One Rock mines carve-outs to avoid pricey prospects

In a pricey deal environment, One Rock Capital Partners LP is focusing on corporate carve-outs to find better buyout candidates, a general partner at the firm said.

Scott Spielvogel, managing partner of the New York firm, said he hopes to find more acquisitions in the vein of its April 2016 deal to buy a Hawaii refinery, terminals and service stations and other assets from Chevron Corp.

“Corporate carve-outs continue to be a very fertile ground for us versus a family-run business,” Spielvogel said during his appearance at Buyouts’  PartnerConnect 2016 in Chicago.

‘We have to pick our spots’

“We focus on the out-of-favor industries, the more complicated deals at lower prices. It’s been a battle. We really have to pick our spots.”

Overall, the competition for what Richard Jaffe, partner at the Philadelphia law firm Duane Morris, called “clean assets” has increased as more buyers from family offices as well as fundless sponsors seeking to raise capital for specific deals join the fray.

“There’s an enormous amount of capital out there chasing fewer deals,” Jaffe said. “Pricing will remain at current levels. You have to be much more nimble and creative.”

GPs are avoiding high prices by making growth-capital investments rather than buying out companies entirely, he said. Exits to pay back limited partners remain preferable to overpaying for new companies, Jaffe said.

Add-on deals provide a path to build value in a portfolio company without overpaying for a platform, he said.

Thomas Aronson, managing director and principal of Chicago-based Monroe Capital, said loan pricing has held steady for the past year or so.

Healthcare and tech have been and continue as the hottest sectors for deals. Specialty-finance transactions overall have also been ramping up, he said.

Monroe Capital’s deal flow is up about 20 percent this year, but overall, “deal quality has come down a little bit,” he said.

M&A activity slowed in the first quarter but snapped back in the second quarter as credit markets stabilized, Aronson said.

The executives’ comments came during a panel called “Outlook for Deal Making and Loan Pricing in the Middle Market — The Next 12 Months,” at the Westin Michigan Avenue hotel.

Action Items: One Rock statement on Chevron deal: http://bit.ly/28Ph6w6

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