Buyout-Backed Exits Battered In 2Q

The tally for the period falls short of the 120 M&A exits of the first quarter and the 113 completed during the second quarter of 2011. The numbers were tracked by to Buyouts publisher Thomson Reuters.

Looking at the list of transactions (see chart starting on page TK), there are just a couple of exits with disclosed values greater than $1 billion. The top M&A exit of the period involved the Madison Dearborn Partners LLC’s sale of TransUnion Corp., a Chicago-based consumer credit reporting agency. Spartan Acquisition Sub Inc. bought TransUnion Corp. from Madison Dearborn and the Pritzker family in a secondary buyout transaction. The deal has a value of about $3.18 billion. Spartan Acquisition is a special purpose acquisition vehicle formed by Advent International Corp. and GS Capital Partners VI Fund LP.

Madison Dearborn is expected to generate an IRR in the mid-50s and the return on invested capital from its exit from TransUnion is roughly 2.25x, sister Web site peHub reported on Feb. 17. The Chicago-based buyout shop had contributed less than $400 million in equity when it purchased a controlling 51 percent stake in the company in June 2010 from the Pritzker family, which retained a 49 percent interest. That transaction was valued at $2 billion.

The only other exit with value of more than $1 billion is Vestar Capital Partners Inc.’s sale of Solo Cup Co. to Dart Container Corp. for $1.015 billion on May 4. The payment was split into $315 million in cash, and the rest in assumed debt. Lake Forest, Ill.-based Solo Cup is a maker of food service products including plastic cups and utensils. Vestar made its first investment in the business in 2004.

When the proposed transaction was first disclosed in March, peHub reported Vestar would make an 18 percent gain on its Solo Cup investment, citing a source. And with the successful realization of Solo, Vestar will have returned more than $2 billion to investors over the past 2.5 years.

The industrials and the consumer products and services groups were the most active sectors during the second quarter of 2012. There were 17 M&A exits in the industrials group, while the consumer products and services group accounted for 13 exits.

Looking at disclosed rank valuation, the high technology category captured about $3.3 billion of the estimated $9.6 billion total for the quarter through June 20. The materials sector followed with a total of about $1.4 billion. Most of the valuation is represented by the period’s two large exits.

Going Public

At least 23 portfolio companies have gone public so far in 2012, including eight during the second quarter through June 20. Facebook Inc. was the big deal of the latest period. The social networking site raised $16 billion.

Facebook completed its IPO on May 18 and sold 421.2 million shares at $38 each. It had a post-offer value of $81.2 billion. Facebook has numerous investors (including buyout and venture capital backers) including Goldman Sachs & Co., Greylock Partners, Kleiner Perkins Caufield & Byers, Accel Partners, Elevation Partners and Andreessen Horowitz.

However, Facebook’s market price has fallen since going public on Nasdaq. The stock, which changes hands under the ticker symbol FB, ended June 20 at $31.60. This closing price represented a 16.84 percent decrease from the IPO price.

Market makers estimate that Nasdaq OMX Group Inc. owes them at least $115 million for the glitches that occurred when Facebook made its market debut, according to a report by sister news service Reuters on June 19. Reuters added that Nasdaq has asked the Financial Industry Regulatory Authority for help with the mess. Nasdaq had previously offered $40 million in compensation (mostly in the form of rebates on trading expenses).

PetroLogistics LP had the second largest post-offering value among the buyout-backed companies that went public during the latest quarter at roughly $2.4 billion, a huge discrepancy from Facebook’s post offer value. Houston, Texas-based PetroLogistics sold 35 million units for $17 each. The propylene producer’s units trade on the New York Stock Exchange under the ticker PDH.

According to an S-1/A filing with the Securities and Exchange Commission on May 2, Lindsay Goldberg LLC will indirectly own 67 percent of the general partner and directly and indirectly own 50 percent of the common units. York Capital Management will indirectly own 17 percent of the general partner and directly and indirectly own 13 percent of the common units.

There were some bright moments for buyout-backed companies that went public during the latest quarter. Half of the eight portfolio companies that completed IPOs are trading in positive territory, based on closing prices on June 20.

The top performer (based on this metric) is J.H. Whitney & Co. LLC’s Ignite Restaurant Group Inc. The business raised $80.8 million through the sale of 5.8 million shares on May 11 for $14 a share.

Ignite Restaurants operates 125 Joe’s Crab Shack restaurants in 33 states along with 16 Brick House Tavern + Tap restaurants in nine states, as of May 17. The restaurant operator closed its first day as a public company up 20 percent. It also ended June 20 at a 33.39 percent premium compared to the IPO price.

In addition, Burger King Worldwide Inc. is now a public company again. The 3G Capital Management LLC-backed fast food chain made its return, not via an IPO, but through a reverse merger on June 20 with Justice Holdings, a special purpose acquisition company. Burger King ended the session at $15.01 after opening at $14.50 and peaking at $16.21. It trades on the NYSE under the symbol BKW. 3G Capital is keeping a 71 percent stake in the business. Justice Holdings (co-founded by Bill Ackman) holds 29 percent.