Posts Tagged ‘Billion’

Tepper Nabs BofA’s Star Banker, Kaplan!

Wednesday, March 2nd, 2011

March 2, 2011: Tepper, the legendary founder of Appaloosa, the man who bought BAC at $3.00 and made $4 billion last year just outdid himself. One of Tepper’s biggest positions is Bank of America, and he just hired their head of mergers & acquisitions, Jeff Kaplan (we can only hope that their is no insider information exchanged, so that Tepper can stay in business). I lost some faith in the HF industry when Shumway and Level Global closed over the past two weeks. BAC has its hands tied, as the firm’s only bidder in the depths of the recession now seems to be its enemy…nice knowing ya Mr. Kaplan. The Bernanke put has made Tepper exceedingly jolly and audacious, as one can see clearly in the photograph above.

Bank of America Corp., the biggest U.S. lender by assets, said Steven Baronoff will assume Jeff Kaplan’s duties leading mergers and acquisitions.

Kaplan is leaving to join hedge fund Appaloosa Management LP, the Charlotte, North Carolina-based bank said today in a memo obtained by Bloomberg. Baronoff, chairman of global M&A, has advised on more than $1 trillion of transactions, including Procter & Gamble Co.’s purchase of Gillette, according to the memo from Thomas Montag, president of global banking and markets, and Michael Rubinoff and Purna Saggurti, co-heads of global investment banking.

Baronoff “will continue to serve as our most senior adviser to deal teams and clients globally,” according to the memo. “We thank Jeff for his dedication and leadership and look forward to working with him in the future.”

Kaplan joins Appaloosa, a Bank of America client, as chief operating officer, according to the memo. As M&A chief, he worked on deals including advising Marvel Entertainment Inc., led by Isaac Perlmutter, on its $4 billion sale to Walt Disney Co. in 2009.

John Yiannacopoulos, a Bank of America spokesman, confirmed the contents of the memo. The change was reported earlier by the Wall Street Journal.

– With assistance from Zachary Mider in New York. Editors: Dan Reichl, David Scheer

To contact the reporters on this story: Hugh Son in New York at; Dakin Campbell in San Francisco at

KKR Tries to Fool Investors with Toys R’ Us IPO

Wednesday, March 2nd, 2011

Toys R Us was an Opco-Propco deal done by KKR, Bain, and Vornado in 2005 for $6.5+ billion.  The company was one of the largest owners of real estate in the United States, other than McDonalds.  Since the toy business was not performing well and Babies R Us could not yet produce enough EBITDA to drive the company’s public valuation, these three players found an opportunity to take advantage of its real estate holdings (good call, right?).  Unfortunately, the company now has $5.5 billion in debt on its balance sheet and only has 2.3% growth in sales, a $35mm loss in earnings, down from $95mm in profit last year, and a 25% increase in expenses year over year (SA).  Cash used in operations also increased from $800mm to $1.2 billion over that time period.  Sounds like a great time to IPO, right?  Well, the sponsors in this deal seem to think so.  With equity markets topping, they are trying their hardest to take advantage of foolish retail investors.  Invest at your own risk:

“(Reuters) – Toys R Us Inc TOY.UL is looking to raise around $800 million in an initial public offering in April, though a final decision has not been reached, the New York Post said on Saturday.

The New Jersey-based retailer, which operates stores under its namesake brand and the Babies R Us and FAO Schwarz labels, had put off plans for an IPO in 2010.

“Toys R Us took more market share from competitors last year than they have in the past 20 years,” said one source the Post described as close to the company. “But I don’t think they were satisfied with how they did on the profit level.”

Toys R Us spokeswoman Kathleen Waugh said the company could not comment on the matter.

For December 2010, Toys R Us reported a 5.4 percent total sales rise at its U.S. unit as it lured holiday shoppers away from No. 1 toy retailer Wal-Mart with more temporary stores and exclusive toys. But same-store sales fell 5 percent at its international segment.

Overall, a tough 2010 holiday season had margins hit across the toy industry by bargain-seeking, recession-hit consumers.

So the economic environment has stoked continued debate between management and owners at Toys R Us about whether this is the best time to re-launch an IPO, according to a source briefed on the situation, the Post reported.

Toys R Us was taken private in 2005 by Kohlberg Kravis Roberts KKR.AS, Bain Capital and Vornado Realty Trust in a $6.6 billion deal.

In May 2010, the company filed to raise as much as $800 million in an IPO. But that was not launched.

Toys R Us’s net loss widened to $93 million in the third quarter ended on October 30, 2010, from $67 million a year earlier. While sales were up 1.9 percent in the period, total operating expenses rose about 9.4 percent.

Last fall, the retailer opened 600 smaller “pop-up” stores that added to the more than 850 larger year-round stores it operates in the United States, the Post said.”

Zynga, Facebook, Groupon Colossal Valuations!

Tuesday, March 1st, 2011

Week after week, investors have seen multi-billion deals for online businesses with suspect business models. In January, Goldman invested in Facebook at a $50 billion valuation. Zynga’s reported $7-$10 billion valuation surpassed that of software giant EA Games. With its recent I.P.O. announced, Groupon even values itself at $15 billion. Some question the reason behind such high valuations…the answer is immense revenue growth. The true question is whether this revenue growth is sustainable:

“Why are venture investors placing colossal valuations on consumer Internet companies like Facebook, Groupon and Zynga? Their revenue growth is simply off the charts.

The Wall Street Journal reported Friday that Groupon’s revenue in 2010 rose more than 22 times to $760 million in its second full year since its daily deals site launched, up from $33 million in 2009. Zynga, the maker of online social games like FarmVille, scored revenue of $850 million in its third full year in 2010, more than triple the year before, and Facebook’s revenue rocketed to as high as $2 billion in 2010, its sixth full year.

Their ridiculous revenue growth rates actually rival those of the four largest Internet companies–Google, eBay, Yahoo and–early on. Taking a look at the line graph below, Groupon and Zynga’s charted growth is steeper than San Francisco’s famous Filbert Street. Over the longer haul, Facebook’s sales fall short of the two Internet kings, Google and Amazon, but top those of eBay and Yahoo, in their first six years.

Granted, Amazon, Google, eBay and Yahoo grew up during the dot-com boom a decade ago when online advertising and e-commerce were in their infancy–so their growth is arguably more impressive–but the chart does highlight just how fast this latest crop of consumer Internet companies has come along, and why venture firms have been fighting to own a piece.

Not only is revenue exploding, but profits are, too. Through the first nine months of 2010, Facebook made $355 million, meaning it likely scored a profit well over $400 million, if not $500 million, for the year. Google’s net income in 2003, its sixth year, was $399 million. Zynga’s profit was also about $400 million in 2010, only its third full year.

Compare all of this with the software industry. As we analyzed previously, less than one-third of the nation’s top software companies reached $50 million in annual sales in six years or less–and the fastest to $50 million, Novell, took three years. Microsoft crossed the $50 million barrier in eight years; Oracle, 10 years.

A big question for these young Internet companies – is the growth sustainable?” WSJ Blog

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Paulson Proves He is Not “One Hit Wonder,” Pulls in $1.25 billion for 2010

Sunday, January 2nd, 2011


After being bashed by many hedge fund managers as a “one hit wonder,” Paulson closed well in 2010, putting another strong year under his belt.  The Paulson Advantage Fund was up 14% at the end of 2010 (after being down more than 10% earlier).  His largest stakes were in Hartford Financial Services, MGM, and Boston Scientific.  The Paulson Gold Fund also performed well, given the runup in physical commodities this year.  After outperforming many of his competitors, it is rumored that the hedge fund manager will earn $1.25 billion for himself this year.  It is also interesting to see the divergence in HF manager earnings in the U.S. versus the U.K…

According to Daily News UK, “multi-billionaire US hedge fund manager John Paulson, who pulled off one of the biggest coups in Wall Street history when he made £2.3bn by betting against the sub-prime housing market, is showing the Midas touch again writes Edward Helmore from New York. 

Initial reports suggest his firm, Paulson & Co, has made returns of nearly treble the industry average of 7 per cent in 2010, giving him a personal gain estimated at more than £800mm ($1.25 billion). 

That would eclipse even the biggest earners on the UK hedge fund scene, based in London’s swish Mayfair district.

Colm O’Shea of fund group Comac is reported to have made nearly £10mm last year as did Jonathan Ruffer, of the eponymous investment company. 

Crispin Odey, founder of Odey Asset Management took home £36.4mm. ”

According to Dealbook, “two years after Mr. Paulson pulled off one of the greatest trades in Wall Street history, with a winning bet against the overheated mortgage market, he has managed to salvage a poor year for his giant hedge fund with a remarkable come-from-behind showing.

Defying those who said his subprime success was an anomaly, Mr. Paulson appears to have scored big on bets he made on companies that would benefit from an economic rebound.

In less than three months, his flagship fund, the Paulson Advantage Fund, has turned a double-digit loss into a double-digit gain. At mid-December, the fund, which was worth $9 billion at the start of the year, was up about 14 percent, according to one investor in the fund who provided confidential figures on the condition of anonymity.

It is a remarkable turnabout for Mr. Paulson, whose winning gamble against the housing market plucked him from obscurity and transformed him into one of the most celebrated money managers in the business.

What precisely propelled the sharp rebound in Mr. Paulson’s hedge fund is unclear. A spokesman for Paulson & Company declined to comment, and regulatory filings of significant changes made to Mr. Paulson’s funds typically lag behind by several weeks.

But it is clear that several of Mr. Paulson’s largest stakes — in Hartford Financial Services, MGM Resorts and Boston Scientific — went on a tear in the final quarter of the year, with gains of 16 percent, 30 percent and 26 percent, respectively.

“Several of his general investment themes this year came to fruition,” the investor in the Paulson Advantage Fund said.

Mr. Paulson stands out in what may go down as a lukewarm year for many hedge fund managers. The average return for funds through the end of November was 7.1 percent after fees, according to a composite index tracked by Hedge Fund Research of Chicago. Investors would have done better buying a low-cost mutual fund that tracks the Standard & Poor’s 500-stock index, which rose 7.8 percent during that period.

With volatile markets creating uncertainty for hedge fund managers this year, some investors are surprised that these funds did even that well. But they expect the funds to continue to attract money from investors, particularly state pension funds seeking higher returns to offset their budget shortfalls.

“When investors look back at the year they’re going to be pretty happy,” said David T. Shukis, a managing director of hedge fund research and consulting at Cambridge Associates, which oversees $26 billion in hedge fund assets for clients.

But the lackluster performance has other people wondering: are hedge funds worthwhile? The high fees and muted returns — and a long-running federal investigation into insider trading in the industry — has cast a cloud over a business that long defined Wall Street wealth.

“A client told me the other day that paying these ridiculous fees for single-digit returns, then worrying about these investigations — it’s just not worth it,” said Bradley H. Alford, chief investment officer at Alpha Capital Management, which invests in hedge funds. “A lot of these things you can sweep under the rug when there are double-digit returns, but in this environment it’s tougher.”

This year, bets by hedge fund managers were whipsawed by the stock market “flash crash” in May; the European debt crisis; frustration with the Obama administration over what many in the business viewed as anti-Wall Street rhetoric; and the Federal Reserve’s unusual strategy of buying bonds in the open market to hold down interest rates.

“It was an interesting year where you had to have a couple of gut checks,” said David Tepper, founder of Appaloosa Management, whose Palomino fund, which invests largely in distressed debt, was up nearly 21 percent at the end of October, according to data from HSBC Private Bank.

“If you had those gut checks, looked around and made the right decisions, you could make some money,” Mr. Tepper added.

There are still many hurdles for the industry to clear, including the insider trading investigation, lingering difficulty in raising money, and the liquidity demands from investors still fuming over lockups in 2008 that denied them access to their cash.

Some hedge fund notables will probably remember 2010 as a year they would like to write off. For instance, Harbinger Capital, run by Philip A. Falcone, was down 13.8 percent at the end of November, according to HSBC’s data.

But the Third Point Offshore fund, run by Dan Loeb, was up 25 percent for the year through November after it made successful bets on one of Europe’s largest media operators, ProSieben, and Anadarko Petroleum, according to a report obtained from an investor in the fund.

Other big names also fared well. SAC Capital Advisors, run by Steven A. Cohen, was up about 13 percent in its flagship fund, one of his investors said.

A handful of other usual suspects turned out solid performances this year too, according to investors in their funds: David Einhorn notched a 10.5 percent return at his Greenlight Capital hedge fund through November, raising the fund’s total to $6.8 billion.

And after two consecutive years of losses, James Simons, the seer of quantitative hedge funds, was up 17 percent in his two public Renaissance funds, which now collectively manage $7 billion.

The figures reflect performance after fees through November, and do not take into account the strong market rally in the final month of the year, some investors noted.

For many, being in the right sectors of the market — distressed debt and emerging markets, for instance — paid off handsomely.

“If you look at how some of the distressed managers performed, you’re seeing some really good returns among a number of funds,” said David Bailin, global head of managed investments at Citi Private Bank.

Bets on distressed debt produced a return of more than 19 percent as of the end of October for the Monarch Debt Recovery Fund, overseen by a pair of former Lazard managers. Similarly, Pershing Square, a fund run by William A. Ackman, was up 27 percent after fees through the end of November.

Mr. Ackman’s big win was a bet on the debt of General Growth Properties, a developer that emerged from bankruptcy last month.

It was a bumpy year for Mr. Paulson who, besides making a huge bet on gold — which rose 30 percent — also took large stakes in several companies he believed would benefit from a sharp recovery in the economy, including banking and financial services companies.

But as the economic recovery sputtered along, Mr. Paulson’s portfolio sank, prompting some critics to claim that his funds had become too big to manage. Some of Mr. Paulson’s investors asked for their money back around midyear.

At one point this summer, in fact, other hedge fund managers were selling short stocks Mr. Paulson held in his funds, betting that redemption requests would flood in and that he would be forced to sell down some of his big positions, according to a hedge fund trader at another firm who declined to be named for fear of damaging business relationships. He said investors were making similar bets against stocks held by Mr. Falcone’s Harbinger fund.

As recently as the end of September, Mr. Paulson’s flagship Advantage Plus fund was down 11 percent. As of last week, the fund was up more than 14 percent for the year. (His clients are mostly institutions that invest a minimum of $10 million in the fund.)

Patience paid off for Mr. Paulson as many bets he made late last year and early this year finally shot higher in the last quarter.

This year, Mr. Paulson bought 43 million shares of the gambling company MGM, whose shares have soared more than 30 percent since the end of September. A bet of 40 million shares in the cable giant Comcast has risen 22 percent this quarter.

Shares of Boston Scientific, of which Mr. Paulson owns 80 million shares, have skyrocketed 26 percent, and his 44 million shares of Hartford Financial Services climbed 16 percent in the quarter.

One of Mr. Paulson’s newer positions, a stake in Anadarko Petroleum, moved up 20 percent in the quarter.

With the last-minute rally, Mr. Paulson saved himself from being the headliner among flat funds this year. Most were not so fortunate, with many hedging against their stakes late in the year, expecting that stocks would end the year down. That move, some say, probably limited their gains.

“Psychology is such a fragile thing,” said William C. Crerend, the chief executive of EACM Advisors, which oversees a $3.6 billion fund for Bank of New York Mellon.”

Morgan Stanley Sovereign Credit Outlook: Greece Fears Continue to Drive Bond Yields Higher

Wednesday, May 5th, 2010

What should have been a 1 month affair has now become a 6 month ordeal for the world credit markets.  As of today, May 5th, the European equity markets are in fact negative for the year and the world MSCI index has given up its entire gain for 2010.  It is ironic how a country that only makes up 2.3% of Europe’s GDP could cause the Euro to fall from 1.40 to 1.28 in a matter of weeks.  Euro shorts have multiplied despite efforts by banks such as Citi to put targets on the currency at 1.35+.  Commodity markets have also been roiled, with the VIX jumping 15% yesterday as well.  Worries that Portugal would be downgraded again have multiplied investor concerns.  Investors around the world wait in fear as policy measures will be discussed by Germany and other European nations on May 7th.  Riots in Greece have killed three so far in retaliation to austerity measures linked to the proposed bailout by the European Union and the IMF.

Please see Morgan Stanley’s outlook below.

Contagion Call Slides

According to Ms. Petrakis of Bloomberg, “May 6 (Bloomberg) — Greece’s Parliament will debate today the austerity measures demanded as a condition of an internationally led bailout as the nation mourns the three victims of Athens protests against the plan.

Prime Minister George Papandreou, whose Pasok party holds a 10-seat majority in the legislature, will tell lawmakers today that the wage and pension cuts are necessary to secure the 110 billion-euro ($141 billion) package and avoid default.

“No one was happy with the new measures,” Papandreou told parliament yesterday after the killings, which he called a “brutal murder.”

“We have compassion for every family who has seen their plans for the future slip seemingly further away,” he said. “But we took these measures to secure a future which might not exist otherwise.”

Greece agreed to the austerity package on May 2, pledging 30 billion euros in budget cuts in the next three years to tame the euro-region’s second-biggest deficit. Papandreou was forced to seek the aid after soaring borrowing costs left Greece cut off from markets. The measures have fueled months of protests that culminated in yesterday’s general strike. Three bank workers were killed when a small group of protesters threw fire- bombs at a bank.

Papandreou is pushing to get parliamentary approval before a European Union summit in Brussels tomorrow on the plan that will help ready the funds for distribution. The country faces 8.5 billion euros in bond redemptions on May 19.

Bonds Drop

Yesterday’s violence deepened losses in Greek debt. The yield premium investors demand to buy Greek 10-year bonds over comparable German debt, reached 719 basis points. The country’s 2-year notes yield almost 16 percent, 26 times more than Germany.

“I want to believe it is easy to overestimate this problem,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc, in a conference call yester. “One should not be overly concerned so far.”

Europe is scrambling to activate the aid package to try to stop the fallout from spreading to other high-deficit countries such as Spain and Portugal. Yield premiums on those countries’ debt have also jumped and the euro has slid more than 10 percent this year, to the lowest in more than a year.

Chancellor Angela Merkel appealed to the German Parliament yesterday to approve the nation’s share of the loans, saying the stability of the euro was at stake. Germany will pay 22.4 billion euros, almost 30 percent, of the euro-region funds offered to Greece over three years, and public opposition to the bailout is running high. German lawmakers will vote tomorrow on the aid.

Anarchists’ Blaze

The debate in the Greek parliament will be overshadowed by the violence of yesterday’s strike that turned deadly when protesters, who police described as self-styled anarchists, set fire to a branch of Marfin Egnatia Bank SA, killing two women and a man trapped inside the building.

Athens police swept through the anarchist stronghold of Exarhia yesterday, arresting 25, and detaining 70, according to a police statement. A total of 29 officers were injured in yesterday’s protests, the statement said.

Opposition leaders warned Papandreou not to try to exploit the deaths to push through the austerity measures.

“The tragic death of three people is absolutely condemned,” Aleka Papariga, the head of the Communist Party of Greece, said yesterday on state-run NET TV. “But it can’t be used by the government as an alibi for the people to accept these anti-democratic measures — measures that will come every three, six, nine months.”

More Strikes

The violence may not be enough to end the protests. Local government workers are continuing their strike for another 24 hours, with garbage collectors due to begin a walkout tomorrow morning, according to the state-run Athens News Agency. Stavros Koukos, the president of the federation of bank unions OTOE, told Alter TV that a 24-hour strike would be held tomorrow after the deaths of the three bank employees.

The bill on the measures will debated all day with a vote expected late in the day.

Elected in October on pledges to raise wages for public workers and step up stimulus spending, Papandreou revised up the 2009 budget deficit to more than 12 percent of gross domestic product, four times the EU limit, and twice the previous government’s estimate. EU officials revised the deficit further on April 22, to 13.6 percent of GDP.

Papandreou has said the austerity measures are needed to lower the shortfall to within the EU limit of 3 percent of GDP in 2014. Still, they will deepen a yearlong recession and lead to a 4 percent economic contraction this year and boost unemployment already at a six-year high of 11.6 percent.

“The greatest challenge of the days is maintaining social cohesion and social peace,” Greek President Karolos Papoulias said in an e-mailed statement. “Our country has reached the edge of the abyss. It is the responsibility of all of us that we not step forward into it.”

Dai-ichi Life Insurance Raises $11 Billion in Largest International IPO!

Tuesday, March 23rd, 2010

The equity markets having been roaring back in March, and equity underwriting has followed.  The largest global IPO was filed this week as Daiichi Mutual Fund Insurance filed an $11 billion IPO.  The last IPO of this size was the Visa IPO, which was $19.7 billion in March of 2008.  Daiichi stock was issued at a discount at 140,000 yen, instead of 155,000, ensuring a steady upward trend.  The stock is more expensive than T&D holdings, but less expensive than Soniy Financial Holdings.  Daiichi will use these proceeds to make acquisitions abroad.

According to Mr. Yamakazi of Bloomberg, “Dai-ichi Mutual Life Insurance Co. will raise 1.01 trillion yen ($11 billion) in the world’s biggest initial public offering in two years after pricing the IPO at the middle of its forecast range.

Japan’s second-largest life insurer priced 7.2 million shares in the demutualization at 140,000 yen each, according to a statement posted on the company’s Web site yesterday.

The offering is the largest since San Francisco-based Visa Inc. sold $19.7 billion in March 2008 and comes after money raised from IPOs in Japan fell to the lowest level in at least two decades last year. The price may ensure that Dai-ichi gains when it’s listed on the Tokyo Stock Exchange April 1, according to Ichiyoshi Investment Management Co.’s Mitsushige Akino.

“Most Japanese investors probably expected it to be 155,000 yen so it’s quite cheap,” said Akino, who oversees $450 million as chief investment officer of Ichiyoshi in Tokyo. “It’s the best scenario, where the price will rise bit by bit, rather than a short-lived popularity.”

The IPO by Dai-ichi, which will change its name to Dai-ichi Life Insurance Co., is also the biggest in Japan since Tokyo- based NTT DoCoMo Inc. went public in 1998, Bloomberg data show.

Dai-ichi’s market capitalization will be equal to 0.56 times embedded value, or the sum of its net assets and the current value of future profits from existing policies. That’s more expensive than T&D Holdings Inc., Japan’s largest publicly listed life insurer, and cheaper than Sony Financial Holdings Inc., the insurance and banking unit of Tokyo-based Sony Corp., data compiled by Bloomberg show.


“The pricing seems reasonable,” said Yoshihiro Ito, a senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $8 billion. “The question is how well it will do the on the first day of trading, given the prospect for life insurers in Japan.”

Dai-ichi is switching from mutual to stock-based ownership to expand fundraising options for acquisitions and partnerships as it grapples with an aging society and the slowest-growing economy in Asia.

Nomura Holdings Inc. and Mizuho Financial Group Inc. in Tokyo and Charlotte, North Carolina-based Bank of America Corp.’s Merrill Lynch unit were hired to manage the offering. New York-based Goldman Sachs Group Inc. was a global arranger.


Dai-ichi will have 10 million shares outstanding, 5 million of which were sold in Japan and 2.1 million overseas, according to the statement. The Tokyo-based company will issue 100,000 shares in an overallotment and another 2.9 million will be distributed to policyholders.

T&D Holdings of Tokyo has a market capitalization of 684.9 billion yen, or 0.47 times its embedded value, based on a sale document distributed by banks involved with the Dai-ichi offering. Tokyo-based Sony Financial has a ratio of 0.84.

Prudential Plc of London, the U.K.’s biggest insurer, paid 1.69 times the embedded value of New York-based American International Group Inc.’s Asian life insurance unit in its takeover announced this month.

Japanese companies had raised $490 million yen in six IPOs so far this year, compared with 15 U.S. deals totalling almost $3 billion, data compiled by Bloomberg show.

The Dai-ichi deal will make this year the biggest for Japanese IPOs since 2006, when companies raised 2.14 trillion yen, Bloomberg data show. Sales sank to 56 billion yen last year as the collapse of New York-based Lehman Brothers Holdings Inc. froze credit markets and the Topix index posted the worst performance in the world’s 20 biggest equity markets.


Dai-ichi, which had 8.2 million policyholders as of March 2009, will use proceeds of the sale to convert to stock-based ownership from policy-based mutual ownership. The switch will expand fundraising options for acquisitions and partnerships as the population declines, the company told policyholders in June.

Japan’s life insurers are struggling for new customers after the first global recession since World War II. The nation’s economy will grow less than 2 percent annually through at least 2012 after contracting 1.2 percent in 2008 and 5.2 percent last year, estimates compiled by Bloomberg show.

That compares with growth of 9.6 percent projected for China this year, while gross domestic product in the U.S. will rise at least 3 percent annually from 2010 to 2012, the estimates show.

Almost 23 percent of Japan’s 126 million people will be older than 65 this year, compared with 13 percent in the U.S., data compiled by Bloomberg show. Japan is the world’s oldest society, with a median age of 44, according to the United Nations’ World Population Ageing 2009 report.”

Blackstone Buying Failed Banks with Aid of Former Bank President Oates

Thursday, March 18th, 2010

While TPG recently returned more than $2 billion in commitments to purchase failed banks, Blackstone has found a former bank President who is guiding them to buy financial institutions in the United States, a very risky, but potentially lucrative endeavor.

According to Ms. Thornton and Mr. Keehner, “Blackstone Group LP, the world’s largest private-equity firm, is in preliminary talks to raise $1 billion to buy failed banks, according to a person with knowledge of the discussions.

The New York-based firm is working with R. Brad Oates, a former president of Bluebonnet Savings Bank, to raise the funds for a blind pool, said the person, asking not to be named because the information is private. Blind pool investors usually back a single management team without having a say in what company it will acquire.

Peter Rose, a spokesman for Blackstone, declined to comment.

Buyout firms are seeking bargains as lenders fail at the fastest pace since 1992. Regulators have seized at least 160 lenders since Jan. 1, 2009, and the FDIC’s confidential list of “problem” banks stands at 702 with $402.8 billion in assets, according to a Feb. 23 report.

Related Cos. founder Stephen Ross and partners Jeff Blau and Bruce Beal Jr. raised about $1.1 billion last month to help their SJB National Bank acquire a seized U.S. lender. Among their investors are New York hedge-fund firm Elliott Management Corp. and David Einhorn’s Greenlight Capital Inc., a person with knowledge of the matter said last month.

Regulators have been debating how much leeway to give private buyers of failed banks because of concern that they may take too much risk with federally insured deposits. Some investment groups have recruited former bankers as officers to reassure regulators.

William Isaac, the Federal Deposit Insurance Corp.’s former chairman, is also leading a group of ex-regulators and bankers raising $1 billion to buy failed lenders in the U.S. Southeast, a people briefed on the plan said last month.

Last May, Blackstone partnered with WL Ross & Co. and Carlyle Group to buy BankUnited Financial Corp. The group agreed to inject $900 million and named John Kanas, the former head of North Fork Bancorp, to run the Florida lender after it collapsed.”

Carlyle Group Bids On Arinc, US Aviation & Defense Deal at $1 Billion

Friday, March 12th, 2010

Another private equity deal has been announced this week, as Carlyle Group was rumored to make a bid for an aviation and defense business in North America.

According to Mr. Mider and Mr. Kelly of Bloomberg, “Carlyle Group, the world’s second- largest private-equity firm, hired Goldman Sachs Group Inc. to seek buyers for its Arinc Inc. defense and aviation business, said people with knowledge of the matter.

Arinc may fetch about $1 billion and attract bids from other private-equity firms, said the people, who declined to be identified because the plan hasn’t been announced. The Annapolis, Maryland-based firm consults with the military and designs systems that help airline pilots communicate with the ground.

Private-equity firms, largely unable to buy companies or sell what they already own for more than two years, are beginning to make deals and reap profits from previous purchases. Carlyle and competitors Blackstone Group LP and KKR & Co. have distributed gains to their investors after pursuing sales and initial public offerings.

Spokesmen for Carlyle and Goldman declined to comment.

Carlyle, based in Washington, ranks behind New York-based Blackstone in size. Created in 1987 by William Conway, Daniel D’Aniello and David Rubenstein, the firm has $87.9 billion under management and runs 65 funds around the world.

Arinc, founded in 1929, helped develop systems used by aircraft to communicate with air-traffic controllers. Owned by six U.S. airlines including AMR Corp. and UAL Corp., it was sold to Carlyle for an undisclosed sum in October 2007.

The investment was made by Carlyle Partners IV LP, the firm’s fourth U.S. buyout fund, which was launched in 2005 and has $7.8 billion of equity commitments, according to Carlyle’s Web site. Carlyle Mezzanine Partners II, a $554 million fund, also is an investor.

Arinc had more than $1 billion of revenue last year and about 3,100 employees.

Rubenstein, 60, said in a Feb. 18 interview that an IPO market that’s been unfriendly to private-equity firms won’t prevent Carlyle and its rivals from exiting investments, as other buyout managers and companies remain willing buyers.”

Private Equity Firms Can’t Find Places to Invest $503 Billion

Thursday, March 11th, 2010

Surprisingly, buyout firms are having difficulty finding good companies to invest in because of regulations and the perceived risk still in the market.  There is approximately $503 billion in dry powder just waiting on the sidelines, waiting to be invested.  Berkshire Partners still does not know how to invest 40% of the $3 billion fund it raised in 2006.  TPG recently released investors of $2 billion in commitments.  Harvest Partners, a NY based middle market fund still has to invest 60% of its fund!
According to Ms. Thornton, Ms. Alesci, and Mr. Kelly of Bloomberg, ” Buyout funds sitting on half a trillion dollars committed by investors may need more than a decade to put the money to work if mergers and acquisitions continue at the current pace.

Firms led by Blackstone Group LP and KKR & Co. announced $87 billion in deals over the past 12 months, according to data compiled by Bloomberg. At that rate, it would take until the middle of 2021 to invest an estimated $503 billion in unspent money, assuming they borrow half the purchase price. Firms usually have three to six years to deploy commitments.

“Unless things really change, larger funds will be especially hard pressed to put their money to work,” said Steve Kaplan, a finance professor at the University of Chicago.

The record amount of capital, most of it raised during a three-year boom that ended with the financial crisis, coupled with fewer and smaller purchases, means firms may have to ask for more time or release investors from capital commitments if they can’t put the money to work. Boston-based Thomas H. Lee Partners has three years left to invest almost half of a $10 billion fund raised in 2006, and London-based Permira Advisers LLP has until the end of 2012 to put $4.9 billion of a $12.2 billion fund to work, according to researcher Preqin Ltd.

“Investors only give the fund a particular investment period, typically three to six years, to invest the capital,” said Michael Harrell, co-chair of Debevoise & Plimpton LLC’s private-equity funds group in New York. “If you don’t use it, you lose it.”

‘Dry Powder’

The funds that may eventually face the toughest time are the industry’s largest, raised in 2007 and 2008. TPG has $15.3 billion left of an $18.9 billion fund raised in 2008, according to a person with direct knowledge of the fund. A European fund raised by CVC Capital Partners Ltd. in the same year has $11.3 billion left of $14.2 billion, according to London-based Preqin.

TPG and CVC declined to comment.

Of the $503 billion in unused capital, $86 billion is from funds raised between 2004 and 2006, Preqin data show. Funds raised in 2007 and 2008 account for $310 billion in so-called dry powder.

Palladium Equity Partners LLC, a firm that makes equity investments of $15 million to $75 million in the U.S. Hispanic market, has until the end of the third quarter to deploy about half of $800 million raised in 2004, according to a person with knowledge of the firm’s investments who declined to be identified because the information is private.

Harvest, Palladium

New York-based Harvest Partners, which specializes in buyouts of middle-market companies, has yet to deploy 64 percent of $815 million it raised in 2006, according to the firm. The fund’s investment period ends in 2012.

“A lot of people are in this position,” said Robert Finkel, managing partner of a Chicago-based private-equity firm Prism Capital and author of “The Masters of Private Equity and Venture Capital.”

Spokesmen for THL, Permira, Harvest and Palladium declined to comment on their funds and how they plan to invest the capital.

By rushing to deploy billions of dollars, buyout firms are driving up price tags. Prices paid in leveraged buyouts last year, after the worst financial crisis in seven decades, were about 25 percent higher on average than in 2001 after the dot- com bubble, according to Standard & Poor’s Leveraged Commentary & Data.

Driving Up Prices

Prices in Europe are “almost as high as they’ve ever been,” Blackstone President Tony James said on a call with reporters Feb. 25. “When there’s something in the right range, it’s very competitive.”

Blackstone and KKR, the largest publicly traded private- equity firms, have told investors they see a pick-up in the pace of buyouts. Between the second quarter and the fourth quarter of last year, the value of deals doubled to $31.9 billion. Still, deals announced in the past three months, at $23.9 billion, remain below the $25.3 billion in the same period a year earlier, data compiled by Bloomberg show.

CCMP Capital Advisors LLC is among those that have returned to the buyout market. The New York-based firm on March 8 agreed to buy database marketing company Infogroup Inc. for about $463 million in cash. When the deal is completed, CCMP will have deployed half of its current fund and must allocate the remainder by 2012, when the investment period ends, according to the firm.

Returning to Market

“The market has just returned to a level where transactions can happen because they’re a fair reflection of the asset values,” CCMP Chief Executive Officer Stephen Murray said in an interview.

CCMP offered $8 a share for Infogroup, a discount of 2 percent compared with the previous closing price of $8.16. The price values the company at 9.2 times earnings before interest, tax, depreciation and amortization. The average for U.S. private-equity-led transactions in 2009 was 7.7 times Ebitda. Including a debt restructuring, the Infogroup deal is valued at $635 million, or 12.6 times Ebitda, according to Bloomberg calculations based on company data. Excluding restructuring and one-time charges, CCMP paid 5 times Ebitda for Infogroup.

Some funds say their investors are glad they have held on to their commitments during the buyout boom, when rising prices hurt returns. Boston-based Berkshire Partners LLC has not yet decided how to invest 40 percent of a $3.1 billion fund it raised in 2006. The investment period ends in 2013.

‘Bunch of Blanks’

“Our investors care most about making good investments, not the quantity. Our investors give us a lot of credit for not investing as much as many others did in 2006 and 2007,” said Kevin Callaghan, a managing director of Berkshire Partners. “You’d rather have dry powder than a bunch of blanks.”

New York-based Diamond Castle has $479 million, or 26 percent, of $1.82 billion it raised in 2005 that has not been deployed. The firm says it’s keeping commitments in reserve for portfolio companies’ needs.

“It is not unusual for private-equity firms to reserve a portion of the committed capital for follow-on investments,” Diamond Castle senior managing director Ari J. Benacerraf wrote in an e-mail.

New York-based JLL Partners has $200 million, or 13 percent, left of $1.5 billion raised in 2005 and an investment period that ends at the end of the year. Paul Levy, a founding partner, said the fund is looking at potential acquisitions and has reserved capital to invest in its existing portfolio companies.

Venture Capital’s Lesson

If funds “have a lot of money that’s not invested, they’ll ask for an extension,” Levy said in an interview.

The industry’s predicament has parallels with the venture capital industry in 2002, according to Josh Lerner, a professor of investment banking at Harvard Business School in Boston. By 2002, more than 20 venture capital firms had returned near or in excess of $1 billion, because acquisitions had slowed and shrunk in value compared with the peak of the Internet bubble when the money was raised.

“Like the venture capital firms in 2002, the pace of buyout firms’ deals has become slower and the size of their deals has become smaller,” said Lerner. “It’s a real issue for private-equity firms.”

Announced buyouts reached volumes of as much as $43 billion in 2007, when Goldman Sachs Group Inc., KKR & Co. and TPG banded together to buy the largest power utility in Texas, known at the time as TXU Corp. That’s 8.6 times the $5 billion that TPG and the CPP Investment Board agreed in November to pay for IMS Health Inc. in the largest buyout of the past 12 months.

Releasing Investors

The average leveraged buyout in the last three months has shrunk to $185 million from $646 million in 2007, according to Bloomberg data.

Fort Worth, Texas-based TPG has already released investors from $2.1 billion of commitments to a $4.6 billion fund raised in 2008 to invest in financial institutions. The buyout firm decided there were fewer opportunities to invest in financial institutions in part because of regulations, according to a person familiar with the firm.

Some older funds have also released investors from their commitments or asked for extensions of the life of their funds. New York-based buyout fund Vestar Capital Partners, with $7 billion of capital committed to its funds, cut commitments to a $2.48 billion fund raised in 1999 by 2 percent at the end of last year. The firm had kept 6 percent of the commitments for add-on investments or other purposes, according to Vestar spokeswoman Carol Makovich.

“If I were an investor and it’s been 11 years, I’d say ‘enough already,’” said University of Chicago’s Kaplan.

Venture Capital Firms Struggle Without Capital

Thursday, March 11th, 2010

Although strategic acquirers and PE firms have seen some respite this year, venture capital firms are still hurting.  They are struggling to raise cash after poor returns.  Last year, 125 venture funds raised 13.6 billion, down from $28.7 billion in 2008 and $40.8 billlion in 2007.  This makes sense, since the VC industry is driven by IPO exits.  Highland Capital was able to raise a $400 million fund last year, half of what it raised in 2006.

According to Mr. Tam of WSJ, “The technology bubble popped a decade ago, but the venture-capital industry that helped finance the boom stayed largely intact. Now venture-capital firms are going through their own brutal culling.

Venture firms are struggling to raise new cash, hampered by poor investment returns and a difficult economy. Last year, 125 venture funds in the U.S. collected $13.6 billion, down from 203 funds that raised $28.7 billion in 2008 and down from 217 funds that raised $40.8 billion in 2007, according to data tracker VentureSource.
The Next Big Thing

“There are a lot of firms that have dropped off,” says Rebecca Lynn, a principal at venture capital firm Morgenthaler Ventures in Menlo Park, Calif. “We’ll see a continued shakeout as a lot of firms that aren’t the top firms won’t be around.”

There were 794 active venture-capital firms in the U.S. at the end of 2009, meaning they have raised money in the last eight years, down from a peak of 1,023 in 2005, according to Thomson Reuters and the National Venture Capital Association.

Amid all the gloom, some start-ups are still managing to find backers. Pacific Biosciences Inc., which makes DNA sequencing instruments, has raised more than $260 million and tops a list of 50 venture-funded companies compiled by research firm VentureSource, a unit of Wall Street Journal owner News Corp. (See the complete list.)

Many venture firms—which put money into young companies with the aim of profiting later when those firms are sold or go public—profited handsomely in the boom years in the late 1990s and early 2000, when the industry fueled the dot-com bubble and spawned hits such as eBay Inc. and Yahoo Inc. Even when the boom went bust, venture firms kept going because their funds typically are set up as long-term, 10-year investment vehicles that don’t quickly close down like a hedge fund might.

Pacific Biosciences is working on a DNA sequencing process that it says will allow a person’s genome to be sequenced in under an hour for less than $100 making a future of personally tailored genetic medicine more feasible.

But in the past decade, many start-ups have flopped or have struggled to go public amid an unwelcoming market for inital public offerings. The tough environment has been exacerbated by the credit crunch, which makes it difficult for many start-ups to obtain bank lines of credit, say venture capitalists.

While failed start-ups aren’t new, some of the busts have been particularly big recently, with the investments selling their assets for just a tiny fraction of the amount they raised.

Take, for example, Copan Systems Inc. The data-storage company, based in Longmont, Colo., raised more than $107 million in venture capital over the past eight years, according to VentureSource. Despite all the cash, the start-up fizzled: Late last month, Copan’s assets were sold in a private foreclosure sale to Silicon Graphics International Corp. for $2 million.

“The company had some traction but it just required too much money to get there,” says Phil Siegel, a partner at venture-capital firm Austin Ventures, which invested in Copan. Silicon Graphics acknowledges that it got a good deal.
Journal Community

The market has been lukewarm toward venture-backed initial public offerings since the dot-com bust in 2000 and 2001. And while some venture capitalists have profited in recent years by selling start-ups for big sums—think of Google Inc.’s $1.7 billion purchase of video site YouTube in 2006—the returns from such deals typically aren’t as lucrative as those generated by IPOs.

Overall, venture-backed companies generated $17.1 billion in IPOs and mergers and acquisitions in 2009, down 34% from $26.1 billion produced in 2008, according to VentureSource.

Many venture capitalists—especially those working at lesser-known firms that don’t have the same access to the best deals as high-profile firms such as Sequoia Capital and Accel Partners—don’t have much of a track record to show investors as they try and garner new cash. As a result, some venture firms are winding down.

Frazier Technology Ventures late last year said it didn’t plan to raise a new fund. Len Jordan, a partner at the Seattle venture fund, says the firm “concluded it wouldn’t be successful in raising a new fund after we had spent some time trying.”

Frazier Technology is continuing to support the start-ups it has invested in out of its current $104 million fund, says Mr. Jordan.

Other venture firms are lowering their fund fees or are raising smaller funds than in the past. Late last year, venture-capital firm Highland Capital closed a $400 million fund, half the size of its previous fund, which was raised in 2006.

And Draper Fisher Jurvetson, Battery Ventures and Opus Capital have all offered lower fees to investors in recent months as they have pursued new funds.

In response to the tough environment, some venture firms are searching for better returns in new areas. While Steamboat Ventures, an affiliate of Walt Disney Co., has continued to have exits in the U.S., it has also focused overseas in the past four years, particularly in markets like China, says John Ball, a Steamboat managing director.

The venture firm today has a third of its capital allocated to Asia, with two thirds in the U.S., he says. “It’s a useful way to diversify across markets,” says Mr. Ball.

Meanwhile, Austin Ventures has de-emphasized its investments in young companies and is instead focused on larger private-equity deals that take $15 million to $25 million of capital, says Mr. Siegel.

That arena is less crowded, he says, which means there’s more opportunity. “We’re moving to where the puck is going,” says Mr. Siegel. “