According to the most recent Buyouts Poll, 68% of respondents say they are currently focusing their attention on portfolio management, versus deal sourcing and fund raising. And, boy, they aren?t kidding. The number and volume of buyout deals completed in recent weeks continues to lag as GPs wait for better quality target companies, lower prices and more favorable debt conditions.
By the end of May last year, deal volume had well-surpassed $14 billion, reaching $17.2 by mid-June. This year, however, buyout deals have barely eclipsed the $5 billion mark, and the rest of the quarter doesn?t look likely to improve.
As for the deals either agreed to or closed in the past month, the industries and deal sizes run the gamut from linens to marketing to packaging deals ranging from less than $25 million to more than $1 billion.
The most highly-priced deal of late was Heartland Industrial Partners? $1.2 billion acquisition of Springs Industries Inc. with its largest shareholder, the Close family. Should the deal close, which Heartland Partner Dan Tredwell said is a likely outcome, it will be second only to AEA Investors $1.4 billion acquisition of B.F. Goodrich?s performance materials group early this year. Springs provides retailers with a line of sheets, towels, comforters, window treatments and other home fashions used for decorating.
Under terms of the Springs transaction, which is expected to close this summer, Heartland and the Close family will pay Springs shareholders $46 per share ? $2 more than the group?s original February offer and 27% more than Springs? closing price on the trading day before that offer. Heartland is slated to commit approximately $225 million in equity, while J.P. Morgan Chase & Co. handles the debt portion.
While Tredwell was less than forthcoming with information about his firm?s interest in publicly traded Springs, he said Heartland sees the company as “the largest and strongest player in the home furnishings industry,” adding that “it has a bright future.”
Despite its mega-size, the Springs deal is representative of others yet to come, sources say. With a drought in quality private companies on the selling block, GPs will look more and more to the struggling public markets for deal flow. In fact, the pain of Old Economy companies aching for analyst attention and desperate for expansion capital will once again prove to be sheer gain for buyout firms. In fact. small-cap manufacturing companies, a prime target for many buyout firms, are said to be trading at four times Ebitda or less.
Of course, this trend is not a new one in among those in the private equity industry. It just happens to have come to the forefront once again. In 2000, more than $14 billion worth of public to private transactions took place. And while the approximately $2 billion worth of deals closed this year may look paltry in comparison, the stage is set for record-breaking months to come.
Contact Leslie Green: Leslie.Green@tfn.com