peHUB Wire: Monday, July 20, 2009

Last week, a generous reader sent over materials from The Blackstone Group’s annual meeting, which took place in mid-May at The Waldorf Astoria. Goes without saying that he/she is currently my favorite reader…

More than 100 pages of performance, predictions, posturing and (a bit of) prostrating. Rather than try to weave it all into a confused narrative, my plan is to just run through what I consider to be the most interesting items:

– On the current economic conditions: “No one working today has seen anything like this… More depression than recession… Visibility is extraordinarily limited. It is a time for caution… The survivors, even if they sit on the sidelines a little too long, will have a period of fantastic investment opportunities as we recover.”

– “When things do turn, we will be rapid committers of capital, similar to 2003 and 2004. Until then, we will be very cautious exposing LPs’ capital, with the exception of purchasing debt at significant discounts.”

– “Since 2000, Blackstone has used placement agents to raise ~14% of the total capital raised for its private equity funds. In situations where we used a placement agent, affected LPs are notified of the identity of and compensation to such agents.”

– “You almost never screw up by replacing a CEO, but keeping a weak one can be devastating.”

– Blackstone reported that it had raised $8.6 billion for its sixth global buyout fund (BCP VI), including a $500 million minimum commitment from the general partner. It subsequently held a June 1 close on between $400 million and $500 million (only “anticipated” in docs, but later confirmed via a source).

– Blackstone had $6 billion in available capital in BCP V, and plans to begin investing the sixth fund in! the first half of 2010. Of that $6 billion, between $1.5b and $2b wil l be used for debt repurchases.

– Potential Clawbacks: $111.8m on BVP V ($22.4m in escrow); $71.3m in Blackstone Communications Partners ($18.5m in escrow). No potential clawbacks on BCP II, BCP III and BCP IV.

– BX participation in 25 largest LBOs: 16% in 2005, 24% in 2006 and 4% in 2007.

– Interesting that BX spends a god deal of time discussing income inequality.

– Blackstone’s entire 2008 loss from its private equity portfolio was unrealized.

– Blackstone will recognize a 1.37x MOIC and 16.3% gross IRR on the sale of Stiefel Labs to GSK. The firm acquired an 18.8% stake in Stiefel in August 2007, and wrote down the deal’s MOIC to 0.7x at the end of 2008.

– The firm’s group purchasing program for healthcare was formed last year, and its 2009 annual savings are projected at $50 million. The Year 3 proj! ection is $150 million. Currently enrolls 93k employees across 23 portfolio companies, including Hilton, Biomet and Orbitz. Portfolio companies can remain in program after Blackstone has exited its investment. Blackstone will soon expand the program to include 15 ancillary benefits, including dental insurance, COBRA administration and life insurance.

– The majority of Blackstone’s portfolio companies don’t have covenants (excluding publics, devcos and debt portfolios). More than 80% of Blackstone’s total portfolio debt matures in 2013 or later ($34.8b due in 2013, $16.8b in 2014, just $4.1b 2009-2012).

– Completely wrote off $130m purchase of a Deutsche Bank debt portfolio, and was holding a $100m purchase of a Citi debt portfolio at 30% as of 12/31/08. Both purchases occured in April 2008.

– Blackstone’s largest-ever equity check was in the Hilton Hotels buyout. Its $1.44 billion investment was ma! rked down by 48.68% as of 12/31/08.

– Firm wrote two o ther $1b+ checks: Freescale (marked down by 85%) and Biomet (marked down by 9.96%).

– SunGard was being held at cost (investment split between two funds).

– Two partially realized BCP V investments: Center Parcs (31.5% IRR) and Travelport (58.1% IRR). Combined equity checks of $1 billion.

– What We Got Wrong: (1) We expected a normal recession, not a collapse; (2) We expected tighter credit, not failure of our financial system; (3) We forgot some lessons of the past; (4) We let the continuing ebullient activity around us undercut our resolve; (5) We made too many new investments.

– Six themes driving new investments: (1) Mid-sized, value-oriented businesses; (2) Investing in new or undercapitalized financials; (3) Rescue financings and distressed debt; (4) Asian growth investments; (5) Corporate partnerships; (6) Cyclical rebound.

Top Three

Oraya Therapeutics Inc., a Newark, Calif.-based developer of radiosurgical treatments for eye diseases, has raised $42 million in Series C funding. Domain Associates and Scale Venture Partners co-led the round, and was joined by return backers Essex Woodlands Health Ventures and Synergy Life Partners. The company previouslyraised $22 million.

Ladder Capital Finance, a New York-based specialty finance company focused on the commercial real estate industry, has filed for a $400 million IPO.Ladder Capital was formed last year with approximately $1 billion in equity and debt capital, co-led by GI Partners and Towerbrook Capital Partners. It plans to trade on the NYSE under ticker symbol LCG, with JPMorgan and Wells Fargo serving as co-lead underwriters.

KKR received approval to merge with Amsterdam-listed affiliate KPE, from the KPE board of directors. The move puts KKR one step closer toward being listed on the Euronext and, subsequently, on the NYSE. KKR also disclosed an updated profit outlook and more details about the planned merger, including a proposed equity incentive plan.

VC Deals

Light Blue Optics, a Cambridge, England-based developer of holographic laser projection technology, has raised $15 million in additional Series A funding. It previously held a $26 million first close in late 2007, which followed a $3.5 million seed round. Robert Bosch Venture Capital led the extension, and was joined by return backers Earlybird Venture Capital, Capital-E, 3i Group and NESTA.

Intent Media, a New York-based online advertising startup launched by the founding team of Site59, has raised $9 million in Series A funding led by Matrix Partners, according to a regulatory filing (posted here). The round closed in Q1. According to its website, Intent Media “sits at the intersection of online retail and advertising, and aims to unlock the vast media value that exists inside of e-com! merce sites.”

BiancaMed, a Dublin, Ireland-based developer of sleep monitoring technology for conditions like sleep apnea, has raised €6 million in second-round funding. Seventure Partners led the round, and was joined by return backers ePlanet, Enterprise Ireland and ResMed. Go4Ventures served as placement agent.

P2i Ltd., a UK-based developer of liquid-repellent nano-coating technology, has raised £4.1 million in Series C funding. Swarraton Partners led the round, and was joined by Naxos Capital Partners and return backer Unilever Ventures. P2i was advised ! on the deal by ICON Corporate Finance.

Quantum Immunologics Inc., a Tampa, Fla.-based developer of cancer immunotherapies has raised $2.2 million in VC funding from Mentor Capital.

AdChina, an online advertising network in China, has raised an undisclosed amount of Series B funding. Richmond Management led the round, and was joined by News Corp. and return backer GSR Ventures. AdChina previously raised a $10 million Series A round in June 2008.

Buyouts Deals

American Industrial Partners has completed itsbuyout of the motor home business of Fleetwood Enterprises Inc. (OTC BB: FLTWQ). The dealwas valued at $33.2 million, including certain assumed liabilities. Greenhill & Co. ran the sale process. Fleetwood shareholders include Tennenbaum Capital Partners.

Cerberus Capital Management has become majority shareholder of Alpha Media, publisher of Maxim magazine, via a debt-for-equity swap. Quadrangle Group had bought Alpha for around $250 million in 2007, but had previously written off its investment.

CrossHarbor Capital Partners has compl! eted its acquisition of the equity interests in the Yellowstone Club, a Big Sky, Montana-based ski and golf resort.

Wynnchurch Capital has completed its acquisition of Sencorp, the parent company of Cincinnati-based toolmaker Senco Products. The deal was valued at $41 million.

PE-Backed IPOs

Addus Homecare Corp., a Palatine, Ill.-based provider of social and medical services in the home, has filed for a $69 million IPO. It plans to trade on the Nasdaq under ticker symbol ADUS, with Robert W. Baird and Jefferies & Co. serving as co-underwriters. Eos Partners is the company’s majority shareholder.

Lung Ming, a Chinese iron ore minor, is planning to raise between $500 million and $1 billion via an IPO in Hong Kong. Company backers include Hopu Investment and Temasek.

PE Exits

Hewlett-Packard has agreed to acquire Ibrix, a Billerica, Mass.-based provider of enterprise-class file serving software. No financial terms were disclosed. Ibrix has raised around $45 million in VC funding since 2003, from firms like JT Venture Partners and Credit Suisse.

ONGC, India’s largest oil producer, has retained Citigroup to advise it on a bid for Kosmos Energy’s stake in a Ghana oil field (Jubilee), which could be worth between $3 billion and $5 billion. Kosmos shareholders include The Blackstone Group and Warburg Pincus.

PE Bankruptcies

The Lang Companies, a Delafield, Wisc.-based maker of stationary and related products, has filed for Chapter 11 bankruptcy protection. Catterton Partners acquired Lang in 2003, and holds more than a 90% equity position.

TowerBrook Capital Partners has filed an involuntary bankruptcy petition against Wilton Holdings Inc., a GTCR-owned maker of food decoration equipment. Towerbrook, via an affiliate, is one of Wilton’s creditors.

Firms & Funds

Monroe Capital, a Chicago-based merchant bank and specialty finance shop, has formed a mid-market credit advisory practice. It will be led by Mark Gertzof, formerly a managing director with Merrill Lynch Capital, and Christopher Gentry, formerly a director with Concord Financial Advisors.

Human Resources

Fortress Investment Group (NYSE: FIG) has named former Fannie Mae boss Daniel Mudd as its new CEO, succeeding firm co-founder Wesley Edens. Mudd currently serves on the Fortress board of directors.

Richard Shafer has been named interim chief investment officer of the Ohio Public Employees Retirement System (OPERS), nearly two months after fulltime CIO Jenny Hom stepped down. Shafer joined OPERS in May, after having served as director of investments for the New Hampshire Retirement System and, before that, was chief investment officerof the Alaska Permanent Fund.

Che-Ning Liu has stepped down as head of Hong Kong investment banking for Morgan Stanley, and will join HSBC.