Note: I’m filling in for Dan today as he recovers from peHUB Across America II. But, amazed at the audacity of the WaMu deal, he managed to squeeze in some commentary on last night’s Black Monday-come-early.
WaMu: The Worst Deal in Private Equity History?
Before I get into this, three quick caveats: (1) I just left our Seattle Shindig, after consuming a plethora of Red Stripes; (2) I’m sitting at the airport awaiting a red-eye back to Boston; and (3) I’ve slept fewer than five of the past 48 hours. Oh, and I’m officially off ’till Monday. Moving on…
Private equity firms have done hundreds of lousy deals over the deals, including such notable duds as Refco and Atkins Nutritionals. But it would be hard to find a single one worse than TPG Capital leading a $7 billion capital infusion earlier this year for Washington Mutual, which has just agreed was forced to sell itself for scrap to JPMorgan. TPG and its equity co-investors are being completely wiped out, less than five months after first making the investment.
This is a real “bloom coming off the rose” moment for TPG Capital, which was viewed by many as the world’s savviest private equity firm. There were immediate concerns when TPG originally announced the deal, particularly due to widespread speculation that due diligence was rushed because of WaMu’s pressing need for capital. “The real saving grace was that [TPG co-founder] David Bonderman had once been on the WaMu board, so I think that gave everyone a certain comfort level that TPG already had deep knowledge of the company’s strengths and weaknesses,” someone said to me tonight. “But clearly it was a disastrous move.”
Again, to reiterate: $7 billion lost in five months. Few private equity deals in history have even included that much equity, and I don’t believe any of them have been written-off.
It is worth noting that TPG Capital only put up $1.35 billion of the $7 billion, with most of the remainder filled by existing WaMu shareholders. There also has been wide speculation that some of TPG’s limited partners may have doubled down via co-investments, but I’m told that did not occur (although some may have participated were they existing WaMu backers independent ot TPG). So they only made a huge bet, rather than doubling down and making it a ginormous bet. Either way, they followed TPG’s lead to a horrible end.
Nitpickers may argue that this can’t be the worst private equity deal in history, because it was a PIPE (private investment in public equity) rather than a traditional PE transaction. But it’s a distinction without a difference in this case, and TPG now lays claim to the most dubious of titles.
Weigh in with your take on it here.
*** To add even more cataclysm to the morning, I’d like to offer a few more depressing pieces of news in lieu of peHUB First Read.
• Guy Hands, considered by some the shock jock of private equity, is predicting ya’ll are about to take a 75% paycut, based on an ownership period that’s twice as long as you’re used to, going forward, Bloomberg writes. Columnists at Financial Times agree that fees should come down, but disagree with Hands’ suggestion that the PE pay structure is faulty.
• 3i reported its investments have dropped 39% for the first five months of the fiscal year.
• Night of the Living PR disasters—In a further potential blow to Sun Capital and Cerberus, Mervyns (you know, their bankrupt portfolio company that they made money on) won approval to hire a forensic financial accountant to investigate whether Sun and Cerberus’s LBO of the company was the cause of its bankruptcy. Sun and Cerberus call the deal “overheated rhetoric and hyperbole” and “speculative,” LBO Wire reported. Personally I’m shocked they haven’t settled out of court somehow yet. Even if the bondholders (who are behind this suit) have no case, the bad press alone seems to be enough to want to make this all go away.
• S&P says this is the highest level for its distressed debt ratios in six years. (Does that mean it’s too early for us to be making “Great Depression” calls?
Top Three
Washington Mutual has been seized by the FDIC and sold to JPMorgan Chase for $1.9 billion. With around $307 billion of assets and $188 billion of deposits in assets, the deal marks the country’s largest ever bank failure. TPG will lose all of its $1.35 billion investment in WaMu, which it made in April of this year.
Mu Sigma, a maker of analytical decision support services based in Chicago, has received $30 million in backing from FTVentures to support expansion in Bangalore.
Accel-KKR has acquired a stake in Alexander Gallo Holdings Inc, a court reporting and litigation support services company based in Atlanta. The stake is part of the company’s acquisition of The Hobart West Group, which Accel-KKR has provided funding for.
VC Deals
Cramster, an online homework aid business based in Pasadena, Calif., has raised $3 million in Series A funding led by Shai Reshef, who has been appointed Chairman of the company.
Veramatrix, a San Diego-based content security technology company, has competed its Series C funding with new investor JK&P Capital, alongside Goldman Sachs and SunAmerica Ventures. The round tops $20 million.
MonoSol, a drug delivery developer based in Warren, N.J., has received $20 million in financing, which includes the conversion of a year-old $10 million bridge loan. Ed Bass Group led the financing with The Halifax Group, and CNF Investments participating.
Ostara Nutrient Recovery Technologies Inc., a Vancouver-based developer of technologies that recover recyclable resources from wastewater, has raised US$10.5 million in VC funding. VantagePoint Venture Partners led the round, and was joined by Foursome Investments.
Affiris GmbH has raised $4.4 million in funding MIG AG. The company is based in Vienna, Austria, and develops therapeutic vaccines.
Omeros Corporation, A Seattle-based biopharmaceutical company, established a $20 million debt facility from BlueCrest Capital Finance. The deal includes a $5 million term loan. Omeros has received investments from firms including ARCH Venture Partners, Aravis Venture, Novartis Venture Fund and Vulcan Capital. The company and filed for a $115 million IPO in January.
TipJoy, a blogging micropayment startup based in Cambridge, Mass., has raised $1 million in series A funding led by Betaworks. The Accelerator Group, Chris Sacca and David Shen Ventures participated.
Purewire, an online security company based in Atlanta, raised $1 million from Intersouth Partners and State of Georgia Seed Fund. The company’s total financing is $4.75 million.
Buyout Deals
Water Street Healthcare Partners has completed its agreement to acquire 69% of CareCentrix from Gentiva Health Services for $147 million. CareCentrix is a manager of medical and nursing services based in Hartford, Conn.
Falconhead Capital has acquired a controlling interest of an undisclosed size in Vernon, Calif.-based Not Your Daughter’s Jeans, an apparel company targeting Baby Boomer women.
Lehman Brothers has hit a snag in the sale of its investment management business thanks to problems with the new company’s management structure, compensation, and valuing the firm’s private equity assets, according to reports.
Centaurus Capital has sold half of its stake in Atos Origin, a French IT services company. The firm has no plans to walk away altogether, Reuters reported.
Birch Hill Equity Partners and Westerkirk Capital have completed their acquisition of Sleep Country Canada Income Fund, a publicly-traded Canadian mattress retailer. The bid is valued at C$299 million. The acquirers assumed approximately C$57 million in Sleep Country debt.
Millennium Private Equity has made an undisclosed minority stake investment in Turin Networks, a Petaluma, Calif.-based ethernet services provider. Millennium Private Equity is based in Dubai.
Hamilton Robinson Capital Partners has acquired MEGTEC Systems from its parent company Sequa Corporation for an undisclosed amount. Sequa Corp. is owned by Carlyle Group. Paper and wood products supplier MEGTEC had revenues of more than $250 million in 2007.
Cerberus Capital Management has offered $2 million in Chapter 11 financing to Hard Rock Park, a Myrtle Beach tourist attraction that filed for bankruptcy.
3i Group has agreed to invest between $183 million and $229 million for a minority stake in Krishnapatnam Port Co., a port developer in South India, LBO Wire reported.
PE-Backed M&A
Edvantage Group, an events agency based in Brighton, England with backing by Alliance Venture, Asset Management Co., Foinco Invest, Northzone Ventures and Reitan Invest, has purchased the e-learning division of Futuremedia.
Firms & Funds
H. Shepardson Wild has plans to launch a clean tech venture fund named Sequel Energy Solutions, Dow Jones reported.
Blue Horizon Equity, a San Francisco buyout firm launched by a former FTVentures co-founder, is seeking to raise $150 million for its debut fund, LBO Wire reported. The firm will invest with a healthy lifestyle focus.
Fortress Investment Group, a publicly traded private equity group based in New York, N.Y., announced it will not pay its dividend for the third quarter because it needs to preserve capital.
United Services Management Corp., a SPAC founded by Joseph R. Wright, has withdrawn its $160 million IPO due to market conditions.
21 Investimenti, a mid-market private equity group based in Italy, has closed its second fund over its €200 million target at €280 million ($410 million). The fund includes 26 LPs with 15 new investors.
Human Resources
Palamon Capital Partners, a pan-European mid-market private equity house, has appointed former Netscape chief financial officer Peter Currie to its board of advisers.
UBS hired Jeffrey Mayer, the former co-head of fixed income at Bear Stearns, as its new joint global head of fixed income for its investment bank.
Altius Associates, based in Richmond, Va., has hired Jay Yoder for expansion into real estate. Yoder was previously director of investments for Smith College and Vasser College.
Timothy Biro, managing partner of Cleveland-based VC firm Ohio Innovation Fund, has been charged with vehicular homicide. Police allege that Biro ran over a bicyclist on Tuesday night, and did not stop until being pulled over several miles away. They add that he had a small amount of alcohol in his system, but not above the legal limit. Biro reportedly told authorities that he had thought he hit a pothole. The Ohio Innovation Fund’s website has been stripped of all but its logo, as of late Wednesday night. A cached version, however, says that Biro also has served as a general partner with Reservoir Venture Partners, and in “operations management” with Merck & Company.
CalPERS has named Randall Mullan as senior portfolio manager for infrastructure investments, effective October 14. He previously was with British Columbia Investment Management Corp., where he served in a similar role.
Robert Young and Ken Hausman have joined Darwin Ventures as partners, while Sunil Kurkure as a principal. All three were previously with Mirador Capital.
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