Exit Market Shows Signs Of Awakening

The number exits U.S.-based buyout shops completed through mergers or acquisitions fell during the third quarter from a year earlier, but disclosed valuation more than doubled. In fact, the largest exit in the third quarter (through Sept. 23, 2009) has a higher value than all of those with reported financial terms a year earlier.

Overall, there were 49 M&A exits by U.S. LBO firms from July 1 through September 23, 2009. The transactions with reported terms had a combined valuation of $1.99 billion. Last October, Buyouts reported 54 exits during the comparable period through Sept. 15, 2008, and the dozen with disclosed financial terms combined for only $953.5 million.

Carlyle Group LLC was involved with the top M&A exit in the latest period. Its Vought Aircraft Industries Inc. subsidiary sold a manufacturing plant in North Charleston, S.C., to Boeing Co. for slightly more than $1 billion. The payment consisted of $580 million in cash and $422 million in debt reduction. Boeing purchased the plant after repeated production delays for its 787 Dreamliner jets. The facility acquired produces sections of the 787’s fuselage.

American Capital Ltd., the Bethesda, Md.-based business development company whose stock is publicly traded, scored the second largest M&A exit of the quarter when Corning Inc. purchased portfolio company Axygen Biosciences Inc. for about $400 million. Wall Street clapped. On the day the transaction closed on Sept. 16, the firm’s stock price on Nasdaq climbed 84 cents, or 33 percent, to close at $3.41.

American Capital said on Sept. 16, that the total inception-to-date gain and income from its equity investment in Axygen Biosciences totaled $102 million. It received $182 million in proceeds and realized a gain of $35 million from the exit alone, subject to post-closing adjustments. The firm bought 80 percent of the biotechnology concern back in 2006.

Seven firms rung up at least two M&A exits during the latest period—see accompanying. Bain Capital LLC led with the sale of eight American Standard operations in Asia. JS Group Corp.’s Inax Corp. subsidiary acquired the businesses for a total of $151.8 million. Financial terms of each deal weren’t disclosed separately. American Capital, Blackstone Group LP and Ripplewood Holdings LLC each had three exits. Carlyle Group, Edgewater Funds and Gores Group LLC had at least two M&A exits each.

Meantime, three portfolio companies went public during the latest quarter through Sept. 25, compared to one a year earlier.

Avago Technologies Ltd. (AVGO) went public on Aug. 6, 2009, when it sold 43.2 million shares on Nasdaq for $15 a share. The chip designer and supplier has buyout backers in Kohlberg Kravis Roberts & Co. and in Silver Lake. Based on Avago Technologies’s closing price of $17.13 on Sept. 25, the Singaporean company’s shares changed hands up 14.2 percent from its IPO price.

Emdeon Inc., which is partly owned by General Atlantic LLC and Hellman & Friedman LLC, sold 23.7 million of its shares for $15.50 a piece on Aug. 12, 2009. Shares of the Nashville, Tenn.-based medical billing company were trading 1.74 percent lower on the New York Stock Exchange than its IPO price based on its closing price of $15.50 on Sept. 25.

Select Medical Corp. held its IPO on Sept. 25, selling 30 million shares for $10 each. The IPO price came in below the estimated range of $11 to $13 and the hospital operator sold less than the 33.3 million shares it planned to offer. Its largest shareholder is Welsh, Carson, Anderson & Stowe. Other buyout backers include GTCR Golder Rauner LLC, HarbourVest Partners LLC and Thoma Cressey Bravo. Select Medical shared closed their first day of trading on the NYSE at $10.09, marking a gain of 0.90 percent.

Besides the completed IPOs of the third quarter, buyout shops have been busy preparing to put other portfolio companies on track to go public. One of these is Education Management Corp. The university operator expects to price the offering between $18 and $20 a share on Oct. 1, with trading on Nasdaq to start the following day. The Pittsburgh, Pa.-based company intends to use proceeds to reduce its debt. Education Management’s private equity backers are Goldman Sachs Capital Partners, Leeds Equity Partners and Providence Equity Partners.