Exit Market Shows Modest Strength In First Quarter

The pace of both M&A exits and IPOs picked up in the first quarter, as the economy continued to improve and buyout shops looked ahead to their next fundraisings.

The number of exits through M&A by U.S. buyout shops totaled 69 for the first quarter of 2010, better than the 49 such exits Buyouts identified during the same period last year. The quarter also saw four portfolio companies taken public, compared with none a year earlier, when IPO activity basically meant registration withdrawals.

The value of M&A exits with disclosed terms, $4.3 billion, fell markedly from the year earlier in large measure because of Atlantis Holdings LLC’s $28.1 billion sale of Alltel Corp. to Verizon Wireless Inc. last year. Atlantis Holdings, formed by TPG and GS Capital Partners LP, brought Alltel into its portfolio in November 2007. Excluding that one deal, the total disclosed valuation of the other M&A exits during the first quarter of 2009 totaled just $1.2 billion.

All told there were 30 M&A exits with known valuations in the latest period; none exceeded the $1 billion threshold. Three had valuations of at least $500 million. Eight had valuations ranging from $100 million to $500 million and 19 were valued at less than $100 million.

The three largest M&A exits came from HM Capital Partners LLC, Aquiline Capital Partners LLC and Riverside Co. HM Capital sold Strum Food Inc., which makes grocery products under private labels, to TreeHouse Foods Inc. for $660 million. HM Capital added Sturm Foods to its portfolio in May 2005. Aquiline Capital exited Tygris Commercial Finance Group Inc. through a sale to EverBank Financial Corp., which paid $535 million. Aquiline formed the New Jersey-based commercial finance and leasing company in 2008 to provide liquidity and capital to middle-market companies in North America. Riverside sold an 88 percent stake in ATI Enterprises Inc. to London-based BC Partners for about $500 million. The firm held the Dallas, Texas-based operator of 24 vocational schools and training centers in its portfolio since April 2004.

Only Warburg Pincus LLC was involved in more than two M&A exit transactions, with three. The New York-based firm’s American Medical Systems Holdings Inc. unit sold its Her Option® Global product line to Cooper Cos. Inc.’s women’s health care subsidiary for about $20.5 million in cash. One of Warburg Pincus’s other exits involved the sale of its London-based mortgage advisory business unit, John Charcol Holdings Ltd., to Towergate Financial Group Ltd.

Industry-wise, the business services sector was the most active with 13 M&A exits transactions. Retail was ranked second with six; split four-to-two between miscellaneous retail trade and retail trade-eating and drinking places sub-sectors.

As the number of M&A exits increased from a year ago, so too did the number of initial public offerings.

Sensata Technologies Inc. (NYSE: ST) was the largest IPO the first quarter, based on a post-offer value of $3.08 billion. The Attleboro, Mass.-based company sold 31.6 million shares for $18 each on March 11, to raise $568.8 million. The shares were priced at the low end of the anticipated range of $18 to $20 a share. Bain Capital invested $3 billion in the supplier of sensors in 2006.

Based on closing stock prices on March 31, half of the portfolio companies that went public are trading above their IPO prices. Shares of Graham Packaging Co. are up 20.32 percent. The Blackstone Group and Oak Hill Advisors are backers of the maker of plastic containers for consumer products. In addition, SS&C Technologies Holdings Inc.’s shares are up 0.53 percent. The Carlyle Group LLC-sponsored software developer went public on the last day of the quarter, pricing shares at $15 each; the high end of the projected $13 to $15 range.

The remaining two IPOs of the quarter were down as of the end of the period. Close to press time, Sensata Technologies’s shares were down 22 cents from its IPO price of $18. Shares of Charterhouse Group International Inc. and Weston Presidio’s Cellu Tissue Holdings Inc. (NYSE: CLU) business were trading 30.26 percent below its IPO price of $13.

A number of other portfolio companies are being prepped for IPOs. One of the recent filers is Lightyear Capital LLC’s 32-percent owned Higher One Holdings Inc. The provider of electronic financial disbursement and payment products to universities and students seeks to raise $100 million through an offering on the Nasdaq.

Another is Milwaukee, Wis.-based Douglas Dynamics Inc., which plans a $150 million IPO on the New York Stock Exchange. The maker of snow plows and salt spreaders is backed by Aurora Capital Group and Ares Management Inc.