While stockholders across the country are grieving the daily drops in the public markets, leveraged buyout pros may be working hard to contain their giddiness. Sure, a bear economy is bad for most people, but it also makes for excellent buyout opportunities.
According to Buyouts data, in the first quarter of this year five buyout firms bought a company that is either failing or is being divested from a failing parent company. Nine more have announced plans to do the same. That’s more than $3.46 billion in deal value.
Making up those deals were five companies divested from a parent that needed to shed non-core assets to focus on its core businesses, three companies that had filed for Chapter 11 bankruptcy protection, one that was already bankrupt, and two tottering on the brink.
March was an especially busy month for those interested in picking up the pieces from others. Last month alone two of the above-mentioned deals closed and another four were announced. GTCR Golder Rauner and Arlington Capital Partners each picked up a piece of PSINet Inc., an Internet solutions company, which has been selling off assets to pay off its mounting debt.
PSINet’s stock plummeted 74% in late March after an announcement that it may not be able to recover its stock value and could put itself up for sale. Shortly after the company decided to unload due to hurting sales, and it recently said that in spite of its attempts to stay afloat, PSINet would have to restructure under Chapter 11 bankruptcy protection. Soon after, GTCR agreed to take Transaction Network Services, a credit card transaction processing company, for $285 million and Arlington Capital Partners picked up its global solutions division for an undisclosed price. PSINet also spun off its overseas consumer ISP operations to the management team.
Reflecting the declining condition of many companies, Jacobson Partners, which focuses exclusively on divested non-core assets, also is seeing a lot of opportunities lately. Most recently, firm agreed to buy 125 Taco Bueno restaurants, a Mexican fast food chain in Texas and Oklahoma, for $72.5 million. The former owner, CKE Restaurants Inc., sold off the brand to focus on its struggling Hardee’s fast food brand. The company recently suffered a less-than-successful marketing of stores combining Hardee’s and Carl’s Jr., another CKE fast food brand. Now the company is also selling off several hundred Hardee’s restaurants to pay off debt.
In two other transactions, Perseus Acquisition/Recapitalization Fund LLC and Veritas Capital each agreed to revamp a company that had filed for Chapter 11 bankruptcy protection last month, inking deals to purchase Converse Inc. for $117.5 million and Stellex Aerostructures for $85 million, respectively. Converse, a sneaker company, has been trying to recover from a bad investment in Apex One Inc. made in 1995. The deal resulted in the collection of debt over several years that resulted in balance sheet issues for Converse, despite relatively strong sales.
Stellex needed a pick-me-up after defaulting on $235 million in bond payments in May, which led to the Chapter 11 filing.
Also in March, KPS Special Situations Fund picked up Curtis Papers for approximately $22 million. In this case, the buyout firm set out to turn around a company that had been neglected by its parent company, Crown Vantage Inc., and was quickly headed toward shutting down. Curtis Papers was formed through KPS’s acquisition of six paper mills, leaving several other Crown Vantage mills behind to crumble. KPS installed a new management team at Curtis Papers and expects a full recovery.