Credit crunch forces TPG to adapt

TPG, a private equity firm with more than $30 billion capital under management, said last week that it was adapting amid the credit crunch to doing deals not so reliant on leverage and rotating the industries it concentrates on.

James Coulter, founding partner at TPG, told investors at the SuperReturn conference in Boca Raton, Fla., that it is harder work putting deals together in tough times, but still possible.

“In good times we do diligence, in bad times we do diligence, diligence, diligence,” he said.

However, Coulter cautioned to “be prepared … it will get worse even though we hope it will get better.”

Coulter said that it was important to think about leverage differently in this environment, and said the No. 1 question he got from the pension funds and other investors that put money into private equity funds, was what he was doing if there’s no leverage available.

“My answer is I’d much rather buy a company for a lower price with less leverage … It’s a bit like tickets for a sold-out concert … if you go out on the street and work it and pay a little more, you’ll get the tickets. Leverage is available, it’s just in different sources.”

TPG has rotated the types of deals it is doing and the industries it invests in as cheap debt dried up, said Coulter, who likened the strategy to seasonal crop rotation.

From doing large, leveraged buyouts, TPG is now doing “off- the-beaten-path investments.”

Last week, Coulter announced it would take a 23% stake in British mortgage lender Bradford & Bingley, providing a much-needed boost for the troubled lender as conditions in the British mortgage market deteriorate.

“During the year before the bubble, we looked at everything but ended up doing essentially no financial services, no retail, no media, no pharma,” Coulter said. “Recently, in the face of big downturns in the industry, we’ve moving to financial services, pharma and things we didn’t do last year.”

He said at this time he leaned a bit to investing in larger companies rather than smaller, as “in tough times they have more levers to pull.”

With a weaker economy, Coulter said a vital issue was to look after TPG’s portfolio companies, adding that since last fall, TPG has doubled the size of its operating group. —Reuters