M&A And IPO Exits Surged In 2010

With their limited partners eager for distributions, and buyers lining up to deploy money, U.S. buyouts shops exited investments at a far greater pace last year than in 2009.

Thomson Reuters, which publishes Buyouts magazine, tracked 323 exits through mergers or acquisition in 2010 through Dec. 14, an increase of more than 100 transactions from the 206 completed a year earlier. Thomson Reuters counted 25 companies that held initial public offerings in 2010 through Dec. 14, and most are trading above their offering prices, boding well for future PE-backed IPOs. In 2009, the final tally was 16.

The increase in exitl numbers was not accompanied by a rise in disclosed valuation, however, as the prior year benefited from one particular exit. Atlantis Holdings’s sale of Alltel Corp. in January 2009 to Verizon Wireless Inc. was valued at $28.1 billion. Atlantis Holdings is a special purpose vehicle created by TPG and GS Capital Partners LP. The 132 M&A exits with known financial terms so far in 2010 combined for total valuation of about $40.26 billion. The tally for the 61 with disclosed values a year earlier was $40.61 billion.

The largest M&A exit in 2010 closed in June when affiliates of Thomas H. Lee Partners LP sold Michael Foods Inc. to GS Capital Partners for about $1.7 billion. Thomas H. Lee Partners retained about 20 percent of the Minnetonka, Minn.-based food products distributor that was added to its portfolio in 2003. The Michael Foods transaction was one of seven deals with values of at least $1 billion that closed in 2010, three more than the number completed during the previous year.

Lindsay Goldberg LLC sponsored two of the 10 largest M&A exits of 2010. It sold Keystone Foods LLC to Marfrig Alomentos SA of Brazil for $1.26 billion in October. Lindsay Goldberg made its first investment in the supplier of beef, fish and poultry products to McDonald’s in 2004. Lindsay Goldberg also exited Fresh Start Bakeries Inc., selling the company to Aryzta AG of Switzerland for $900 million in mid-November. The supplier of bakery goods was added to the New York-based shop’s portfolio in 2006.

Carlyle Group LLC and Platinum Equity LLC were the most active in terms of completing M&A exits during 2010. The two were the only buyout shops that had counts in the double-digit range. Carlyle led the way with a dozen M&A exits, followed by Platinum Equity with 10. The other firms with at least six were Riverside Co. (nine exits), Advent International Corp. (eight), Blackstone Group LP (seven) and Warburg Pincus LLC (six). A year earlier, Bain Capital LLC completed 13 M&A exits and Kohlberg Kravis Roberts & Co. exited 11 investments, including four deals done through GMAC Commercial Holding SPV, which was formed with Goldman Sachs & Co.

IPO activity for companies sponsored by U.S.-based buyout firms has steadily improved during the past two years, up from just eight completed in 2008. However, the pace of recovery was slow in 2009, with only one done by the end of July. Things didn’t really pick up until October 2009 when six portfolio companies went public.

The pace was more evenly distributed in 2010. Four IPOs were completed during the first quarter, which was a good sign of things to come. Seven IPOs were completed for each of the other quarters of the latest year (through mid-December).

Oasis Petroleum Inc. had the largest IPO of all LBO-sponsored companies in 2010. EnCap Investments LP backs the Houston-based oil and gas explorer and producer. Oasis raised $588 million when it went public in mid-June. It sold 42 million shares for $14-a-piece. The IPO price was the mid-point of the anticipated $13 to $15 a share range. The company sold 30.4 million shares and stockholders put the other 11.6 million shares on the block. At the time, Oasis said it would use proceeds to repay debt and to fund its exploration and development program.

NXP B.V. had the highest post-offer value ($3.49 billion) of the 25 portfolio companies that went public in 2010. (Thomson Reuters identified post-offer valuations on 19 of the 25.) NXP, a Netherlands-based semiconductor company, raised $476 million when it sold 34 million shares for $14 apiece in August. It is backed by a number of private equity shops including Bain Capital, HarbourVest Partners LLC, KKR and others.

Bain Capital-backed Sensata Technologies Inc. also generated an impressive post offer value at $3.08 billion. The maker of car parts sold 31.6 million shares for $18 a share to raise $568.8 million. Bain Capital picked up the business from Texas Instruments Inc. in 2006.

Many of the portfolio companies that went public in 2010 are tracking ahead of their IPO prices. Only four are trading below IPO prices, and we didn’t have enough information to calculate total returns since going public for three other companies. Eighteen are in positive territory, including six that are trading more than 50 percent above IPO prices, as of Dec. 15. Oasis Petroleum’s stock price has appreciated the most, up 84.93 percent.