When Edward Gilhuly and Scott Stuart left KKR in September 2005, the move surprised some in the private equity world, as the two were seen as heir apparents to Henry Kravis and George Roberts. Both Gilhuly and Stuart joined KKR in 1986, became partners in 1994, and joined the investment committee in 2000. By 2005, with Kravis and Roberts clearly not interested in giving up the reins, Gilhuly and Stuart left to start their own firm.
    Their departure was said to be amicable.
    Thus was born Sageview Partners, with Gilhuly and Stuart raising a $1.35 billion investment fund.
    Where has that money gone?
    A chunk of it will go to the purchase of ACE Aviation Holdings Inc., which agreed on Friday to sell 70 percent of itself to Sageview and…KKR. Sageview teamed up with KKR Private Equity Investors, the publicly traded KKR affiliate based in Amsterdam.
    The deal is Sageview’s first leveraged buyout. 
    Other Sageview investments include retailer Guitar Center of America and Invitrogen Corp., a provider of services to research institutions, pharma, and biotech companies.
    Sageview’s stake in Guitar Center is 8 percent, according to Reuters data, highlighting Sageview’s novel approach of focusing a significant part of their fund on minor, passive stakes and slightly larger, influential stakes. The ACE deal gets Sageview back to the LBO, controlling stake roots of its co-founders.

    As for where they stand with their former employer, clearly the fact that Sageview teamed up with KKR for ACE shows they’re on good terms. And their Website does too, which gives a lot of ink to KKR:

History
Sageview was founded in 2006 by Edward A. Gilhuly and Scott M. Stuart , two former executives of Kohlberg Kravis Roberts & Co., L.P. (”KKR”). Founded in 1976, KKR is one of the world’s oldest and most experienced global private equity firms. Messrs. Gilhuly and Stuart were at KKR from 1986 to 2005 and became partners at the end of 1994. Both served on KKR’s five-member investment committee from its inception in 2000 until their departure in 2005. They were involved directly in 28 transactions where $8.9 billion of equity capital was invested and together sat on 34 boards of directors.

    (Image credit: Company website)

In case you were wondering how rich Blackstone’s top executives are getting today, DealZone has a spread sheet set up with names, individual units, and current value (see below). Some are also wondering why nobody from Blackstone showed up to ring the opening bell at the NYSE Euronext. We’ll come back to that later. (Apparently Blackstone has said they’ll come back at a later date).

At this hour, with Blackstone trading at around $36, CEO and Co-Founder Stephen Schwarzman’s 249,808,170 shares (sorry, units) are worth $8.99 billion. That places his worth well above Rupert Murdoch’s stake in News Corp of $7.7 billion, and brings Schwarzman ever closer to Microsoft’s Steve Ballmer’s $12.6 billion worth of stock in the software company, according to Equilar.

Blackstone Co-Founder Peter Peterson for his part, has also had a pretty nice day. Not only will Blackstone pay him a one-off payment of more than $1.8 billion post-IPO, but his remaining 43,807,135 units are currently worth $1.58 billion.

Blackstone President Tony James has 52,138,201 units listed, and those are worth $1.87 billion.

Their one day gains, in terms of unit value: Schwarzman made $1.25 billion today; Peterson made $219 million; James made $260 million.

In the meantime, some on Wall Street wondered where Schwarzman was on Friday morning. As the IPO of the year (so far), Schwarzman was expected to ring the opening bell at the NYSE, seeing as Blackstone’s shares priced there. So who rang the opening bell? That would be JMP Group Inc.

Steve? Pete? Where were you?

Sources say that Schwarzman politely declined the invitation. In light of all the attention Blackstone’s received, and all the headlines about his wealth and lavish lifestyle, he thought it a good idea to stay out of the limelight, a move not unnoticed by the New York Post.

Traders seemed to agree:   

“(Schwarzman’s) been too high profile. He didn’t want to make an appearance and stand around with brokers today. The IPO already got more press than it needs. It was wise to stay away and let the markets do their work,” said Peter Costa, of NYSE member firm Lipari Partners, Inc. 
      

The official NYSE line is they invite all IPO companies to ring the open bell, but Blackstone declined, requesting a chance to come back at a later date.

(Additional reporting by Anupreeta Das) 

(Photo: Traders crowd around Blackstone kiosk at the NYSE. Reuters file)

The maneuverings to take over Dow Jones are taking daily twists and turns, but one thing remains clear: the price Rupert Murdoch’s News Corp is offering is hard to beat.

Neither Pearson or General Electric elaborated in their statements today the reasons they decided against pursuing Dow Jones, but maybe the 65 percent premium has something to do with it.

Research from Numis Corp earlier this week became the latest in a slew of analysts and experts to tell it like it is: Murdoch’s $5 billion, $60 per share offer makes it hard for most other would-be challengers to make an attractive financial return.

Meanwhile, it must be tempting for other newspaper publishers to hope for such rich valuations if they ever received an offer. But analysts think Dow Jones is a one-off, with the prestigious Wall Street Journal a prime asset where valuation and price disconnect.

“It’s like buying a Picasso,” Murray Schwartz, a mergers and acquisitions lawyer with Katten Muchin Rosenman LLP told us.  “I don’t think it will have any bearing on any other newspaper deal in the world.”

There’s been a lot said lately about The Blackstone Group, its founding members, its top ranking executives, its past, its future, its current status. But nothing about where the firm got its name. SEC filings have allowed the public to peek inside and dissect the money machine that is Blackstone, learning juicy bits of information like how much co-founder Stephen Scharzman makes ($400 million last year alone), and how much fellow co-founder Peter Peterson will cash in when the planned IPO arrives on Friday (he’ll make $1.88 billion).

And yet, nothing on the name. Blackstone is now a huge, international brand, with $88 billion under management. The firm is synonymous with private equity power, wealth, corporate turnarounds, record leveraged buyouts, asset management, and so on.

So where did “Blackstone” itself come from?

According to those in the know, “Blackstone” is simply a merging of the two founders’ last names, with a nod to their family origins.

Schwarzman has German roots and “schwartz” of course is the German word for black.

Peterson’s family tree is Greek, and in Greek, “petra” and “petros” means rock or stone.

So, there you have it–Blackstone.

Blackstone Group is probably a better choice than other options relating to their first and or surnames. DealZone took a look at some possibilities:

S&P–Already taken

Blackrock–Ditto

Stoneblack–Not bad, actually, but ending in “black” makes it too gothy. Also kind of makes you think more pirate than private equity.

P&S–No way.

Rockblack–Mouthful

Petersteve LLC–Okay, now we’re getting silly.

   The feverish pace of REIT deals appears to have hit some resistance.

Credit concerns have shaken confidence in commercial real estate lending, threatening the private equity strategy of flipping properties to fund large leveraged buyouts.

Add to that lender wariness coupled with rating agency warnings, and some experts say the surge in REIT buyouts may be at its peak.

Blackstone’s $23 billion acquisition of Equity Office Properties in February was the largest REIT deal ever and one of the largest leveraged buyouts ever. After the deal was announced, Blackstone sold off a bunch of properties to pay for the EOP purchase–prompting a quick wave of REIT deals. Blackstone has been among the most aggressive buyers in the last few years of office and hotel properties.

But the frothy debt and credit markets that helped fund EOP’s LBO and the many REIT deals that came before and after it seems to be pulling back. From the Reuters story:

A feverish appetite for CMBS (commercial mortgage backed securities), which grew over 20 percent to top $200 billion in U.S. issuances last year, has given real estate investors unprecedented access to cheap debt — pushing up both levels of leverage and prices paid per square foot.
 
But concern over lax lending practices, as expressed by rating agencies, has dampened enthusiasm for the paper.
 
“When lenders get competitive they start chipping away at loan quality to win business,” said Jim Duca, managing director at Moody’s Investors Service, which warned on CMBS in April.
 
Duca said a worrying trend for CMBS issuers was a focus on cash flow that could potentially be earned from a property, instead of what it is earning now.
 
“Often it’s a believable story,” said Duca. “But the preponderance of stories banking on future cash flows has increased a lot.”
 

Sometimes the best offense is a good defense. 

Within 24 hours, at least three major companies announced more than $28 billion in stock buybacks. Beyond the prevailing wisdom of boosting earnings per share, buybacks are often anti-takeover measures as well. Expedia, Home Depot and Shinsei all announced mega buybacks recently. Are ravenous private equity buyers partly responsible for prompting the purchases? It’s tough to think, at least for Expedia and Home Depot, that they’re not.

Buyout firms are approaching virtually everyone in sight these days about a leveraged buyout. Expedia Chairman Barry Diller has told Reuters about bankers making the LBO case to him. While Home Depot has denied LBO talks, speculation about a $100 billion plus private equity buyout of the company has surfaced before, though seen as very far fetched among bankers and buyout executives.

Still, Home Depot stomped on the LBO idea when, late on Tuesday, it announced plans to purchase $22.5 billion worth of shares, ranking it among the biggest buybacks ever. That press release followed Expedia’s $3.5 billion buyback announcement–more than one-third of its stock. That was followed by Japan’s Shinsei Bank saying on Wednesday it would snap up $2 billion of its own shares.

The announcements come as more companies are pursuing–and in some cases doing–what some would dub “self-LBO” plans. “Why let a leveraged buyout firm take us over, when we can take matters into our own hands,” or so the thinking goes. Buyback shares, do a leveraged recap…Companies are getting wiser in the ways of doing LBOs on their own. In Expedia’s case, the anti-takeover reasoning behind the buyback is shared by at least one analyst. 
    
    “I think they felt that the shares were very undervalued and the company has very strong cashflows, and they expect to leverage that and take advantage of the low share price and return capital to share holders,” said Marianne Wolk, an analyst at Susquehanna.
    “We expect them to finance much of this repurchase. But because the company generates more than $500 million of free cashflow a year it won’t take them too long to pay back the debt. Its like a half LBO.”      
    “Certainly this does make it very difficult for any acquirer because they would have to negotiate with the insiders — that includes Barry Diller, although that is no different to what they would have encountered before.”

For Home Depot, the buyback will probably kill the leveraged buyout chatter that has persisted–mainly in a few media outlets–since late last year. The buyback makes an already expensive LBO candidate a heck of a lot richer in price.

STOCK BUYBACK: …..Its purpose is commonly to increase earnings per share and thus the market price,  often to discourage a takeover. (From a dusty copy of Barron’s Dictionary of Finance and Investment Terms)
     

(Additional reporting by Megan Davies)

(Photo: Reuters file)

Bankruptcy King and billionaire private equity investor Wilbur Ross spoke to Reuters recently for an article on CDOs and CLOs and their potential impact on weighing down the red hot private equity M&A market.

Ross and other private equity executives point out that the growth of collateralized loan obligations and the broader collateralized debt obligations function as a double-edged sword for private equity. On the one hand, these financial instruments have fed the leveraged buyout frenzy, because they gobble up loads of debt issued by LBOs. But on the other hand, a CLO investor is probably more of a short-timer compared to an old lending institution that used to ride out the bad times with their clients.

The fear in the private equity market is that a crack in the credit cycle could first appear in the CLO market, which in turn could lead to a broader credit meltdown, or at least slowdown. The reason: Many CLOs and hedge funds have not weathered bad times, and many have done little due diligence into the company whose paper they’re holding. Should the company come under financial trouble, they’re inclination will likely be to sell, not hang with the company through the workout.

“What all of this will show — and it will show more as CLOs become more popular — is that risk management has not been very well practiced,” Ross says in the story. “That’s going to hurt a lot of people, and will ultimately explode the bubble.”

Below are snippets from the interview with Ross:

“I think there are some changes CDOs/CLOs has provoked. For one, there is no such thing as relationship banking anymore. Everything is transactional. If you were a borrower and you got in trouble, JPMorgan was interested in a long term relationship. Now they (creditors) don’t think in terms of relationships. They think in terms of individual transactions.” 
    
In the old days, the big institutions were the lead banks, Ross said. “Nowadays, it’s not unusual in a $750 million loan transaction for a lead bank to have $25 million, with a bunch of CLOs having a bigger credit position. So the whole dynamic of a workout is different.”
    
“When trouble comes, they’ll start trading the paper. With Collins & Aikman, all bank debt has turned over about 2.5 times. So you come into a negotiation or something and you may have a totally different group of investors. That can have a destabilizing influence on workouts since deals tend to get split up in small pieces because CLOs and CDOs.”
    
Ross gave an anecdote of one hedge fund who took a $20 million stake in one of his portfolio companies. “I called him to thank him, but I told him that nobody from his fund came to due diligence. He said ‘I know that.’ I was surprised, and he said ‘we’re only going to put $20 million in we didn’t think it was worth sending anyone.’ So it makes me wonder, how many of these fellows are buying the things without due diligence.”
 
“Most CLOs/CDOs have a small staff and very few know about workouts. So if a $20 million piece goes bad, their inclination is to sell and you start to see more volatility in the markets. A bond could be at 90, 95 cents on the dollar. Then you have five CLOs come into the market at once. The next thing you know its at 70, then 50.”
 
“(CLOs) are less picky about covenants. There are few, if any restrictive covenants. They have been very generous in commercial terms but the difficulty is in the instability they can create. They’ve contributed a lot to the permissive nature of markets.” 
    
(Photo: Wilbur Ross, company photo)