(NYSE: SLM), the largest provider of student loans nationwide, rejected the latest bid by a group of investors, led by J.C. Flowers & Co., to reduce the $25.3 billion leveraged buyout agreement.
The J.C. Flowers group, which includes JPMorgan Chase & Co. and Bank of America Corp., early last week proposed lowering its up-front cash payment for SLM (a.k.a Sallie Mae) from $60 per share to $50 per share, plus warrants. The purchasing group, which initially bid $60 per share in April, has tried in recent weeks to back out of the deal, claiming recent legislation has hurt Sallie Mae’s lending practice.
In its letter last week to the SLM board, J.C. Flowers said: “Our proposal offers full and fair value to the Sallie Mae shareholders in light of the changes that have occurred since the signing of our agreement … which provides substantial value to Sallie Mae shareholders who will now be participating directly in the success of the company through their ownership of the warrants.”
Sallie Mae shareholders initially seemed to agree as the stock rose slightly last week before it came back down after news that the revised offer was rebuffed.
Either the J.C. Flowers group or Sallie Mae would have to pay a $900 million fee for walking away from the deal unless a “material adverse effect” has occurred.
Young clarifies record
Former NFL quarterback Steve Young confirmed that he will not be part of the second fund that Sorenson Capital Partners is currently raising with a $300 million target, according to a regulatory document. But Young also clarified a report PE Week published last week that said he was leaving private equity.
Young said that he and a fellow Sorenson partner plan to form a “larger” private equity fund. He declined to provide further details, including if the new effort would still carry the Sorenson brand. “I’m definitely staying in private equity,” he said.
Sorenson Managing Director Fraser Bullock confirmed that Young is spinning off to do his own thing, but that he will remain an active member of Sorenson’s first fund. Young co-founded Salt Lake City-based Sorenson three years ago. The private equity firm focuses on middle-market buyout and growth equity investments in the Western United States.
Stein says firm will raise a new fund
says that his firm will raise another fund despite having lost four partners who have launched their own firm.
Stein is one of two co-founders of Willis Stein & Partners, a mid-market buyout firm formed back in 1995. Its debut fund was capped at just under $350 million, and is considered to be a strong performer. Its second fund came in at $840 million three years later and has not performed well, according to two LPs, since the fund invested in two companies that are no defunct (One Inc. and Orius Corp.).
The firm also invested $420 million in Ziff Davis Media, using capital from funds II and III. “Ziff Davis is the biggest investment the firm has ever made,” says a Willis Stein insider. “And it’s probably not going to turn out too good… We’ve made a lot of mistakes.”
The firm also raised a $1.8 billion third fund in 2000, which began making some decent deals after doing some cross-investing and shared investing with fund II. in 2005, Willis Stein began looking to raise its fourth fund with a $1.25 billion target and $1.8 billion cap. With little LP interest, Willis Stein suspended fund-raising and focused on generating liquidity.
Now, Managing Partner Dan Blumenthal has left to form his own firm, along with CFO Todd Smith and principals Bradley Shisler and Roy Jain (see story, page 6). The new shop, Blue River Partners, expects to begin marketing later this year a $150 million-targeted fund dedicated to the lower middle markets.
Constant Contact delivers IPO gold
Venture investors are poised to gain a hefty payback from last weeks’ $107 million IPO of Constant Contact (Nasdaq: CTCT), a Waltham, Mass.-based provider of e-mail marketing tools.
Shares of the company soared 73% in first-day trading to close at $27.64. Investors were likely attracted by Constant Contact’s strong revenue growth record. The company posted sales of more than $21 million in the first half of the year, up from $11.8 million in the same period last year.
The company is still not profitable, posting a loss of $5.5 million in the first half of 2007, up from a loss of $2.8 million a year ago.
The company had raised $38.8 million in VC funding from Morgan Stanley Dean Witter Venture Partners (which held a 22% pre-IPO stake), Commonwealth Capital Ventures (15%), Hudson Venture Partners (14%), Greylock Partners (14%), Longworth Venture Partners (10%), Saturn Capital and VeriSign.
Wisconsin hires advisor
The State of Wisconsin Investment Board has hired StepStone Group as an advisor to identify nontraditional private equity sectors where the state is not yet invested, but which are positioned well for the next fund cycle.
La Jolla, Calif.-based StepStone also advises the Los Angeles Fire and Police Pension System on its private equity program, among other clients.
StepStone will likely advise Wisconsin on commitments in $50 million increments.
“We’ll be looking more at smaller size funds, $750 million and under,” says StepStone CEO Monte Brem. Some of the areas Brem has his eye on are specialized distressed debt strategies, international markets, infrastructure and possible hybrid strategies involving private equity firms and hedge funds.
Scott Parish, Wisconsin’s private equity portfolio manager, singled out StepStone’s analytical approach to due diligence—the way the firm breaks down in detail how a particular fund has generated its returns—as one of the factors that put StepStone over the top.
The Wisconsin Investment Board invests the assets of the $87 billion Wisconsin Retirement System and on behalf of the Wisconsin State Investment Fund and other Wisconsin Trust Funds. The board manages $93 billion in assets. The state has been investing in private equity since 1985, and has a target allocation of 5% to the asset class.