And in a separate development,
Both efforts are taking place against the backdrop of a credit market in disarray. Like car dealers slashing prices to clear their summer lots, investment banks seem eager to offer discounts on the mountain of debt that they’ve promised to provide in order to finance a parade of recent leveraged buyouts. It wouldn’t be surprising for Audax Group, Providence Equity and other LBO shops to want to get a piece of the action.
Buyout firms see the opportunity to generate 15 percent to 20 percent rates of return (on a leveraged basis) if they can buy into these deals at 85 cents or so on the dollar, said one limited partner. “Being able to play multiple tranches of the capital structure could yield some nice returns for their investors.”
Audax Group has lined up its first-closing tally primarily from its prior backers, according to our source. A California pension fund has signaled that it’s good for a commitment estimated to be in the $25 million to $50 million range, our source said.
Audax Group Co-Chief Executive Officers Geoffrey S. Rehnert and Marc B. Wolpow stepped down as managing directors of
Audax Group went on to raise at least two more buyout funds, as well as two mezzanine funds and a venture fund. The firm closed its latest buyout fund at $1 billion earlier this year; it closed its latest mezzanine fund at $700 million last year. Altogether it has more than $3.5 billion under management, and more than 80 employees to invest it, according to its Web site. The latest pool appears to be the firm’s first geared mainly toward senior debt and distressed debt.
For its part, Providence Equity wants to finance a debt-oriented special purpose vehicle with money from its already-raised partnerships, rather than raise a separate fund, our source close to the firm said. The 18-year-old firm, which has $21 billion under management, closed its sixth media buyout fund at $12.1 billion earlier this year. Our source said that no more than 5 percent to 10 percent of prior funds would be channeled into the special purpose vehicle. Providence Equity has sought the consent of LPs since the move represents a departure from its usual strategy of investing in operating companies, our source said.
We were unable to reach executives at Audax Group, Providence Equity or CalPERS for comment. Other firms reportedly interested in taking advantage of opportunities arising from the credit crunch include
Clarification: The version of this story originally posted on the Web said that Newport Global Advisors, a distressed debt investment firm, was a unit of Providence Equity Partners. That is not true, although some of Providence Equity’s principals invested with the firm.
Second Clarification: The version of this story originally posted on the Web implied that Audax Group would be raising its fund solely through equity commitments from its limited partners, and that the final size could be $1 billion to $1.5 billion. In fact, the firm has a target of $200 million for initial equity commitments from limited partners, and plans to leverage that amount to create a fund that could approach $1 billion.