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At the The Deal's M&A Outlook 2009 conference, John D.Howard, CEO of Irving Place Capital, spoke about the private equity outlook for the year ahead. Since the firm recently changed its name, moderator John E. Morris, assistant managing editor at The Deal LLC, started the conversation by asking Howard how the firm was renamed from Bear Stearns Merchant Banking.
 "We went through a process that every one does," he said. "We were
looking at any Greek or Roman Gods, gems, stars, and we took out our
Latin dictionary and it looked like all of the hedge funds and private
equity groups had already picked up the good names. So we picked the
street that my house is on, nothing complicated."
The economic environment has deteriorated since Bear Stearns Cos.' collapse, but Howard believes that private equity will be around forever. "Whether it is referred to as private equity or leveraged buyouts, it will always be around for entrepreneurial investors to pair with companies for dealmaking," he said. Irving Place Capital focuses on middle-market deals. Since the downturn in the economy, Howard said that his firm has held off from deals in retail because the retail business was fragile and underpricing risk. "We have capital to invest, and it is a will of discipline not to do things. We just felt that the whole industry was so overheated. Even if everything came out well with a retail chain, you would wind out with an 18% return, which just isn't enough," he explained. "In retrospect it was a right way to go. We raised $4.5 billion and waited two years before investing. Retail is a fragile business, and now many retail companies will be able to ride through the crisis with financing packages, but the equity won't get returned." Even though Howard believes retail wasn't safe to invest in a year ago, he thinks that now is the perfect time to invest in the industry. "If you look at some of the multiples in the middle market, now there is more opportunity. I think middle-market deals will have a life in the year ahead. PE will be investing in undervalued companies, as was done with Whole Foods. These are franchises that are very cheaply valued," he stated. Another way for private equity to invest in the current economic environment will be through minority positions in controlling investments. Howard says his firm does this by protecting business by taking a negative control over the company, so nothing gets done without his firm's approval. "For instance, we would make an investment in a public company if we have the rights to approve the budget," he explained. Or if there is a degradation in the firms performance, Howard's firm might opt for a change in management. The PE firms that will survive will be searching for opportunities such as taking minority investments in public companies. "It gives us a way of dealing with entrepreneurs and institutionalizing that business and taking it to the next level. It gives us more of an edge and proprietary dealflow," PE will reshape along with the economy, and for bigger buyout firms there will be little dealmaking to do over the next year, according to Howard. "I do believe over the next year some great fortunes will be made, but it will be those people with capital, so it depends if they have access to capital. So we have heard about Blackstone going to China for capital, and that's what most of the big firms will be doing," Howard stated. - Maria Woehr See all M&A Outlook 2009 posts Categories Deal Video
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