Archive for November, 2009

Humor: Dealing with Bureaucracy

Monday, November 30th, 2009

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~Kush

General Atlantic & KKR Purchase TASC Advisory Services

Monday, November 30th, 2009

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General Atlantic and Kohlberg Kravis Roberts have teamed up on the $1.65 billion acquisition of Northrup Grumman Corps.’s government advisory unit, banking on the government’s need for intelligence services.  A member of the Leverage Academy, LLC team actually worked on a preliminary pitch for this deal in August.

Barclays, Deutsche Bank, RBC Capital Markets, CPPIB Credit Investment, Inc., and KKR Capital Markets are financing the deal.  Highbridge Mezzanine Partners is investing in the sub-debt.  The current debt rating on Northrop is still Baa2 and Baa1 for its subsidiaries.

Northrup Grumman will be selling 100% of the division, which has 5,000 highly skilled employees, many with government clearances.  TASC provides computer systems engineering, consulting, and technical advice for defense agencies and intelligence agencies.  The company generates $1.6 billion in revenues annually, which are projected to grow at a 9-12% compound annual growth rate over the next five years.  Grumman realized $1.1 billion in net cash proceeds after taxes on the deal.

Prominent former employees who helped provide the necessary information to close the deal include Peter Marino, former director of technical services at the CIA, and R. Evans Hineman, a former president of TASC.

In 2002, Carlyle Group bought a 33.8% stake in the London defense technology company QinetiQ Group and took it public in 2006.  In 2007, officials at Booz Allen Hamilton Inc. were considering selling off the company’s lucrative government contracting business to concentrate on commercial consulting.  In March of 2008, Carlyle, the private equity group, agreed to buy part of Booz Allen Hamilton for $2.9 billion.  The leveraged buyout of Booz Allen Hamilton’s political consultancy business, was financed by Bank of America and Credit Suisse.

Since Nov. 1, there have been eight M&A deals with enterprise values over $1 billion.

~IS

For more information, please refer to the latest edition of IDD…

Dealmaker Appointees

Monday, November 30th, 2009

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UBS just appointed Allen Bouch and Scott Norb to join the bank as managing directors of the Financial Sponsors Group in San Francisco and New York.  They will report to Steven Smith, the global head of leveraged finance.  Bouch was formerly at Citigroup and Merrill Lynch.  Norby was most recently a managing director at North Sea Partners.  He was previously an MD at Goldman Sachs and a senior banker at Morgan Stanley.

RBC Capital Markets recently hired Dan Teper as a New York based managing director in its New York Real Estate Coverage Group.  He wil work with the team’s co-heads, John Case and Kevin Stahl.  He was most recently an MD at Bank of America Merrill Lynch.  Teper has completed over 50 M&A, PIPE, strategic equity, private equity, and jv transactions worth more than $50 billion.

Advent International appoint Harry Sachinis as an operating partner.  Mr. Sachinis will advise on investment opportunities in the media industry, particularly in publishing and information systems.  He was recently president of the business information group at McGraw Hill, which included Platts, McGraw Hill Aerospace and Defense, and McGraw Hill Construction.

Jefferies and Co. hired Thomas O’Leary away from JPMOrgan to head its international equity sales group.  O’Leary will be a MD responsible for the distribution of international equity products.  Before JPMorgan, O’Leary was MD & Co-Head of the global equities sales division at Bear Stearns.

~IS

For more information, please refer to the Nov. 13th edition of IDD…

Houlihan Lokey Starts Capital Markets Franchise

Monday, November 30th, 2009

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Former Drexel deal maker Jess Ravich has started a capital markets franchise for restructuring powerhouse, Houlihan Lokey.  Ravich, who graduated from Wharton and Harvard Law School was part of the DBL executive committee and ran high yield trading from 1988 to 1990.  He sat next to junk-bond legend Michael Milken.

Ravich will build the debt capital markets group at HL and will focus on private placements of both equity and debt, as well as new issuances of high yield securities, bank debt and investment grade debt.  As head, Ravich is also working on building syndication relationships.

~IS

For more information, please visit HL’s website…

For more information, please refer to the NOv. 13th edition of IDD…

New LBO Money: Where is it Coming From?

Monday, November 30th, 2009

Amalgamated-Bank

Amalgamated Bank, located in Manhattan’s once busy garment district on 7th Ave is now taking the role of financing the buyouts of small and midmarket companies that giants such as BofA-Merrill, JPMorgan, and Wells Fargo used to underwrite for in the days of easy flowing capital.  As the larger banks lick their wounds from the credit crisis and clean up their balance sheets, smaller banks such as Amalgamated are taking the reigns.

CLOs, another popular financing source are also low on capital and refuse to lend to newer deals.  Churchill Financial was a specialty finance company that was rolled up into Amalgamated that was started to fill the void of CLOs in deal financing.  Amalgamated lends between $5 and $60 million to buyers of companies with enterprise values up to $150 million.  The firm aims to generate 8-10% risk adjusted returns for its investors, focusing on the healthcare, consumer, distribution, and education industries.

The need for similar firms has arisen after large lenders to mid market buyout shops such as CIT Group stopped lending.  CIT historically lent tens of billions to mid-sized businesses, including billions to private equity portfolio companies.  For example, it financed Castle Harlan’s $250 acquisition of Anchor Drilling Fluids Inc. in mid 2008 with $120 milion in senior bank debt, including a $20 million revolver.  CIT has not been arranging new debt since July of 2009, when it experienced a sudden cash crunch and began its restructuring process.  The company filed for court protection on Nov. 1 with the goal of completing the workout in 30-40 days (please refer to piece on prepackaged bankruptcies).

Allied Capital, another large lender is no longer in business, along with specialty finance company Ares Capital Corp. and GE Capital.  Although GE is still doing some business, it has slowed down underwriting dramatically due to its large commercial real estate portfolio.  Other historical players that have slowed down include CapitalSource Finance LLC, and Madison Capital Funding.

In their place, banks like PNC Financial Services Group Inc, out of Pittsburgh have entered the market.  PNC Equity focuses on companies valued at $25 million ot $150 million.  PNC Financial Services Group has been successful in this market and argues that there are few $5 billion commercial banks that have the attributes necessary to run a successful leverage finance franchise.  Other firms new to the industry include Susquehanna Bank, Fifth Third Bancorp., and TriState Capital Bank.  Private equity firms themselves have entered the industry, such as MidOcean Partners and Genstar Capital (which launched MidCap Financial LLC in Oct. 2008 to finance healthcare companies with TEV between $10 and $200mm).  MidCap is now owned by Moelis & Co., an investment banking and private equity firm based NY.  For regional banks, cash flow lending isvery profitable, as the Fed Funds rate hovers between 0 and 25 bps.

In terms of pricing, middle market senior loans command about 500 to 600 bps above LIBOR, and can lend between 2.5 and 3.0x cash flow in this type of environment.  Issuance for leveraged loans, according to Fitch ratings, is down 40% for the first 9 months of 2009.  Business will be booming as experts estimate that there will be about $470 billion in middle market loans coming due in 2014 that need to be refinanced.

~IS

For more information, please refer to the Nov. 13th edition of Investment Dealers’ Digest.

HP to Buy 3Com for $2.7 Billion

Monday, November 30th, 2009

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According to sources, HP has worked out an agreement with 3Com to purchase the company for $2.7 billion in cash.  This deal should be short and sweet, in that financing considerations will not be a problem. 

3Com is based in Marlborough, MA, not too far from LA, LLC headquarters.  It is a manufacturer of Ethernet switching products with a very strong business presence in China.  This will help HP expand on two fronts: (1) expanding its product line and (2) expanding into East Asia.  3Com’s subsidiary, TippingPoint, which it acquired for $400 million in 2005, also provides the opportunity for HP to break into the network security products industry.

The current agreement calls for 3Com shareholders to receive $7.90 for each share of common stock that they hold at the close of the merger.  The deal is expected to close in the first half of 2010.

~IS

For more information, please refer to the latest issue of MHT.

Importance of Interdiscipinary Degree for Career Success – Gloria Larson

Monday, November 30th, 2009

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According to Glora Larson, the president of Bentley University, despite the recession, demand for students with degrees is much higher than demand for unskilled labor.  Massachusetts and New York state companies are looking for students that can meet time constraints and accomplish complex tasks.

As the speed of business increases, spurred by technology, customers, suppliers, and coworkers expect people to be instantly responsive.  Digital media and devices such as the Blackberry and iPhone have made this exceedingly important.  The idea of space has also collapsed as business is being transacted globally, 24/7.  An example would be Leverage Academy, LLC, where individuals in India, Russia, UAE, Saudi Arabia, and Lebanon are working around the clock to deliver a premium service to students and young professionals.

Bentley repeatedly hears from employers that they need employees who can hit the ground running and understand technology.  Students should focus on taking interdisciplinary classes combining arts and sciences with business.  It is important to take both liberal arts and technology focused classes to develop excellent business and technical skills.  Effective communication, conducting primary and secondary resarch, building financial models, evaluating the impact of business decisions, and being able to solve real problems are skills that businesses are looking for from eager graduates.

~IS

For more information, please view the latest copy of MHT…

Largest IP Law Firms

Monday, November 30th, 2009

Goodwin_Procter_logoRanked by # of Prominent New England IP Lawyers

1. Goodwin Proctor, 89

2. Fish & Richardson PC, 70

3. WilmerHale, 66

4. Wolf Greenfield, 60

5. Foley Hoag LLP, 51

6. Edwards Angell Palmer & Dodge LLP, 50

7. Nutter McClennen & Fish LLP, 50

8. Ropes & Gray LLC, 45

9. Hamilton Brook Smith & Reynolds PC, 39

10. Mintz Levin Cohn Ferris Golvsky & Popeo PC, 39

The number of prominent IP lawyers in New England has plummeted due to the recession.  Earlier, law firms assumed IP holders would want patents and would pay for them no matter how rough things got.  Due to the lack of financing for startups, this is no longer the case.  Students studying IP law who currently have PhD’s have the easiest time finding work.  Summer associate offers have plummeted.

~IS

For more information, please see latest MHT release or contact blynch@masshightech.com.

Venture Capital Startup: SQUEELR

Monday, November 30th, 2009

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On a quiet day in 2009, Matt Mankins of Boston began his work on two Internet starups, while running a bookstore…this is the kind of motivation and drive we promote at LA, LLC.  The latest startup was called SQUEELR, an anonymous microblogging platform written for the iPhone.  Mankins got the idea after working for the MIT Media lab and watching protesters in Iran sidestep censorship using Twitter.  Microblogging began a tool for Mankins to promote anonymous whistleblowing.  Markets for this tool include Iran and China, where censorship is still very common.

SQUEELR is based in Cambridge, MA., 20 minutes from LA, LLC headquarters in Boston.  Originally, the founder chose to charge 99 cents for 5 posts and $5 for 20, in order to keep away spam.  The way the technology works is that posts, or Squeels are tagged by time of post and by location.  Matt expects future squeels to use location based technology more heavily.  This way, viewers will be able to see squeels by the location they are in, or could have emergency squeels streamed to their phones.  The SQUEELR platform is currently integrated with the iPhone camera, so that pictures can be taken and immediately streamed.

Matt’s bookstore, Lorem Ipsum Books, unfortunately is not doing so well.  Sales have plummeted since the recession, giving Matt even more drive to focus on the startups.  Kudos to this young entrepreneur!  I hope he gets funding….

~IS

For more information, please check out the latest MHT release…

Hershey vs. Kraft

Friday, November 20th, 2009

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Chocolate makers Hershey Co. and Ferrero SpA are considering a joint bid for Cadbury Plc.  This bid presents a counter offer to Kraft’s final and previous bid of $16.7 billion as of November 9, 2009.  Analysts say that the joint bid might pose a viable rival against Kraft.  However, Cadbury has yet to hear anything from Ferrero and it doesn’t seem as if either Hershey or Ferrero are in any financial position to make a bid on the same level of Kraft, which rakes in about $42 billion a year in revenue.

The potential merger of these companies will create an international consumable goods powerhouse, using Hershey’s dominant position in the US and Cadbury’s role internationally.  Utilizing Cadbury’s existing distribution channels in markets such as India and Latin America could help grow Hershey sales as the firm has recently experienced a dip in consumption as shipment volumes decreases.

However, financing may be difficult to secure, as banks are still struggling to clean up their balance sheets.  Earlier this week, the Royal Bank of Scotland came under fire from trade unions in the UK for providing a loan facility to help finance the Kraft bid.

Comments:

Hershey currently has about $1.5 billion in long term debt and will have between $300 and $400mm in yearly free cash flow to pay down acquisition debt in this scenario, whereas Kraft has about $18.6 billion of long term debt and almost $3 billion in yearly cash flow.  Both Hershey and Kraft will have difficult raising acquisition debt given their debt to free cash flow levels.  This also prevents Kraft from offering an all cash deal.  Similarly, purchasing all of Cadbury would make Hershey a highly leveraged company, counter to its traditional and conservative business model.

All deals are preliminary and financial specifics are not final.

~Catherine B.

Please see the Wall Street Journal for more information…