Pace Of Exits And IPOs Quickens In 2Q

The pace of exits, both public and private, rose in the second quarter as economic concerns continued to abate and buyout firms sought liquidity after nearly two years of market inactivity.

The number of completed M&A exits in the second quarter was flat compared with the previous three months. However, the total valuation of those with known financial terms improved significantly.

As for completed IPOs, Buyouts tracked eight portfolio companies that went public in the second quarter. This improved from the four sponsor-backed IPOs in the first quarter of 2010 and the near famine a year earlier when Rosetta Stone Inc. (backed by ABS Capital Partners, Madison Capital Funding LLC and Norwest Equity Partners) was the only IPO completed during the first half of 2009.

But that’s not to say we’re out of the woods just yet. On the public front, market chaos influenced the exit strategies many LBO shops used during second quarter. The turbulence, highlighted by a 600 point drop in the DJIA in a span of about five minutes on May 6, led many companies with LBO sponsors to cancel or postpone their IPO plans.

All told, Thomson Reuters, publisher of Buyouts, tracked 69 M&A exits from April 1 through June 23. The 31 with disclosed financial terms had a total valuation of about $10.8 billion. For the first quarter, we counted 69 M&A exits, and the 30 with known terms combined for roughly $4.3 billion. The M&A exits of the latest period also beat the count from the comparable period in 2009, when 47 such exits occurred with an aggregate disclosed valuation of $3.5 billion.

The latest period included four exits with values of at least $1 billion. This is a marked change from the first quarter, when the top exit involved HM Capital Partners LLC’s $660 million sale of Strum Food Inc. to TreeHouse Foods Inc.

The second quarter’s largest M&A exit was the merger of Stone Point Capital LLC’s Harbor Point Ltd. with Max Capital Group Ltd. The transaction has an enterprise value of about $1.4 billion. That was followed by The Carlyle Group’s sale of Vought Aircraft Industries Inc. to Triumph Group Inc. for about $1.2 billion.

Walgreen Co.’s $1.1 billion acquisition of Duane Reade Inc. from Oak Hill Capital Partners and ABB Ltd.’s $1 billion pick-up of Ventyx Inc. from Vista Equity Partners LLC were the other big exits of the period.

The Blackstone Group and Platinum Equity LLC were the LBO shops with the most M&A exits during the latest quarter, with three each. The others with at least two sales in the period were Advent International Corp., Arsenal Capital Partners LP, Carlyle Group, Cerberus Capital Management LP, Denham Capital Management LP, Harbert Management Corp., Quadrangle Group LLC and Sun Capital Partners Inc.

Oasis Petroleum Inc. scored the largest completed buyout-backed IPO of the second quarter, with a post-offer value of $1.29 billion. The Houston-based company sold 42 million shares for $14 each on June 16, to raise $588 million. Prior to going public, the oil and natural gas explorer was in the portfolio of EnCap Investments LP.

Metals USA Holdings Corp. has the second-highest post-offer value at $777.5 million. The Houston, Texas-based company sold 11.4 million shares for $21 each on April 9, to raise $240 million. The steel processor was backed by Apollo Management.

Based on closing stock prices on June 23, four of the eight portfolio companies that went public are tracking above their IPO prices. Higher One Holdings Inc. is doing better than the others. The provider of bank services, sponsored by Lightyear Capital LLC, Jerome Capital LLC and other shops, ended trading on June 23 at $15.17, a 22 percent improvement from its $12 per share IPO price.

Among some IPO hopefuls there were disappointments, Freeman Spogli & Co.’s Smile Brands Group Inc. withdrew its plans to sell 7.35 million shares at an offering price of between $16 and $18 each. Elsewhere, American Capital Ltd. postponed the IPO of its Mirion Technologies Inc. subsidiary, as did Yucaipa Co. with its Americold Realty Trust unit.

American Capital’s Mirion was seeking to sell 11 million shares for $15 to $17 apiece. Yucaipa Co.’s Americold was seeking to sell 43 million shares for $14 to $16 each, but revised the plan to sell 60 million shares instead at lowered range of $9 to $11 each. The IPO plan revision came a day before the market’s wild ride of May 6.

Still, many portfolio companies continue to pursue IPOs. Among these public filers is Nielsen Holdings BV. The Dutch market research firm, best known for tracking television viewership ratings, seeks to raise as much as $1.75 billion. Nielsen was taken private by a group of buyout shops in 2006. The consortium was led by Kohlberg Kravis Roberts & Co. and Thomas H. Lee Partners. Others in the group were Blackstone Group, Carlyle Group LLC, Hellman & Friedman LLC and AlpInvest Partners NV.

Toys “R” Us Inc. also filed its plans for a $205 million IPO. The toy retailer was delisted in 2005 when it was purchased by KKR, Bain Capital and Vornado Realty Trust.