In recent weeks the pace of sponsor-backed portfolio companies changing private equity owners has picked up. Transactions jumped to 20 in the second quarter, from nine the prior quarter, according to Dealogic.
This is partly a function of corporate buyers being gun-shy because of deepening financial and economic uncertainties in the last quarter. But pressures on buyout folks to invest and divest are also at work. Private equity vehicles are bound by investment periods of three to five years, and those raised in the 2005 to 2007 time frame need to put money to work. There's also the need to generate distributions after two years of negative performance.
One catalyst: "Ebitda has really started to go up for a lot of companies in the recovery so sellers feel that they can demonstrate and get credit for the earnings power of their businesses better than they could even three months ago," says Lawrence Golub, president of Golub Capital Inc.
Another is the prospect of higher taxes on carried interest after Dec. 31, with new legislation. "Sell now, get more; keep it, get less," adds Golub, pointing to "hundreds of companies" trying to sell themselves before the end of the year.
U.S. secondary buyouts are up to 31 so far, compared with only 23 in all of 2009, Dealogic says, though that's still a fraction of the 2007 peak, with 156.
Transaction sizes, too, are nowhere near the record-busting levels of the boom years, but values have edged skyward. The 31 secondary buyouts totaled nearly $15 billion, versus $3.1 billion last year and $4 billion the year before.
BC Partners Ltd. and Silver Lake's proposed $3.1 billion purchase of New York-based healthcare services provider MultiPlan Inc. from Carlyle Group and Welsh, Carson, Anderson & Stowe would be among the largest leveraged buyouts this year.
According to Standard & Poor's Leveraged Commentary & Data, the lenders expect to arrange about $1.98 billion of debt financing, suggesting an equity check of about $1.13 billion. The purchase price is between 9 and 10 times Ebitda, among the highest to date.
"We're certainly seeing some high multiples, 7 times to 8 times Ebitda, and even 10 times for larger midcaps. That's because both financial and strategic buyers are willing to pay up for businesses that have performed well over the last cycle," says Randy Schwimmer, senior managing director at Churchill Financial LLC.
Adds Schwimmer, "The theory is that companies with positive growth coming out of the worst-recession-known-to-mankind should be real winners in any kind of recovery. The clear conclusion is that PE and corporates are bidding up for 'must-have' companies."
|Top 10 U.S. secondary buyouts, 2010 YTD|
|Announced||Deal value ($mill.)||Target||Acquirers||Sellers||Ebitda multiple|
|7/9/10||$3,100||MultiPlan Inc.||BC Partners Ltd.,
Silver Lake Partners LP
|Carlyle Group Inc,,
Welsh Carson Anderson & Stowe LP
|5/21/10||1,700||Michael Foods Inc.
|GS Capital Partners LP||Thomas H Lee Partners||5.5|
|4/12/10||1,449||DynCorp International Inc.||Cerberus Capital Management LP||Veritas Capital Management LLC||6.3|
|6/10/10||1,400||Vertafore Inc.||TPG Capital LP||Hellman & Friedman LLC,
JMI Equity Inc.
|4/21/10||1,300||American Tire Distributors Holdings Inc.||TPG Capital LP||Investcorp,
Berkshire Partners LLC,
Greenbriar Equity Group LLC
|4/20/10||1,100||Sedgwick Claims Management Services Inc.||Stone Point Capital LLC,
Hellman & Friedman LLC,
Columbus Midco Holdings Inc.
|Fidelity National Financial Inc.,
Evercore Capital Partners Inc.,
Thomas H Lee Partners
|3/29/10||883||Bway Holding Co.||Madison Dearborn Partners LLC||Kelso & Co.||6.8|
|4/22/10||815||Hillman Cos.||Oak Hill Capital Partners LP,
|Code Hennessy & Simmons LLC,
Ontario Teachers' Pension Plan Board
|4/26/10||809||Protection One Inc.||GTCR Golder Rauner LLC||Quadrangle Group LLC,
Monarch Capital Partners Inc.
|5/3/10||570||Dave & Buster's Inc.||Oak Hill Capital Partners LP||Wellspring Capital Management LLC||6.8|
YTD = July 23, 2010