Deck the halls with bursts of folly. For a year that rang up only a smattering of deals, 2008 was one of the more eventful years in the annals of private equity. All right, perhaps many private equity investors would just as soon forget foibles. But laughter being the best medicine, where would we be if we didn't find some dark humor in catastrophe?
For many reasons, partly having to do with the prospect of having to field vociferous complaints afterward, this publication has avoided giving out any sort of trophies. Extraordinary times call for extraordinary measures, however, and if ever there was occasion to make an exception, there's no better time than now.
The Tin Cup Award goes to Cerberus Capital Management LP for attempting to tap the federal government for a double dose of bailout money. While the CEO of one of the buyout firm's portfolio companies, Chrysler LLC, was on Capitol Hill begging for $7 billion in federal loans, another Cerberus-backed enterprise, auto finance company GMAC, was trying to convert itself into a bank to qualify for Hank Paulson's $700 billion Troubled Asset Relief Program. At press time, neither company had gotten the money.
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The Bad Bank-Bad Bank Award (as in Bad Luck Comes in Bunches) goes
to J. Christopher Flowers, supposedly the smartest "smart money" man in
financial-sector PE. This year Flowers, who scored a big profit a few
years back in a bailout of Japan's Shinsei Bank, has suffered
hefty mark-to-market losses on a handful of bets in troubled European
and Asian banks. The biggest: $1.7 billion he sank into Germany's Hypo Real Estate Holding AG
in April. Six months later, Hypo nearly went bust and German regulators
rescued it. Flowers also got singed on ill-timed investments in
Germany's HSH Nordbank AG and in Shinsei, whose stock tumbled after Flowers engineered a $1.8 billion follow-on financing.
The "E" for Effort Award goes to Apollo Management LP-controlled Hexion Specialty Chemicals Inc. for signing a $10.5 billion pact to buy Huntsman Corp.,
then trying its best to undo it. Hexion's use of the material adverse
effect argument in court had to be the big buyout boys' equivalent of
"The dog ate my homework." It didn't wash with Delaware Court of
Chancery Vice Chancellor Stephen Lamb, who ruled that Hexion was in
breach of the agreement. Now Hexion seems genuinely interested in
completing the deal, if only to escape potential damage claims on other
legal fronts, specifically a tortious interference claim by Huntsman
against Apollo founders Leon Black and Joshua Harris.
The Miscalculations and Misunderestimations Award goes to TPG Capital. David
Bonderman's firm shelled out $1.35 billion when it led an investor
group in April to bail out Washington Mutual Inc. -- to no avail. The
thrift spiraled after a run on deposits in September, before being
salvaged by J.P. Morgan Chase & Co., which bought it for a
song. TPG expressed dissatisfaction with the loss, but said the turmoil
"has radically changed" the dynamics of all financial institutions.
Another way of saying, the problem was bigger than it thought.
The Most Slippery Deal Award goes to BCE Inc. What was at one
point the largest transaction in buyout history -- until the Canadian
loonie fell in value -- also proved to be one of the more elusive.
After 16 months of convoluted regulatory and legal wrangling,
renegotiations and financing hurdles, it was pronounced officially dead
Dec. 11. The C$52 billion ($41 billion) bid by private equity investors
led by Teachers' Private Capital evidently failed the company
auditor's solvency test. Just as well for the worried lenders -- and
perhaps the buyers, too, though a quarrel may yet ensue over a breakup
fee.
The Feel Good Award goes to Kirtland Capital Partners for
successfully executing one of the year's solid exits, by selling to a
special purpose acquisition company. Kirtland sold construction crane
supplier Essex Crane Rental Corp. to publicly traded Hyde Park
Acquisition Corp. for $210 million, overcoming a tough market for SPAC
deals. That the exit, at more than 3 times cost, came on the back of a
solid performance by the company showed that patient capital -- and
hard work -- could still yield rewards.
John E. Morris, Scott Stuart and Peter Moreira contributed to this article.
