Buyout-backed exits stay the course in Q3

The latest quarter’s M&A exit count totaled 113, which is the same number as reported last quarter by Buyouts magazine, and lower than the 126 witnessed in Q3 of last year. At the same time, the number of exits via U.S.-based sponsor IPOs fell to seven from the 16 recorded in the second quarter. This figure matches the seven IPOs recorded during the summer of 2012.

Thomson Reuters, the publisher of Buyouts magazine, counted 36 M&A exits that disclosed valuations in the quarter. These transactions combined to reach $20.4 billion. This figure far surpasses the $8.1 billion reported last quarter, as there were two deals over the $1 billion mark that have significantly added to the quarter’s overall value. The quarter’s volume was only marginally lower than the $21.4 billion disclosed for the same period last year.

Largest M&A Exits

Warburg Pincus LLC was the most active U.S.-based financial sponsor in the quarter with six M&A exits that had a total disclosed value of almost $13 billion. It was followed by The Carlyle Group, with $508.9 million in disclosed valuations, and Sun Capital Partners Inc, with $592.5 million in disclosed valuations. The latter two completed four M&A exits each.

The third quarter’s largest deal involved an exit by Warburg Pincus LLC. The New York-based shop sold Bausch & Lomb Inc, a manufacturer of ophthalmic goods, pharmaceutical preparations, optical instrument, and electric toothbrushes to Valeant Pharmaceuticals International Inc for almost $11.65 billion including debt.  

GI Partners LLP was a party in the period’s second-ranked deal. The firm received $2 billion for the sale of SoftLayer Technologies Inc, a Dallas-based provider of data center and hosting services, to International Business Machines Corp (IBM). The buyout shop had been seeking a buyer for the company since March and a number of bidders got in on the action.

The third largest M&A exit by a U.S. sponsor in the past three months involved the acquisition of Multinational Automated Clearing House Sarl (MACH) by Syniverse Technologies Inc, a unit of The Carlyle Group LLC. The Luxembourg-based provider of wireless telecommunication services was sold by Warburg Pincus LLC for an estimated €550 million ($693.39 million).

An industry breakdown of M&A exits over the quarter indicates five segments which have market share of more than 10 percent. The largest sector represented was high technology with 16.81 percent. Industrials and consumer products and services tied for second place with 11.5 percent, while consumer staples and media and entertainment each took a 10.62 percent share.

Going Public

There were at least seven companies with U.S.-based financial sponsors that went public in the third quarter. All but one is trading above its IPO price and the industry breakdown is diverse. Two companies are in oil and gas exploration, while the others range from insurance services to building product manufacturers to sports facilities.

The largest IPO was Athlon Energy LP at the start of August for a post-offer value of over $3.3 billion. The oil and gas exploration firm sold 15.8 million shares for $20 each. The company was backed by Apollo Global Management LLC and launched an IPO to make further acquisitions. Athlon’s shares change hands on the New York Stock Exchange under the “ATHL” ticker. It closed October 2 at $33.53, which represents a 67 percent increase since going public.

Apollo Global was also the financial sponsor of the IPO with the second-biggest post-offer value in the quarter, that of the general food products firm Sprouts Farmers Market Inc, which achieved a post-offer value of over $2.6 billion and IPO size of $330 million. Sprout Farmers Market sold 18.5 million shares for $18 apiece on Aug. 1. The company’s stock trades on the NASDAQ exchange under the symbol “SFM.” At the close of trade on October 2, it was priced at $44.94, an increase of almost 150 percent.

The only LBO-sponsored business that went public last quarter which is currently trading below its IPO price is Stock Building Supply Holdings Inc. Backed by The Gores Group LLC, the company is currently trading on the NASDAQ exchange at $13.58, which is three percent below its $14.00 IPO price. The manufacturer of building products raised approximately $365 million by selling seven million shares.

Buyout-backed IPOs have been generally well received in public equity markets, indicating that it is a good time to gain liquidity on investments and return capital to LPs. According to Ian Loring, managing director of Bain Capital, “the IPO market is hot and the asset sale market is attractive.” The positive reception of portfolio companies is encouraging for others to pursue their own exits via IPOs or M&A deals.

Steve Gelsi contributed to this article