If exit activity in the second quarter is any indication, LBO firms continue to play the waiting game, biding their time while nursing hopes that the credit crunch will soon come to an end.
The resiliency of the crunch, as well as worsening economic conditions, has created an environment where exits were few in number and small in size in the three months ended June 30. The climate has also led to a significant drop in initial public offerings in the period, when compared with activity a year ago. U.S.-based buyout firms completed 38 exits through mergers or acquisitions, and led just two portfolio companies to IPOs during the most recent quarter, according to data from Thomson Reuters, publisher of Buyouts. The second quarter of last year, by contrast, saw 109 M&A exits and 10 IPOs. The 10 M&A exits with disclosed prices in the latest period had a total value of $2.2 billion. A year earlier, the total towered at $40.8 billion.
Scoring the largest exit of the second quarter was Odyssey Investment Partners LLC, which sold Norcross Safety Products LLC, a maker and wholesaler of head-to-toe protective equipment, to Honeywell International Inc., for about $1.22 billion. Welsh Carson Anderson & Stowe Co. boasted the next largest exit with the sale of its 80 percent-owned Accuro Healthcare Solutions Inc. unit. It sold the developer of Web-based revenue management software to MedAssets Inc. for an estimated $352.7 million.
Although billion-dollar exits largely went missing in the latest period, the pipeline did add about four such transactions in the quarter. The largest was Verizon Wireless Inc.’s offer to acquire Alltel Corp., a provider of wireless telecommunications services, for $28.1 billion. This transaction, when completed, would mark an exit for Atlantis Holdings LLC, which was formed by GS Capital Partners and TPG Capital.
Diversified behemoth The Carlyle Group was the most active buyout firm on the exit front last quarter, with at least four by Thomson Reuters’s count. It sold its Otor SA unit’s Otor Papeterie de Rouen and Otor Cartonnerie de Rouen operations, which are both makers and wholesalers of packaging products, to Papeles & Cartones de Europa SA of Spain. The two transactions have a combined price of €76 million ($119.2 million). The other two didn’t have prices disclosed. The Washington, D.C.-based firm sold Amcan Castings Ltd., a bankrupt maker of aluminum die-castings, to Contech LLC. Carlyle also sold ManorCare Health Services, a provider of health and nursing care services, to Fairmont Rehabilitation Center LLC. Carlyle obtained ManorCare Health Services when it completed the controversial purchase of Manor Care Inc. in December 2007; the Service Employees International Union, for one, criticized Carlyle relentlessly in part over concerns that the buyout firm would cut staffing levels.
American Capital Strategies Ltd. and Sun Capital Partners Inc. each scored at least two exits last quarter, according to Thomson Reuters. American Capital sold power converters and adapters maker Astrodyne Corp to Audax Group, in addition to selling specialty chemicals concern DanChem Technologies Inc. to Ensign-Bickford Industries Inc.’s EBChem Holdings unit. Sun Capital, meantime, sold its American Standard Cos. unit’s Brazilian operations to Duratex’s Deca division. It also sold Marsh Supermarkets Inc.’s Crystal Catering business to Centerplate Inc.
If caution held M&A exits in check, it practically took the IPO market hostage. Only two portfolio companies followed through on their IPO plans during the quarter.
RHI Entertainment Inc. (RHIE) collected $189 million when it went public on June 18. The New York-based producer of made-for-television movies, which is backed by Kelso & Co., sold 13.5 million shares for $14 each. The IPO price came in below the anticipated price range of $16 to $18 per share. The stock, as of June 26, was trading down 7 percent from the offer price. Verso Paper Corp. (VRS) sold 14 million shares at $12 each to raise $168 million. The Memphis-based producer of coated papers is backed by Apollo Management LP. Since going public, Verso Paper’s stock price has dropped 26 percent.
Withdrawals were front and center in the latest period’s IPO headlines, although a smattering of registrations also appeared. The list of portfolio companies that dropped plans to go public in the quarter includes IPC Systems Holdings Corp. and CCS Medical Holdings Inc. IPC Systems, a Jersey City, N.J.-based provider of communications solutions, cancelled its proposed $400 million IPO. The Silver Lake Partners-backed company didn’t disclose a reason for the withdrawal. CCS Medical cited current market conditions when it backed off plans to sell 10 million shares. The Clearwater, Fla.-based medical supply management company is a portfolio company of Warburg Pincus.
Portfolio companies registering plans to go public in the quarter included NewPage Group Inc. and Noble Environmental Power LLC. NewPage, a Miamisburg, Ohio-based maker of coated paper owned by Cerberus Capital Management LLC, seeks to raise $805 million when it gets listed on the New York Stock Exchange. Noble Environmental Power, a renewable energy company sponsored by CCMP Capital Advisors LLC, seeks to raise $375 million when its shares start trading on Nasdaq.