In late March, Goldman Sachs distributed some institutional client research detailing its leveraged buyout model. I only got leaked a copy yesterday, so apologies for the tardiness.
The 46-page document is about half boilerplate and marketing materials for an interactive LBO return calculator, which apparently is accessible to Goldman clients. The rest, however, reads like a recommended list of public takeover targets.
Specifically, Goldman has plugged 937 non-financial companies into its calculator, in order to determine projected five-year IRRs. It assumes a 20% purchase price premium, with the median IRR coming out to 10.6 percent. Given that the typical IRR hurdle rate is around 20%, most of the companies Goldman analyzed were not considered buyout-worthy. On the other hand, it did come up with 16 companies that not only got past the hurdle rate, but also surpassed the 50% IRR mark. The top dogs were: Performance Food Group Co. (PFGC) at a 75.7% projected IRR, SuperValu Inc. (SVU) at 74.7%, CB Richard Ellis (CBG) at 71.3%, Sunoco Inc. (SUN), Alexander & Baldwin Inc. (ALEX) at 70.4%, Circuit City Stores Inc. (CC) at 69%, Unisys Corp. (UIS) at 65.6% and Rite Aid Corp. (RAD) at 65.6 percent.
It also provides a list of stocks whose projected IRRs currently are below 20%, but which it believes could be lifted above the hurdle via operational restructuring (which I thought was usually standard in an LBO). These include Diamond Offshore Drilling (DO), Burger King (BKC), Atwood Oceanics (ATW) and The Ryland Group (RYL). Finally, it suggests that companies like The Finish Line Inc. (FINL), Valero Energy Inc. (VLO), P.F. Chang’s (PFCB) and OfficeMax (OMX) are primed for leveraged recaps.
I should also point out one giant caveat to everything I just wrote: None of the projected IRRs are based on specific buyers. Instead, they are offered in a vacuum – even though we all know that certain firms are better post-deal than others. Moreover, many buyout offered assume cost-savings based on synergies with existing portfolio companies, or because of inside industry knowledge. Two brief examples related to yesterday’s U.S. Foodservice deal: Wellspring was a (losing) bidder, in part, because it already owned Vistar. Moreover, CD&R bid, in part, because it had once owned something called Alliant, which it had sold to U.S. Foodservice a couple of years back.
*** Private equity has historically outperformed the S&P 500, but critics often argue that the advantage disappears once fees are taken into account. In other words, it’s a narrow edge that might not justify the risk.
Over the past year, however, private equity firms have been doing their darndest to remove risk from their equations — and the result is reflected in new performance data from Thomson Financial (download here).
Specifically, it’s reflected in the short-term buyout performance. One-year performance for buyout firmsleaped from 19.4% to 24.5% between the end of Q3 2006 and the end of Q4 2006. Three and five-year performance also experienced increases, to 14.6% and 10.1%, respectively. Ten and 20-year performance dipped just slightly to 8.5% and 12.9%, but has remained relatively consistent for the past several years.
*** Alex has some extensive thoughts and recommendations for VC-backed Digg.
*** Larry writes that My Conference is Bigger than Yours
*** Endowment manager Mike X on why Dow Jones must sell.
Have a great weekend…
AVEO Pharmaceuticals Inc., a Cambridge, Mass.-based oncology drug company, has raised $53 million in Series D funding. New investors include: Biogen Idec, Bessemer Venture Partners, Merlin BioMed Group, Mitsubishi UFJ Financial Group and Vatera Holdings, an investment vehicle owned by Kos Pharma founder Michael Jaharis. Return backers include: Highland Capital Partners, Venrock Associates, MPM Capital, Prospect Ventures, Flagship Ventures, Oxford Bioscience Partners, Greylock Partners, Lotus Biosciences and GE Capital. AVEO had raised $63.2 million in VC funding, plus $15 million in venture debt from Hercules Technology Growth Capital. www.aveopharma.com
CVC Capital Partners and PAI Partners have offered to acquire Spanish cigarette maker Altadis for €12.8 billion. The €50 per share offer tops a previously-rejected €48 per share offer from Imperial Tobacco Group.
AMC Entertainment Inc., a Kansas City-based movie theater chain, has indefinitely suspended its IPO due to “adverse market conditions.” The offering had been designed to raise nearly $790 million, with Goldman Sachs serving as lead underwriter. Shareholders include JPMorgan Partners (20.78% pre-IPO position), Apollo Management (20.78%), Bain Capital (15.09%), The Carlyle Group (15.09%) and Spectrum Equity Investors (9.76%). www.amctheatres.com
RedSeal Systems, a San Mateo, Calif.-based provider of security risk management solutions, has raised $17.1 million in Series B funding. Venrock led the deal, and was joined by Jafco Ventures and return backers Sutter Hill Ventures and Leapfrog Ventures. www.redseal.net
LV Sensors Inc., an Emeryville, Calif.-based developer of next-generation car brake sensors, has raised $15 million in Series B funding, according to a regulatory filing. Mayfield led the deal, and was joined by return backer U.S. Venture Partners. www.lvsensors.com
Naviscan PET Systems Inc., a San Diego-based developer of high-res PET scanners, has raised $15 million in Series C funding. QuestMark Partners led the deal, and was joined by return backers Sanderling Ventures, Mayo Medical Ventures and Walker Ventures. www.naviscan.com
Conformia Software Inc., a Sunnyvale, Calif.-based provider of compliance management software for regulated process industries, has raised $12.3 million in Series C funding, according to a regulatory filing. Jafco Ventures led the deal, and was joined by return backers Foundation Capital, Mentor Capital Group and Sequoia Capital. www.conformia.com
iAmplify, a New York–based online video distribution company focused on content created by industry experts, authors and celebrities, has raised $6 million in Series A funding from Kodiak Venture Partners. The deal closed late last year. www.iamplify.com
Quattro Wireless Inc., a Waltham, Mass.-based developer of mobile web network infrastructure, has raised $6 million in Series A funding from Highland Capital Partners. www.quattrowireless.com
Hexaformer, a Swedish maker of distribution transformers, has raised SEK 30 million ($4.44 million) in venture funding from InnovationsKapital. www.hexaformer.com
Rx Networks Inc., a Vancouver-based developer of mobile positioning technology and services, has raised $3.3 million in Series A funding from Telus and the British Columbia Discovery Fund. www.rxnetworks.ca
Apollo Management has sweetened its bid for logistics company EGL Inc. (Nasdaq: EAGL) from $41 per share to $43 per share. The bid values EGL at approximately $1.75 billion. EGL earlier this year accepted a $38 per share sale to a group that includes EGL CEO Jim Crane, Centerbridge Partners and The Woodbridge Co. Apollo has sued to block that agreement, arguing that EGL had ignored a higher offer from Apollo. www.eaglegl.com
Bain Capital and Thomas H. Lee Partners offered to revise their bid for Clear Channel Communications, but were rejected by the board of directors. The revised offer would have been $39.20 per share — compared to $39 per share – and $39.60 per share for the company’s directors and co-founders. It also offered “stub equity,” whereby shareholders could opt for a combination payout of cash and stock in the surviving corporation (up to an aggregate cap of 30% of outstanding shares post-merger, or 6% pre-merger).
The Riverside Company has acquired International Junior Golf Tour Inc., a Hilton Head, S.C.-based golfing academy for young people. No financial terms were disclosed for the deal, which was done out of riverside’s micro-cap fund. www.riversidecompany.com www.heritagehhi.com.
EMI Group PLC said that it has received “preliminary indications of interest” from possible buyers. It did not identify its suitors, although One Equity Partners is rumored to be in the mix with an offer of nearly $6 billion.
Allied Capital has agreed to acquire a majority interest in Old Orchard Brands LLC, a Sparta, Mich.-based maker of ready-to-drink and frozen juice products. Allied’s $64.6 million investment included senior notes, senior subordinated notes and a majority of the common equity of the company. Senior company management also provided equity alongside Allied. William Blair advised Old Orchard on the deal. www.oldorchard.com
TMB Industries, a Chicago-based private equity firm, has acquired Richland Center, Wis.-based iron casting maker Richland Center Foundry from Schneider Fuel & Supply Co. No financial terms were disclosed. www.rcfoundry.com
Accutest Corp., a Dayton, N.J.–based operator of environmental testing laboratories, has received an undisclosed amount of private equity funding from Boulder Capital. www.accutest.com
Andrew Corp. (Nasdaq: ANDW) has retained CIBC to advise it on a sale of its satellite communications division, which generated approximately $122 million in 2006 sales. www.andrew.com
Devax Inc., a Lake Forest, Calif.-based developer of drug-eluting stent systems, has filed for an $85 million IPO. It plans to trade on the Nasdaq under ticker symbol DEVX, with Bear Stearns and Thomas Weisel Partners serving as co-lead underwriters. Devax has raised around $48.5 million in total VC funding since 2001, from firms like HBM BioVentures (30.7% pre-IPO position), InterWest Partners (12.8%), U.S. Venture Partners (12.8%) and Rock Creek Partners (8.3%). www.devax.net
Clean Energy Fuels Corp., a Seal Beach, Calif.-based provider of natural gas as an alternative fuel for vehicle fleets, has set its proposed IPO terms to 20 million common shares being offered at between $13 and $17 per share. It plans to trade on the Nasdaq under ticker symbol CLNE, with WR Hambrecht & Co. and Simmons & Co. serving as co-lead underwriters. Perseus holds a 19.5% pre-IPO position, while Boone Pickens is majority shareholder. Both plan to sell a percentage of their shares as part of the IPO. www.cleanenergyfuels.com
A123 Systems Inc., a Watertown, Mass.-based maker of lithium-ion batteries, has acquired Hymotion Inc., a Concord, Ontario–based maker of aftermarket plug-in hybrid modules. No financial terms were disclosed. A123 has raised around $102 million in total VC funding since its 2001 inception, from firms like GE Commercial Finance, Sequoia Capital, North Bridge Venture Partners, Motorola Ventures, MIT, Qualcomm Ventures, OnPoint Technologies, GE Equity, FA Technology Ventures, Boston University, Alliance Capital Partners and individual investor Desh Deshpande, chairman of A123 Systems and co-founder of Sycamore Networks. www.a123.com www.hymotion.com
American Education Group, a Grand Rapids, Mich.-based prep school acquisition platform, has launched with $35 million in private equity funding from Winona Capital Management and Chicago Growth Partners. www.americanedgroup.com
Ampac Packaging LLC, a Cincinnati-based packaging company backed by Falcon Investment Advisors and Prudential Capital Group, has acquired Mohawk Northern Plastics, an Auburn, Wash.-based manufacturer of flexible packaging for the food, beverage, home and garden and industrial markets. No financial terms were disclosed. www.ampaconline.com www.mohawkplastics.com
United Central Industrial Supply Co., a portfolio company of American Securities Capital Partners, has acquired the Mine Supply division of Persinger Supply Co. No financial terms were disclosed. www.unitedcentral.net www.persingersupply.com
Southern Theaters LLC, a New Orleans-based movie theater chain backed by Veronis Suhler Stevenson, has acquired Birmingham, Ala.-based AmStar Entertainment LLC for $40.5 million. Bank of Montreal is providing leveraged financing for the acquisition.
Microsoft Corp. has agreed to acquire ScreenTonic SA, a Paris, France–based provider of mobile advertising solutions. No financial terms were disclosed. ScreenTonic has raised around $8 million in VC funding from 3i Group and I-Source Gestion. www.microsoft.com www.screentonic.com
Broadcom Corp. (Nasdaq: BRCM) has agreed to acquire Octalia Inc., a Newton, Mass.–based fabless semiconductor company focused on the development of networking technologies based on the MoCA (Multimedia-over-Coax Alliance) standard. The deal is valued at $31 million in cash. Octalia shareholders include Cedar Fund, StageOne Ventures, Genesis Partners and the Fishman Group. www.broadcom.com www.octalica.com
Firms & Funds
Doughty Hanson & Co. has closed its fifth fund with €3.125 billion in capital commitments, including €125 million from the general partners. Limited partners include: Allianz Private Equity, HarbourVest Partners, Ilmarinen Insurance, JP Morgan Asset Management, Morley Fund Management, Partners Group, Pantheon Ventures, the State of Michigan public employee pension fund, the University of Texas Investment Management Company (UTIMCO) and Verizon Investment Management. www.doughtyhanson.com
Percy Calissendorff has agreed to join Swedish private equity firm Segulah as a partner, effective September 3. He has spent the past five years as a partner with Star Capital. www.segulah.se
Hafiz Muhammad Zubair Naseem, a junior investment banker with Credit Suisse’s energy group, was arrested on insider trading charges. Among the companies he allegedly profited on – and helped others profit on – was TXU Corp.