The firm’s investors have granted the fund’s managers approval to invest up to 25% of the $5.3 billion fund, or $1.325 billion, in public equity. That’s an increase from its 12.5% limit.
The Los Angeles-based firm proposed the amendment after the firm made a $425 million PIPE (private investment in public equity) in Whole Foods Market Inc., an organic grocery chain, in November 2008. The investment brought the firm close to the fund’s 12.5% limit, and since the Whole Foods deal has been successful, Leonard Green & Partners wanted breathing room to do more PIPE deals.
The news was first reported last week in LBO Wire.
The firm did not immediately respond to a request for comment.
Even with the amendment secured, Leonard Green has no PIPE deals in the works.
“Given the rally in the equity markets, that opportunity may not ever present itself,” says a source familiar with the firm. The source pointed out that since the equity and debt markets have lately warmed, strong companies such as Whole Foods wouldn’t need to do the kind of PIPE deal Leonard Green arranged in 2008. The firm merely wants to be prepared if an opportunity presents itself.
That Whole Foods investment could pay off for the firm, which could earn roughly twice its investment on Whole Foods in a matter of a year or so. The firm purchased preferred stock which pays an 8% dividend and is convertible into common stock worth 17% of the company. At the time, the stock traded at about $10 per share.
The company has the ability to force Leonard Green & Partners to convert its preferred shares to common stock when the company’s stock price meets or tops $28.50 for 20 consecutive days. Shares of Whole Foods (Nasdaq: WFMI) were trading below the $28 a share threshold for much of last week.
If the firm exits after converting its shares, it would be a nice liquidity event for investors in fund five, which is made up of relatively young investments and has no companies ripe for IPO or sale, the source says. —Erin Griffith