In April, Buyouts reported on the opportunities for private equity firms to use sale/leasebacks to create equity to complete transactions or recapitalizations (Buyouts April 9, p. 44). At that time, a poll on our web site indicated that many of our readers had not yet incorporated this financing into their deal structures.
Since then, a number of private equity players may have found new love for the sale/leaseback. W.P. Carey, a real estate investment banking firm that specializes in sale/leasebacks, said in April that approximately 50% of its deal flow was coming from private equity firms, and that an increase was likely on the horizon. Indeed it was. This month, Gordon Whiting, an executive director at W.P. Carey, said that deal flow generated by private equity firms has jumped to approximately 80% of the firm’s business. “What’s happened is there’s not much capital available . . . and firms are now saying, you know, there’s a way we can do these deals without putting more of our equity in,'” Whiting said.
Many of the sale/leasebacks by private equity firms are being used to finance recapitalizations of existing portfolio companies as well. “We’ve also seen that it’s not just new acquisitions,” said Whiting. “They say, let’s take this time and get our balance sheet in order. Let’s work on the capital structures of this company.'”
Since May, W.P. Carey has completed five sale/leaseback financings with private equity firms. In each case, the sale/leaseback created liquidity for current portfolio companies.
Chicago-based private equity firm Code Hennessy & Simmons in May sold four facilities from its Waddington North America portfolio company, which manufactures injection molded and thermoformed tableware, to W.P. Carey for approximately $18 million, which will be used to pay down debt and invest in the company’s core business.
Also that month, Palladium Equity Partners LLC, based in New York, sold a manufacturing facility from Nexpak Corp., a media packaging company, for $13.6 million, which will be used to pay down debt and to fund other initiatives.
And New York-based J.F. Lehman last month sold and leased back two facilities from Special Devices Inc., a manufacturer of pyrotechnic devices, for $37.7 million. The equity released represents a significant portion of the company’s recapitalization plan.
Fenway Partners and Blue Capital Management, both based in New York, sold a warehouse/distribution facility from New Creative Enterprises, a designer of giftware and home decor products, to W.P. Carey for $14.8 million. The proceeds will be used to fund current operations and long term initiatives.
Finally, Atlanta-based Cravey, Green & Wahlen last week sold two facilities from portfolio company Jen-Coat Inc., a manufacturer of specialized paper and packaging products, for $11.5 million, which will be used to fund current operations and future growth.