The sun is shining, the weekend is nearing and I’m back in the home office after a redeye that didn’t ultimately take off until past midnight Pacific Time (first the plane was late, and then so was the crew). In other words, it’s time for some (weary) Friday Feedback.
First up are a couple of responses to yesterday’s column about New York City’s decision to lift its blanket ban on private equity placement agents:
JS: “Disclosure of relationships, duties, fees and bans on political funding make a lot of sense. That is what went wrong in NYC & CA. Allowing only registered agents and ones that have raised $500+ mill is nonsense. How do the last two things fix what went wrong in NY? Making people register with the SEC doesn’t weed out all of the crooks, it just makes them better crooks. Raising over $500 million just forces companies, li! ke mine, to pay more for placement services and potentially makes it more difficult for us to raise the money by reducing competition. The fund will be a taker of what is shown to it rather than selecting what is best for it. Maybe I am wrong and 90-100% of what they currently look at comes from agents who fit the profile, but at a minimum, it reduces their flexibility which should reduce returns over time.”
Anon agrees: This policy was obviously not well thought out as it misses way too many details. Just to mention a couple: What about the possibility of these large placement agents outsourcing to a local broker/consultant to help raise NYC money? And secondly and perhaps most importantly (sorry Dan, I think you’re way off on this one), the $500mm floor is no minor issue. It virtually assures that only a handful of agents (all the bulge brackets that put us in this financial economic mess by the way) can work with NYC, thus potentially putting less funds in ! front of NYC, making it more costly for GPs to use placement agents, a nd unjustly putting too many smaller legit firms on the outside looking in.
*** Albert on the Fallbrook IPO filing: “There really seems to be a major disconnect between the public and private markets right now. You’ve got the public markets shunning new issues left and right (look at what happened to Blackstone last week), and then you have these revenue-challenged startups still thinking it’s 1999. The private investors and underwriters should both know better.”
*** Near-universal reader disagreement with my criticism of Steve Schwarzman’s op-ed about how “uncertainty” has curtailed bank lending. Specifically, I raised the issue of how banks are now willing to provide financing to leveraged buyouts (such as the SkillSoft deal that was announced the morning of the op-ed):
VK: “I think you are missing the point. The issue is that for big deals (in which the debt will have liquidity post issuance) will get done as your examp! le suggests. It is the small illiquid deals that are at issue. A bank does not want to hold the debt on balance sheet if it cannot move it especially if the capital requirement rules et al change. In the large issues, the banks know there will be mutual funds and other institutions that want that product. However, try getting a deal done for $35M and see the difference in terms and pricing (if you can get it at all). I think that is what Schwarzman is talking about.”
I partially concede the point VK – the “partial” is because that market for large LBO debt is not nearly so liquid as you suggest. Just ask Energy Future.
Bo: “I would posit that it’s not regulatory uncertainty but capability uncertainty undermining the banks’ willingness to lend. If a commercial banker’s job is to assess the credit worthiness of its clients, and if bankers today, for a whole host of reasons, have a dull tool-set for today’s requirements, then it makes lots of sense to me ! that these same bankers would recoil sharply in the face of what they perceive to be increased risk. This perceived risk is really just a slope in the cycle, opportunity masquerading as risk.”
Eric: “Dan, I like your reporting but you are dead wrong about the effect of uncertainty on economic recovery. LBO lending is easy to open up because of the implicit credit support of a fund sponsor. It is a completely different, however, from the kind of every day working capital lending that supports small business. Don’t be asking sponsors about the availability of buyout financing and multiples, ask small mid-market lenders about their advance rates on accounts and inventory, and how those compare over time. Ask also about standards for consumer credit and residential mortgage lending.”
Andy: “You’re right that banks have selectively continued to lend in the face of the regulatory uncertainty and that those loans might undermine Schwarzman’s argument. But as a banker, I know my institution will continue to be cautious (sel! ective) until we believe/understand that a broad economic recovery is underway. And the fact is, so long as the White House is chastising banks/Wall Street/capitalism/you name it, banks will continue to be reluctant to open up the loan spigot. Until then, you and I will only hear of the one-off SkillSoft deals.”
Finally, I’ve been on the road a bunch this month, and the most common questions asked has been if J and I got a new cat. The answer is yes, we adopted one last month from a local shelter. He’s a bit deaf, but he’s lovable and sitting at my feet as I write this (he was found in an abandoned barn full of dogs, so he has some species identity issues). Here’s a photo.
Have a great weekend!
Nataxis said that it is in talks to sell its French private equity business to AXA for around €507 million.
Moonshoot, a Palo Alto, Calif.-based developer of an online gaming experience for teaching English to children, has raised $6.6 million in VC funding from Alsop Louie Ventures and TL Ventures. The company also announced the addition of Tom Kalinske as executive chairman.
Lineage Power Holdings Inc., a portfolio company of Gores Group, has agreed to acquire PECO II Inc. (Nasdaq! : PIII), a Galion, Ohio-based provider of engineering and on-site installation services related to communications power systems and power distribution equipment. The deal is valued at around $16.7 million, with PECO stockholders to receive $5.86 per share (51% premium to yesterday’s closing price).
EveryScape Inc., a Waltham, Mass.-based developer of a virtual online experience of actual metro, suburban and rural areas (“The Real World Online”), has raised $6 million in Series C funding. SK Telecom Americas led the round, and was joined by return backers Dace Ventures and Draper Fisher Jurvetson.
MyEdu, an Austin, Texas-based provider online tools to help students manage the process of obtaining a college degree, has raised $5.5 million in Series B funding led by Bain Capital Ventures.
Parallels, a Switzerland-based provider of cloud services enablement, has raised an undisclosed amount of VC funding from Bessemer Venture Partners and Russia Partners, an affiliate of Siguler Guff & Co.
Catalyst Capital is leading a C$120 million bid for Canwest Global Communications, which previously received an offer of approximately C$100 million from Shaw Communications.
TelePacific Communications, a Los Angeles-based CLEC for SMEs in California and Nevada, has secured a $395 million senior credit facility. TelePacific is a portfolio company of Clarity Partners and Investcorp.
Altitude Capital Partners has sold the entire patent portfolio of Saxon Innovations LLC to Norman IP Holdings LLC and RPX Corp. No financial terms were disclosed. Saxon was formed in August 2007 to buy around 180 patents from Legerity Corp., which previously was a spinout from AMD Corp.
Firms & Fund
FedCap Partners, a Reston, Va.-based private equity firm focused on the Federal contracting industry, has held a first close on $15.5 million for its debut fund. According to a regulatory filing, the fund target is $30 million.
The New York Common Retirement Fund reported a 22.3% rate of return through December 31, 2009, which is the end of the Fund’s third fiscal quarter.
John Kelly, former president and CEO of Crown Castle International Corp., has joined Berkshire Partners as an advisory director.
Noel Gruber has joined BuckleySandler as counsel, with a focus on representing U.S. financial institutions on securities, corporate, transactional and regulatory matters. He previously was with Kennedy & Baris LLP.