Sunday, February 11, 2007

Should You Buy When Private Equity Sells? / NYT

who will buy this stuff? the hertz ipo in 2006 with $1.3 billion was one of the largest exits in the us last year. and almost 50% of all ipo´s where exits from pe.
sounds good..... but when you compare this just to the biggest deals done recently (eop and hca) with combined more than $60 billion one can imagine that it will be difficult to unload billions of stock in the next years to come.

this sums it up: As the manager of a traditional fund puts it:
I fail to understand why it's a good idea for clients to take money away from me and give it to private-equity groups who charge higher fees for buying quoted shares at a 20% premium.” (and you should buy at even higher prices with higher debt etc. at an ipo?)

thanks to

wer wird pe den ganzen kram wieder abkaufen? das hertz ipo in den usa war mit 1,3 mrd$ in 2006 einer der größten pe ausstiege. 50% aller ipo´s waren von pe.

soweit so gut.....wenn man aber alleine die letzten 2 megadeals (eop und hca) mit zusammen über 60 mrd$ nimmt kann man erahnen das es in den nächsten jahren schwerer wird den ausstieg zu proben.

PRIVATE equity firms seem to be snapping up everything in sight — but they’re also selling stakes in many of the companies they have acquired.

Last year, almost half of the more than 150 initial public offerings in the United States involved such sales by buyout firms, a higher share than ever before ( see my opening comment..)

Generally, however, the returns were nothing to brag about. On average, shares in such sales, known as buyout I.P.O.’s, performed far worse last year than both the overall market and other companies that made their public debuts....

Indeed, four of the biggest, mostly closely followed sales — involving shares of Sealy (backed by Kohlberg Kravis Roberts), Warner Chilcott (Bain Capital),
Magellan Midstream Holdings (the Carlyle Group) and Goodman Global (Apollo Management) — dropped sharply after they went public and have only recently recovered to the vicinity of their initial trading levels.

Hertz Global Holdings, which has gained substantially since its public offering in November, may be more the exception than the rule. .....The public sale represented 28 percent of the shares.

that´s the result that htz has to lower the ipo range. they wanted to sell at 16-18$ and had to sell at 15$. pe bought this think only 11 month ago. flipping!

Since buying Hertz, the Clayton Dubilier ownership group has raised debt by $3.4 billion and shaved cash and cash equivalents almost in half.

The group also arranged new debt and refinanced existing debt at higher interest rates. Total debt increased 32 percent to $14 billion. Interest expense almost doubled to $672.6 million. Betsy Snyder, a fixed-income analyst with Standard & Poor's in New York, said the company paid higher rates on the new debt. ( what a refinance.....)

Still, automatically ruling out any investment in buyout I.P.O.’s may prove short-sighted. .....beating the market over the long run. In one study, ..
found that buyout offerings from 1980 to 2002 returned 43 percent, on ....., versus just 26 percent for the Standard & Poor’s 500-stock index...( well back in the old days they bought at reasonable prices. the latest deals look very risky / dieser erfolge basieren auf günstigen einstiegkursen. kann man von den letzten deals nicht unbedingt sagen...)

The more involved the firm has been, the more likely that the I.P.O.’s returns will beat the market, he said. With that in mind, investors should consider how long a private equity firm owned a company before taking it public. Many private equity firms have recently been flipping their holdings — acquiring a company by using mainly borrowed money, then doing little more than bringing the company to market as quickly as possible. This can result in fat profits for the private equity firm, with the newly marketed company struggling under a mountain of debt.

The study by Professor Lerner and Mr. Cao showed that companies bought by private equity firms and then sold to the public in a year or less underperformed the market by 5 percent over three years. Sealy, Warner Chilcott, Magellan Midstream Holdings and Goodman were all relatively short-term holdings before the private equity firms brought them to marketroughly two years, compared with an average of seven for all the companies in the study.

The study also found an apparent link between the size of the stake sold by buyout firms and the shares’ subsequent performance. When the firms unloaded a smaller part of their stakes — an average of 9 percent — in taking private companies public, the shares performed 30 percent better, on average, than the S.& P., the study found. When the owners sold a larger slice — an average of 23 percent of their stakes — the shares’ return was generally no better than the index’s, the study found.

read more on some of the dirty secrects from pe from business week / mehr von bw zu pe

Also important was what the private equity firms did with the money raised in the I.P.O.’s. If they used the cash to pay off debt, Mr. Cao and Professor Lerner found, the stocks would gain 13 percentage points more, on average, than if they used the funds to pay the owners large dividends and advisory fees for their stewardship. ........

Robert Napoli, an analyst at Piper Jaffray, said he likes the prospects of another company,
Clayton Holdings, a mortgage services business with a blue-chip Wall Street clientele. Clayton’s revenue and market share rose after its I.P.O. last March, but its earnings fell unexpectedly and the stock plummeted. Both earnings and the share price have since recovered. .....

great call......... thats what new century was also saying. our maketshare has grown... but at what cost. maybe robert should read the latest news on the mortgage business...../ toll. marktantiel u jeden preis. haben einige der potentiellen pleitekandidaten wie new century auch abgefeiert

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