from Breakingviews:
Miramax needn’t be an MGM disaster sequel
One of Hollywood's biggest flops has been Metro-Goldwyn-Mayer. So Tinseltown financiers are understandably puzzled over what looks like a forthcoming sequel to the MGM solvency horror story: a buyout of Miramax.
From the opening credits, the $660 million deal resembles the 2004 takeover of the studio behind James Bond by Providence Equity Partners and TPG. The starring roles this time go to Colony Capital and a California real estate executive, Ronald Tutor. They paid substantially more than other bidders -- including Miramax founders Bob and Harvey Weinstein -- were offering.
Moreover, the investment strategy is predicated on the idea of milking Miramax's storehouse of some 700 films. That was the same premise of the MGM buy and its $4.9 billion enterprise value. But the script didn't go as planned, leading to MGM's private equity owners pretty much washing their hands of the deal. Bidders for MGM have valued its assets at around $1.6 billion and its lenders have granted the company forbearance on its loans until next month. In short, it's not a winning formula.
But Colony hasn't necessarily lost the plot. First, MGM sold for more than eight times operating cash flow, while Miramax is priced at half that multiple. This reflects perceived film library values today compared with the MGM deal six years ago, when DVD sales were peaking and digital downloads were a thing of the future.
The financing storyline takes a fresh twist. MGM's capital structure had just an 18 percent slice of equity. Miramax's buyers, by contrast, are expected to borrow against receivables of around $300 million, thus writing an equity check of around 55 percent.
Miramax's unloved status is another noticeable difference. For the past few years, it has been an orphaned asset inside Walt Disney, which has understandably focused on pirates and princesses. Miramax's budget was slashed long ago when Disney stopped making new films under the Miramax umbrella.
So Colony will have a business in need of TLC, including licensing films for sequels and signing digital deals with distributors like Netflix. Finally, the Colony partner leading the acquisition is the same man who bought Miramax for Disney in 1993 for $80 million. Given all that, avoiding an MGM repeat doesn't seem so fantastical.
Keeping score: Breaking records in Qatar, Taiwan
Highlights from the Thomson Reuters Investment Banking scorecard:
QATAR PRICES BIGGEST MIDDLE EASTERN BOND ON RECORD This week’s $7 billion offering from the State of Qatar marked the largest bond offering from a Middle Eastern issuer on record and the second multibillion dollar offering from Qatar this year. For year-to-date 2009, debt capital markets activity from Middle Eastern issuers totals $38.6 billion, a 120% increase over last year at this time. The offering, which was led by Barclays, Credit Suisse, Goldman Sachs, JP Morgan and Qatar National Bank, bested the previous Middle Eastern record, a $3.2 billion offering from UAE-based real estate developer, Nakheel Co PJSC.
TECH DEALS DOMINATE RECORD TAIWAN M&A ACTIVITY Taiwan’s Innolux Display Corp agreed to merge with Chi Mei Optoelectronics Corp, a manufacturer of LCD TV panels in a merger valued at $13.1 billion, including debt. The deal ranks as the largest merger in Taiwan’s history. M&A activity in Taiwan totals $26.1 billion for year-to-date 2009, nearly five times last year’s total and the largest annual period for M&A activity in Taiwan on record. High technology mergers account for just over 60% of activity in Taiwan this year, while financials account for $6.1 billion or 23%.
UNITYMEDIA IN BIGGEST BUYOUT EXIT THIS YEAR Germany’s Unitymedia GmBH, a provider of cable television and internet services was acquired by Englewood, Colorado-based Liberty Global Inc in a deal valued at $5.2 billion. A portfolio company of BC Partners and Apollo Management LP, the sale marks the biggest M&A exit for a buyout consortium this year. Worldwide M&A activity for buyout-backed companies totals $75.0 billion for year-to-date 2009, a 58% decrease from last year at this time when activity totaled $177.5 billion.
Keeping score: Buffett, buyouts, Japanese M&A
Highlights from this week’s Thomson Reuters Investment Banking Scorecard:
BERKSHIRE HATHAWAY’S BIGGEST DEAL Berkshire Hathaway’s $35.9 billion bid for the remaining share capital of Burlington Northern Santa Fe, ranked as the fourth biggest M&A deal this year in the United States and the largest acquisition for Berkshire Hathaway on record. Since 1980, Berkshire Hathaway and its subsidiaries have announced nearly 200 acquisitions, with 43% of those deals in the industrials sector, 34% in the financials sector and 12% in energy & power. Just over 90% of the acquisitions announced by Berkshire Hathaway have been based in the United States.
IMS HEALTH IN LARGEST BUYOUT SINCE 2007 IMS Health agreed to be acquired by TPG and the investment board of the Canada Pension Plan for $5.2 billion, marking the largest leveraged buyout in the United States since the $27 billion buyout of Hilton Hotels in July 2007. Eight investment banks provided financial advisory services to IMS and the private equity consortium, including Evercore Partners which currently ranks fourth for year-to-date M&A in the United States, up from 16th last year at this time.
JAPANESE M&A UP 41% OVER 2008 This week’s $11.3 billion merger of Nippon Oil Corp and Nippon Mining Holdings Inc brings the volume of Japanese target M&A to $90.1 billion for year-to-date 2009, a 41% increase over 2008 levels and one of the few regions to see year-over-year M&A growth. Merger activity in the Japanese financial sector accounts for 38% of year-to-date activity, followed by high technology and real estate with 17.1% and 13.3% respectively. Energy & power mergers account for 13.0% of announced volume this year, nearly three times last year’s total.
Blog is such a nice one..i really enjoyed it reading the whole paragraph.
Xerox-ACS: the backstory
Xerox, which said early Monday morning it will buy Affiliated Computer Services for $6.4 billion, has had its eye on the IT services company for at least two years, but talks only began toward the end of the first quarter of 2009, several people familiar with the matter told Dealzone. Blackstone, which advised Xerox, worked with the company on this over the past 18 months, in addition to making the introductions earlier this year, according to one source.
Talks grew hot and heavy over the summer, especially as the credit market conditions improved, a second source said. Xerox has committed financing of $3 billion for this deal, which is being arranged by JPMorgan, so the deal only began to look like a real possibility once the financing side was sorted out.
ACS, which competes with other technology services providers such as Computer Sciences Corp and Accenture, is an attractive company because of its recurring revenue business model. It’s been an especially alluring target for private equity buyers, with Cerberus having offered to buy it for $62 a share in 2007. Cerberus withdrew its offer citing the credit crunch and ACS management’s refusal to engage with them. TPG was also interested in ACS about five years ago, the second source added.
Buyout firms didn’t lose the opportunity to sniff around at ACS this time around either, the sources said, although it’s not clear if the ACS management asked its bankers to run a formal sale auction.
“Every PE firm in the world that could raise the debt was kicking the tires on this one because of the cash,” said the third source.
So after doing the M&A dance for months, why did the companies rush to announce the deal on Yom Kippur, the Jewish holiday? Apparently, word got around on Sunday that Xerox was preparing a significant announcement, and some reporters were tipped off about it, two of the sources told Dealzone. But the board only ended up meeting late at night to approve the deal, and so it was considered “safe” to hold on to the announcement overnight, but not through all of Monday!
Update: From my colleague Franklin Paul, who said Xerox CEO Ursula Burns apologized to the audience on the ACS deal call “for our need to do this announcement on Yom Kippur.” “It was certainly not our intention,” Burns said, but they wanted to seal the deal before it began leaking. Certainly they did, given that Xerox has coveted ACS for a long time and probably would have hated to see the deal botched by rumors before the two sides signed on the dotted line.
Private equity asks for a top-up
A number of private equity firms in Europe are going back to investors for more money to fix over-extended balance sheets and fund add-on acquisitions for companies in their portfolio.
Private equity’s world has turned upside down since the start of the credit crisis. All the stats show that deal flow has dropped off a cliff and those deals that have got done are smaller and the equity cheques larger. At the same time, restructuring situations are mounting as firms face the uneviable choice of injecting more equity or face losing their investments to the banks.
The upshot is that buyout funds raised in rosier times are no longer suited to the current environment, if indeed they have any capital left at all.
As I have discovered, Nordic Capital, Investindustrial – the Bonomi family’s southern European buyout firm – and Graphite Capital are all asking investors for more money as they look to adapt to the new climate.
Many investors are currently over-committed to the asset class, meaning that the reaction to requests for new capital is likely to be mixed.
One investor in KKR’s second European buyout fund refused to back a planned 750 million euro annex fund because he viewed it as “a good money after bad” situation.
Other top-up fund stories have a more positive spin.
KKR next buyout fund likely 2010
KKR’s next buyout fund will be a 2010 event, sources told us and peHUB – unless the market collapses again… While KKR hasn’t committed to a timeline or even started raising the fund (no documents are out), there had been an expectation it would start raising in 2009. (Private equity research group Preqin published this table in June (flip to page 13) of the funds they’re following as “on the road”. )
However, KKR still has a sizeable chunk of its existing funds to spend (known as dry powder) – it finished raising a $17.6 billion to spend on buyouts in 2008.
Fundraising is a tough place to be right now. Blackstone is continuing to chip away raising for BCP VI, its sixth buyout fund, which according to Preqin has a $15 billion target.
Other research Preqin has done shows the average time taken to close a fund is 18.3 months. That’s not surprising, as LPs (the investors in private equity funds) are far more concerned that private equity funds don’t make capital calls on existing funds.
But some are managing to raise even first funds – Huntsman Gay finished raising its first fund, totaling $1.1 billion this week.
from Global Investing:
Lambs to the slaughter
The mood was not so much one of indignant fury but quiet disappointment in Founders Hall for the Candover AGM yesterday.
A contrite and clearly uncomfortable chairman Gerry Grimstone took the stand – looking like a schoolboy caught with his hand in the biscuit tin, wishing he could be anywhere else.
He said he had lain awake at night re-examining the decisions that have devastated the share price and brought the company to the brink of sale. And it was easy to believe him.
It was a very polite meeting. The shareholders were quite clearly angry but they were more of a crowd to tut and shake their umbrellas than throw rocks.
“The He-Man of the recession”
As anti-capitalists, environmentalists, anti-war campaigners and others protested in the City of London to mark what they dubbed “Financial Fools’ Day”, the lobby group for Britain’s much-maligned private equity industry spied an opportunity to contrast the mayhem with their own activities.
It’s hard to tell just how far the BVCA‘s metaphorical tongue was in its cheek with this OTT press release, prompted by the protests and the “pre-pack sale” of the owner to the rights of some British kids’ TV characters, including He-Man and Postman Pat (pictured).
Still they insisted it was not an April fool, even as they billed private equity a possible “He-Man of the recession”. With this kind of deft “brand repositioning”, surely it won’t be long before Britons warm to the buyout houses. Full release in all its glory below:
“PRIVATE EQUITY SAVES POSTMAN PAT AND RUPERT THE BEAR (among others)
As anti-capitalist protestors rampaged through London , private equity investors were busy rescuing much loved institutions. Boomerang media, owned by US private equity firm GTCR has saved Entertainment Rights, the company which owns the intellectual property rights to a host of classic children’s characters, including Postman Pat, Rupert the Bear, He-Man, George of the Jungle and Casper the Friendly Ghost.
The deal, which saves 90 jobs in the UK and US, underlines the role private equity firms have to play in rescuing distressed companies.
Chairgate: the Economist recants
The Economist has published a correction to its earlier report that Henry Kravis, KKR’s archetypal “Barbarian at the Gate”, may have stumped up 22 million euros for a chair once owned by Yves Saint Laurent:
“Our report suggested that Henry and Marie-Josée Kravis may have been the purchasers of an early 20th-century chair designed by Eileen Gray. Mr Kravis assures us that neither he nor anyone in his family bought the chair in question. Our apologies to all concerned,” the free-trade-loving weekly says.
Our post yesterday on the Economist’s original story prompted some acerbic follow-ups elsewhere in the blogosphere and a firm denial from Kohlberg Kravis Roberts HQ.
Anyone who knows the whereabouts of the actual buyer of the chair, or who wishes to speculate as to his or her identity, please leave a comment.
UPDATED: KKR denies an auction victory
(This updates an earlier post with KKR’s denial).
Maybe the days of private equity paying eye-watering prices at auction really are over.
Kohlberg Kravis Roberts has firmly denied a report in the Economist’s books and arts section saying that, despite the deep economic funk, buyout doyen Henry Kravis was behind the “startling” $28 million purchase of a vintage chair at the recent Yves Saint Laurent sale in Paris:
“Who, in the current climate, were the buyers?” the Economist asked. ”Few prices were more startling than the €22m commanded by an early 20th-century chair designed by Eileen Gray. Cheska Vallois, an Art Deco dealer, won the work in the room; it is thought that she did so on behalf of Henry and Marie-José Kravis, who had already acquired examples of Gray’s work from Ms. Vallois at the Biennale des Antiquaires in Paris.”
But this is one sales process KKR is keen to distance itself from.
“Contrary to speculation, I can categorically deny that neither Henry Kravis, nor anyone in his family, purchased the chair in question,” KKR spokesman Peter McKillop told Reuters in an email. A spokeswoman for the Economist did not immediately return an (admittedly late in the evening) request for comment.
Who was Gray anyway? As London’s Design Museum explains, Gray is “regarded as one of the most important furniture designers and architects of the early 20th century and the most influential woman in those fields.” Kravis, as you must know, was by Forbes‘s reckoning the 49th richest American last year.
