American Capital is the latest “public” private equity firm to probably wish it was a bit less transparent. The firm today reported a $548 million loss in the third quarter, and suspended its dividend for the rest of the year. Moreover, its ailing counterpart European Capital has lost so much stock price value that American Capital has decided to buy it.
“The benefits that we believed would be created by a separate listing are now negated,” Chairman and CEO Malon Wilkus said.
All of that resulted in American Capital’s stock price plunging 43% today, which will only hurt its business more. The firm’s lending arm relies on its stock for currency, after all. For that reason I suspect American Capital won’t be lending much anytime soon.
It’s almost like an echo chamber from Blackstone’s call last week. Giant loss based on writedowns. Canceled dividends (or, in Blackstone’s case, distributions). But American Capital’s loss per share is far greater: Blackstone lost 44 cent per share. American Capital lost $2.63.
One comment I wanted to highlight, thought, was the striking difference between Blackstone and American Capital’s take on exits. Blackstone’s Stephen Schwarzman told LPs and shareholders looking for exits to just get over it, valuations are too low and IPOs are off the table. American Capital, on the other hand, is trying to sell 14 companies! This according to a statement by Steve Burge, President of North American Private Finance for American Capital.
“During the quarter, we continued to experience competitive sale processes among strategic and financial buyers for our companies and our median exit multiples remained higher than our median entry multiples,” he said.
I guess the difference here is that American Capital’s portfolio companies are small enough that there are a few strategic or financial buyers in the market. But they can’t be getting decent valuations. The firm’s assets have lost 17% at fair value in the past year.