One buyout firm that has had a mixed reputation with bankers is becoming one of the few success stories in an initial public offering market filled with casualties.
Leonard Green & Partners LP has completed two IPOs and a follow-on offering in the last seven months, and has just filed with the Securities and Exchange Commission to take another two companies public in the near future.
“Three or four years ago, when the whole venture world was going crazy, we were kind of the odd man out,” said Jonathan Sokoloff, a partner with the Los Angeles-based company. “But now that things have returned to a little bit more normalcy, our old-fashioned value investing is delivering the kind of results we’ve always delivered and it’s been fairly consistent.”
A few industry observers said the firm is viewed askance by some bankers, though they declined to cite specific reasons, saying bankers sometimes hold grudges against buyout firms.
“[Buyout firms] carry with them a legacy of strong feelings,” said one private equity portfolio manager familiar with the firm. “But it ultimately comes down to the relationships and experiences that people have in their deals.”
One reason for Leonard Green’s recent success is simply the fact that many of the companies within its portfolio hail from sectors that have suddenly come into favor, such as retail, and businesses that have consistent demand, such as veterinary services.
Leonard Green’s recent success in IPOs is a pretty solid achievement, given that of the 97 IPOs filed to date in 2002, only 46 have actually managed to price. Yet industry observers said it should not be surprising that Leonard Green’s companies have been among the few able to successfully tap the new issue market this year.
“They may not be the sexiest companies around, but at least they look like they’re trending in the right direction. And in this market, which is obviously dripping with cynicism and skepticism, these companies have proven themselves,” said the portfolio manager. “They’re not Kleiner Perkins-type deals, and they’re not Excel Partners-type deals. They’re deals that people can understand, and they have cash flows that people are pretty comfortable with.”
Leonard Green’s first success was VCA Antech Inc., the largest U.S. operator of animal hospitals and veterinary laboratories, which went public on Nov. 20 at $10 per share. As of June 19, the company’s stock price was up 34% from itsoffering, closing trading at $15.17 on Wednesday.
That was followed by an IPO for pet-supply retailer Petco Animal Supplies Inc., which went public on Feb. 21 at $19 per share. That stock has since climbed 26.6%, closing trading on June 19 at $25.89. And, finally, yet another retailer within Leonard Green’s portfolio – Gart Sports Co. – was able to return to the market for a follow-on deal. Gart Sports came to market on May 22 with a $107 million offering.
Leonard Green has registered plans for additional IPOs for Liberty Group Publishing Inc., one of the largest U.S. publishers of community newspapers, and yet another retailer, Big 5 Sporting Goods Corp.
Sokoloff said his firm sees a steady flow of strong acquisition opportunities going forward and will continue to look for chances to take advantage of demand for existing companies in its portfolio.
“We’re taking advantage of both our good performance and a strong equity market for these sectors. We’re not in tech and telecom and all the other stuff that’s much more volatile,” he said. “We’re an old-fashioned value investor firm, and value investing is returning to favor a little bit.”