorting out government regulation and other business impediments.

Related: VC and PE Thoughts on Healthcare Reform

[slide title=”The FDIC’s Six Month Review”]
March 23: Who Was Invited to Sheila Bair’s Roundtable? Not Many GPs
The FDIC announced it held a little meeting with a motley crew of people who care about private equity investments in banks.
The lack of GPs, or perhaps the lack of sympathy to their concerns, likely contributed to the failure to get any of the FDIC’s stringent rules relaxed, at least so far. There could be a further announcement as to any policy changes, but the FDIC’s press release today doesn’t leave much room for optimism.

[slide title=”A Leveraged Catch 22″]
March 24:Private Equity: The Cause of, and Solution to, All of Life’s Problems
A new Moody’s default report reveals a troubling paradox: Private equity-sponsored companies are more likely to default, yet they’re also more likely to recover from default. It’s a leveraged catch-22.
The argument is that because of private equity’s appetite for leverage and dividends, their portfolio companies are generally at higher risk. No surprise there. Most PE-backed companies receive a B1 corporate family rating after their LBO – indicating high leverage tolerance and relatively low default rates – but a number of LBO-backed companies didn’t maintain that B1 rating very deep into the recession. Moody’s data blames half of all corporate defaults in 2009 on private equity

[slideshow=”ILPA Drama”]
March 24: LPs Push Back on Terms
Are LPs colluding to negotiate on terms and conditions? Dan believes such a characterization is a “canard.” This all led to a secret special meeting of important GPs and LPs. Which was perhaps not really all that big of a deal.

[slide title=”Cerberus’ Strange Hospital Deal”]
March 26: The Three-Headed Dog Will See You Now
Catholic hospital operator Caritas Christi this week agreed to sell itself to Cerberus Capital Management, in a deal Caritas Christi CEO Ralph de la Torre called “good news.”
Considering Caritas Christi’s new owner is named after a three-headed dog from hell, I’m sure the company’s 2,000 pensioners, 13,000 employees, and countless patients are praying he’s right.

Recognition
March 30: Awards Time
Sister pubs VCJ and Buyouts have announced the winners to their respective “VCJ 20 Most Promising Startups” and “Deal of the Year Awards.”

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See all past monthly wrap-ups here.
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