Other Notable Deals –

Anteon International by Caxton-Iseman Capital

Caxton-Iseman Capital was able to share some of the limited success that the IPO market doled out last year, cashing in on its Anteon International investment with its first-ever IPO. The stock opened at $18 a share in its debut, ahead of its original $15 to $17 per share range, and continued to show growth despite the sluggish market conditions. Anteon’s stock now trades around $23 a share.

The IPO for Caxton-Iseman generated a return of over 25 times its total equity investment and 50 times its original investment. The offering was one of many from the government IT sector, which somehow managed to curry the favor of the public markets.

Legrand by KKR and Wendel Investissement

When two heavy-hitters team up, big things happen. In December, after six months of touch-and-go negotiations, the team of Kohlberg Kravis Roberts & Co. and Wendel Investissement finalized their purchase of Legrand, a manufacturer of low-voltage electrical fittings and accessories.

At E3.7 billion, the acquisition is one of the largest LBO ever in Europe, and KKR’s first in France.

The duo supplied a total of E1.317 billion, with minority investors – including West LB, HSBC and Goldman Sachs Capital Partners contributing the remainder – bringing the equity stake to a whopping E1.76 billion.

The balance of the transaction was financed with E1.82 billion of senior debt and E600 million of mezzanine debt.

In October 2001, it looked liked the strategic company Schneider Electric had a deal all but sewn up to purchase Legrand for E5.4 billion. That is, until the European Commission stepped in and red-flagged the deal, which subsequently barred the company from owning Legrand due to the monopoly created from the transaction.

By June 2002, after Schneider reached an agreement to unload Legrand to Wendel for E3.7 billion, the European Court stepped in and ruled that the EC’s decision would be overturned, thereby allowing Schneider to continue ownership of Legrand. Schneider decided to go ahead with the sale to the Wendel consortium anyway, stating the EC’s “hostility to the merger” as a reason for sale.

After Schneider made the announcement Dec. 3 that it would not go through with the merger, the buying group immediately responded and closed the deal just seven days later.

Syktyvkar Forest Enterprise by Baring Private Equity Partners

Baring Private Equity Partners’ purchase of Syktyvkar Forest Enterprise is the largest-ever acquisition of a formerly state-owned Russian company, according to Baring’s Mike Calvey, the managing partner of the Baring Vostok Private Equity Fund and a member of the board of directors of both Baring Vostok and Vostok Capital.

“This is the largest ever M&A transaction of a state-owned company into a private company post-Soviet Union,” said Calvey.

The investment was realized in 2002 for $36 million via a trade sale from parent company Mondi Group, and BPEP’s Russian fund was the lead investor in a consortium that collectively owns 70% of the company. Baring Vostok typically invests in buyouts of energy, telecommunications, media services and consumer products companies.

Syktyvkar was one of the last paper and pulp plants built by the Soviet Union, and its relatively modern equipment has given it a competitive advantage against many domestic and international competitors.

“This is unique in Russia,” said Calvey. “It’s the first true success story in restructuring a formerly state owned company into a competitive international player in the paper industry.”

Nellson Neutraceutical by Fremont Partners

Fremont Partners’ purchase of Nellson Nutraceutical gives the private equity firm an edge in the energy and nutrition food sector. Fremont purchased the food maker for approximately $300 million slightly over six times EBITDA.

Nellson formulates and manufactures nutrition bars and powders used to serve specific purposes such as energy/sports nutrition, bodybuilding, diet/weight loss and wellness/clinical.

Nellson has a 40% market share in the specific sector they operate in, and over 80% of the company’s revenues derive from long-term contracts. Sales have increased for Nellson since 1998, with EBITDA also showing a rapid ascent during the same time period. With baby boomers and the z’ generation (ages 15 to 24) showing increases in annual population growth (they are the biggest users of these products), coupled with a 10% increase in overweight Americans, Fremont – by way of the Nellson purchase – may be in the right place at the right time.

To gain the right to purchase Nellson, Fremont had to contend with at least four other billion-dollar-plus funds, but the buyout shop has a sizable fund of its own – Fremont Partners III, a $920 million fund. This is a significant increase over Fremont Partners II, a $605 million fund raised in 1996.

Lerner New York/New York by Bear Stearns

Bear Stearns acquired Lerner New York/New York from Limited Brands Inc. for $153.5 million. Upon completion of the deal, the acquired company changed names, becoming New York & Company.

If it’s true that the only number in retail is the bottom line, then Bear Stearns made a good move purchasing the women’s clothier. The cost to Bear was roughly half what Limited paid in 1985 for the retailer.

At closing, Limited received $78.5 million in cash, $75 million of seller-subordinated debt and warrants for 15% of the common equity.

CapitalSource contributed $20 million in mezzanine financing and CIT and Congress Financial led senior funding.

According to John Howard, senior managing director at Bear Stearns’ Merchant Banking Group, the firm is in the unusual position of achieving positive results with minimum risk.

“At closing, there is virtually no debt other than the mezzanine financing,” he said.

“With significant debt capacity and ample cash flow to fund store expansions, we have the ability to undertake a massive growth program…it’s a low-risk strategy,” Howard added.

Lerner’s current management, in place for the last six years, will receive “the attention and sunlight they need to succeed in the future,” according to Howard.

Petco by Leonard Green and Texas Pacific Group

Among the other standout exits in 2002, Leonard Green & Partners and Texas Pacific Group came through with one of the more successful public offerings at a time when the IPO market has been mired in one of its biggest slumps. In the first quarter, the firms floated their Petco pet supplies portfolio company in a public offering, netting $275.5 million. Leonard Green and TPG originally acquired Petco in 1999 in a $600 million recapitalization, and after the offering still hold 15 million shares.

The investment returned 4.5 times the buying group’s invested capital and provided an IRR north of 100%. Also, while the rest of the stock market has languished, pet supply companies have managed to flourish. The stock was originally priced at $19 a share for its debut on the exchange, and added a dollar in its first session, with over 15 million shares changing hands. Since its floatation, Petco has reached as high as $25.27 a share, and this past January, Petco filed a $345 million secondary offering.

Houghton Mifflin by Bain Capital and Thomas H. Lee

Bain Capital’s and Thomas H. Lee’s acquisition of Houghton Mifflin stands out among the better large-market and public-to-private deals this year, as the buying group was able to capitalize on their previous experience bidding for Harcourt General, and this time, was able to walk away with the prize. The Blackstone Group was also brought on as an equity investor, once the deal was completed. The firms paid $1.65 billion for Vivendi’s former U.S. publishing unit, which represents a significant discount to the $2.2 billion that the French media-conglomerate originally paid for the division in 2001.

The buying group financed the deal with the help of a $1 billion high-yield bond offering, an increase over its originally planned $500 million offering, as the firms took advantage of improving conditions in the junk bond environment. The increased offering was pitched using Houghton’s stability and dependable cash flow as selling points, two factors that drew the buying consortium to the company in the first place.

Brake Bros. by Clayton Dubilier & Rice

Clayton Dubilier & Rice’s $967 million dollar acquisition of Brake Bros. PLC was one of the more notable deals in Europe last year. Brake, which caters to the UK and French markets, took in EBITDA of E40 million on revenues of E1.38 billion in 2001, and since it first went public in 1986, the company has shown uninterrupted growth and has seen an increase in profits in all but one of those years.

CD&R utilized its $3.5 billion Fund IV for the purchase.

CD&R beat out some heavy hitters in the European buyout world, including Paribas and Deutsche Bank Capital Partners, and the deciding vote – from the Brake family – went to CD&R. The Brake family chose CD&R in part because the owners felt the buyout shop would be a good steward for the company. CD&R’s reputation for closing deals and growing business on a pan European basis didn’t hurt, either.

In the deal, CD&R provided E270 million of equity and assumed E175 million of the company’s high-yield debt. J.P. Morgan Chase and Credit Suisse First Boston agreed to supply the financing in three pieces, including a E220 million senior term-loan facility and two revolvers totaling E75 million. The buyout shop shaped the deal to provide a long-term stable supply of capital, while allowing for flexibility regarding future investments from the food company.