Wednesday, December 22, 2010

Industry Thoughts | Private Equity Picks & Sleepers, Fantasy Football Style! (And a personal holiday message)

UPDATE: Added Dan Primack's article looking at private equity in 2011. Also added PEHub's final predictions here.

Sorry for the delay in posts, everyone. I recently took a week-long personal vacation to the wonders that is San Diego; after being there for the first time in almost a decade, I plan to make a California trip twice a year. It's nice to go visit a state where it has artificial weather (since when is it supposed to be warm during December??).

I love fantasy football, like many guys. I've had great years and bad years, and have made smart pickups and trades along the way. With 2010 drawing to a close, and publications talking about the strongest deal-makers, deal statistics, the rise of leveraged loans and dividends, and the 10 best deals, I thought that I, like others, would share my picks, fantasy-football style. Keeping my focus on the mid-market private equity landscape, here are my picks, predictions, and sleepers!

3 of the Busiest Private Equity Firms of 2010:
  • Carlyle: Who else? With 43 investments done this year (dwarfing #2, TPG, who had 25), the firm invested all over the place, from energy to tech, healthcare, retail, and such. 
  • H.I.G. Capital: A steady flow of deals coming from the Miami, FL-based firm had 21 acquisitions, sales, add-ons, and moves in 2010 according to Pitchbook. My contact there who works at the New York office said it was so busy there, he couldn't even step out of the office for a quick cup of coffee with me. My office is around the corner from him too.
  • RoundTable Healthcare Partners: while the firm hasn't done a significant number of deals, quantity-wise, the quality has been good: it has gone into both the pharmaceutical and healthcare services sides and managed to balance their acquisition trends well.
Private Equity Firms To Watch In 2011:
  • Carlyle: They're just getting started.
  • Sun Capital Partners: Talk about a success story! With so many messes to deal with during the recession, Sun has seemed to be able to right the ship. While I see them getting busier with selling more than acquiring, it will be interesting to watch what the firm does, especially in the first two quarters.
  • Lower Mid-Market Private Equity Firms: With some crazy deal multiples (9x? 12x?!?!) happening at the end of 2010, look for that trend to cut down as credit providers will get a reality check that we CAN'T PROVIDE PRE-CRISIS MULTIPLES. Many lower mid-market firms I've talked to have been very patient in terms of deal-making, but a few have some potential LOIs in track to close during the first quarter of 2011. Some have actually managed to close 1 or 2 this month!
Top Industry Picks for 2011:
  • Healthcare Services & I.T.: Obama's healthcare bill may be in some danger of being repealed, but regardless of what happens, the trend towards a streamlined healthcare system is growing fast. From online medical records to qualified staffing services, expect PE to get more curious.
  • Specialty Retail: I still remember Dana Telsey saying to look for more European-centric specialty retailers to come to the US and sell their wares. Honestly, I wouldn't be surprised if private equity firms get to them first.
  • Specialty Food: Consumers are slowly spending more again. There are a lot of food companies with specialized product portfolios (e.g., frozen dinners) that will have to step up their game to garner consumer interest. Like specialty retail, these food providers need to distinct themselves from others.
2011 Private Equity Sleepers:
  • American Capital: With the firm working on reorganizing their debt, the success of the firm in 2011 will really hinge upon how they will be able to manage deal-making under that pressure. Their debt has been marked "Stable" by S&P, but 2011 could still end up either really well or really badly...
  • Residential Building Products: Prominent in the beginning of 2010. I expect the government to look at the housing market situation again in 2011 and work to provide help to homeowners. Homeowners will concentrate more on repairs versus buying new properties, so we may see a few smaller-level building products deals. "When" is the biggest question.
  • Operating Value Creation Becomes Relevant Again: Alan Hirzel, Charles Tillen and Catherine Lemire of Bain's Private Equity Group wrote a long article in Buyouts in November 2010 about the concept of operating value creation. While I definitely agree that it will be relevant (and not just because I work at a firm that provides operating and strategic value creation), it depends on how private equity firms will tackle the situation, either through hands-off work with management, Operating Partners, or hiring the right consulting firm(s).
If I come up with more predictions, I will add to them before the year ends. Happy Holidays, everyone!!

I also wanted to finish my last post of 2010 with this message: 

If there is one great thing about the winter holiday season, it is that it is a time of happiness, giving, and showing love and respect for everyone and everything. Regardless if you celebrate Christmas, Hanukkah, Kwanzaa, or any other holiday, take some time to give back to your community in some way, whether it's donating to a charity, volunteering at a shelter, or bringing toys to children who never get to see or play with any. 

We all have gone through our own trials and tribulations, and we all could use a little comfort from others. Show those who need and could use it some love and support. If there's any time during the year that you can truly show respect for others, your community, your country, and your planet, it's now.

Bless you all and best wishes for 2011 and the many new years to come!! 

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