The first panel discussion from day 2 of The Deal's Private Capital Symposium
focused on the structure and execution of the megatake-private, featuring Sun
Capital Partners Inc.'s Gary Talarico, Calera Capital's Mark Williamson and
Fried, Frank, Harris, Shriver & Jacobson LLP's Robert Schwenkel.
Fueling the
boom in LBOs over the last 12 months, the panelists said, has been the huge
amounts of capital private equity firms have and the liquidity of debt markets.
After decades of management teams dreading private equity takeovers, the
panelists cited a number of factors that are now pushing companies to consider
LBOs, including Sarbanes-Oxley, shareholder activism led by hedge funds and
scrutiny of management compensation.
The LBO boom—and the massive profits that PE firms are reaping—has also resulted
in pushback from shareholders. As Calera's Williamson pointed out: "You can't
read a financial publication without reading about the returns [PE firms] are
getting."
Fueling the pushback is skepticism about management's independence in the
take-private process. With management so intimately involved in the LBO,
shareholders are left wondering why teams can't leverage up the company and make
the changes to unlock value if they're patient, although all panelists agreed
the jury is still out on shareholder patience.
Pushback from shareholders is starting to influence buyout firms' willingness to
raise offers, as was the case recently with Clear Channel—although such bumps
can also serve to fuel more shareholder activism to try to get even more for the
companies.
Conspicuous in the slew of LBO deals is the lack of strategic buyers sitting
these out. A number of factors have combined to give financial buyers a leg up
and keep strategics sidelined, including not being able to move as fast as PE
firms and not wanting to take all the extra debt to make multibillion-dollar
acquisitions.
As Sun Capital's Talarico said: "They have a board, a structure, and they have
to sell shareholders on the deal. It's a big disadvantage; they're not as
nimble." —George White
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