More Firms Pouncing On Public Targets

Deal-hungry buyout firms emboldened by large war chests, healthy financing market and in some cases depressed stock prices are targeting public companies with renewed urgency in recent weeks.

In the latest example, struggling music company Warner Music Group at deadline was expecting competing buyout bids from Platinum Equity LLC and Gores Group, in one group, and privately held industrial concern Access Industries, in a deal that could be valued as high as $3 billion, sister news service Reuters reported May 2.

Other notable take-private deals of late include Golden Gate Capital and Infor Global Solutions Inc.’s agreement to buy software company Lawson Software Inc. for around $2 billion and Silver Lake Partners’s agreement to buy memory chipmaker Smart Modular Technologies Inc. for about $645 million.

Leonard Green & Partners and Apollo Global Management, meanwhile, are reportedly battling it out for BJ’s Wholesale Club Inc., which has a market value of about $2.7 billion.

Gregg Feinstein, managing director and co-head of mergers and acquisitions at investment bank Houlihan Lokey, said the uptick in take-privates reflects a moderately improving economy, which makes it easier for buyout shops to predict a target’s future, as well as the pressure to put money to work after the Great Recession, during which buyout shops curbed their activity.

“I think sponsors are feeling that the world is now again safe,” Feinstein said. “They had two years in which they didn’t put out a lot of money and they’d like to put that money to work.”

The Warner Music sale process is taking place against a backdrop of ongoing declines in music sales as executives struggle to figure out new business models to guarantee the future of the industry, according to Reuters. While Warner Music continues to generate reasonable levels of cash on its balance sheet—a key metric for investors—it will still be seen as a risky investment in a very tough market.

In April, the second-round bids came in around $3 billion, according to three people who asked not to be named because the process is supposed to be confidential. Ron Burkle’s The Yucaipa Cos. dropped out of the bidding late last month, a source told Reuters.

A source told Reuters that the warehouse retailer could fit nicely with Apollo Global’s Smart & Final chain. Leonard Green in March said it had entered into a confidentiality agreement with BJ’s.

Reuters correspondents Yinka Adegoke and Megan Davies contributed to this report.