Industry Thoughts | ACG And Lobbying, Part II

Back in December, I wrote a post (which also got on The Term Sheet) curiously questioning why ACG (the Association for Corporate Growth) does not have a lobbying arm within the organization. I went to yesterday's ACG NY Healthcare Conference and got to meet with some heads. I asked about the lobbying movement and I got these answers:

• The lobbying movement will strictly be informational; the organization voted to not make a more aggressive move but to continue sharing information about private equity industries and how PE has been beneficial through job creation, production efficiency, etc.
• The reason why there also hasn't been an aggressive move is because members of ACG aren't only execs from private equity firms. You have C-level executives, service providers, and people from other random areas, so you can't entirely say that ACG can solely lobby for private equity.
• There also has been a movement within ACG to its members to connect with Congress; members should be contacting Senators and Representatives to give them a lesson in how private equity has been helping the state. In other words, there are companies that have key facilities in the represented states that are a) partly or majority owned by private equity firms and b) have brought a significant number of jobs to the state itself.

It was a good answer from the execs I talked with. I hope that the "talk to your Senator" movement gets stronger because, well, all we have going on now is some mid-market PE execs trying to fight the SEC registration requirement in new legislation.

Good luck, ACG!

Industry Thoughts | The Hooters Story

UPDATE: Dan Primack wrote the article about Wellspring's bid for Hooters of America. The link has been added below.

One of the great things about consumer goods-focused private equity deals is that many recognizable companies and brands get involved. The latest one is with the famous beer, wings, and attractive servers chain Hooters of America (HOA).
To break it down, Wellspring Capital Management had made a bid for the chain last year, but the chain was then sued by one of its franchisees, a South Africa-based firm named Chanticleer Holdings, for violating the right of first refusal deal it had with a 2006 loan provided to HOA. Now, with 2 private equity firms as co-investors (KarpReilly and HIG Capital, as I found out yesterday thanks to The Deal Pipeline), Chanticleer made a $250MM bid for HOA, and Wellspring is suing for breach of contract.
PEHub has covered the deal here, and Dan Primack has covered it here. Here are my thoughts:

• I'm not surprised that HIG Capital is involved here. They aren't slowing down in terms of deals from 2010. Continue keeping an eye on them, as the Miami-based firm is slowly expanding too.
• I'm surprised that (according to Dan) HIG did the deal through its New York affiliate Bayside Capital. I wonder if their New York office was involved at all...(I know a few of the execs there)
• Dan mentioned that Hooter's is supposed to make over $1 billion in revenue while Chanticleer has a market cap of only $7MM. I believe PEHub or the WSJ PE Beat Dan wrote about the initial deal by Wellspring a few months ago, and they mentioned that many of the chains now are run by a bunch of different franchisees. By buying HOA, HIG/KR/Chanticleer is probably only getting a few chains and will have to deal with those franchisees to get more.

Regarding that last point, I wouldn't be surprised if the consortium works to get as many chains as possible. It just comes to show that private equity firms aren't afraid of some stereotypes.
After all, the great Chris Rock said in his song No Sex in the Champagne Room: "Nobody goes to Hooters for the wings..."

Industry Thoughts | Blackstone Joins the Social Media Fun

Before I begin this post, I'd like to take this moment to address those who were unhappy with my last post. 

My statement is: 

DEAL WITH IT.

(This PSA brought to you by Bart Scott)

Now that that's out of the way, today's big private equity news (besides ex-Silver Lake advisor Ric Andersen joining lower middle-market PE firm Milestone Partners - congrats to both sides by the way) is that Blackstone became the second private equity firm to join Twitter. (The first one is The Riverside Company, with their account link being @TheRiversideCo. Their new twitter account, @blackstone, has only 1 tweet (a link to their Q4 earnings conference call), but the story has been making the publication waves nonetheless.

Financial journalist/awesome lady Heidi Moore wrote an article a while back on PEHub (can't find the URL at this point, will keep searching) about private equity and Twitter. One of her passages sums up why I think the site is helpful for the industry, especially mid-market and mega funds:


Twitter is an excellent way to stay on top of your industry, whatever your industry is. You don’t have to have a populist cause or a populist industry. There are gazillions of prolific venture capitalists using it. And if the derivatives powerhouse CME Group can be so successful on Twitter that it attracts 755,000 followers to its tweets, then there’s no excuse for private equity to hole up in the fetal position and whine about how hard it is to get people to understand what it does.

A few private equity executives are also quite busy on Twitter:

• Lynn Tilton, the famous fearless leader of Patriarch Partners
• John Nowaczyk, Principal at Milestone Partners
• Rich Lawson, Co-Founder and Managing Director of Huntsman Gay Global Capital (and the profiled tweeter in Heidi's article)

Congrats to Blackstone for joining the Twitter universe. It's great to see a large firm come in, and I hope to see a few other firms and execs join in, including:

• Carlyle Group: From the 43 investments in 2010 to Rubenstein's thoughtful words, it would be great to see Carlyle (and Rubenstein) create accounts.
• Providence Equity Partners: Jon Nelson is basically the reason why the Private Equity Council included the words "Growth Capital" into its name. His interview with Charlie Rose is all I need to say that he needs an account.
• Castle Harlan: For those of you who don't know, John Castle, along with having an impressive work resume, has some fun personal adventures, from sailing to flying. I wouldn't mind seeing him share some fun stories on Twitter! (Oh, and it would be nice to see some of their consumer-centric companies like Perkin's & Marie Callender's share some information)

Twitter has become a great source for collecting information. A lot of private equity journalists and resources have been using the site, and it's made my research significantly easier. I've connected with private equity firms thanks to Twitter, so if I could make networking waves, I can see middle and large funds doing the same.

Not Private Equity, But Still Important

Ladies and gentlemen, I present to you...

...POETIC JUSTICE.

Please enjoy the following video as well:

Bart Scott responds to the non-believers

See you all in Pittsburgh.

Industry Thoughts | J.Crew: The Plot Thickens

Happy New Year, everyone! Here's my first post of the year, I hope you all had a great end to 2010. It appears that PE execs were busy that last week as, as Dan Primack put it, "every private equity firm on the planet announced a new deal within the past 24 hours." Thus, I've been a bit swamped.

That being said, an interesting piece came into DealBook today: Sears and Urban Outfitters have been looking at  J.Crew's books and are seriously considering counter-bids to the original bid made by TPG and Leonard Green. Here are some quick thoughts to why both are thinking about bids:

• Sears: With many of its brick-and-mortar stores losing customers along with a lack of strong product portfolio, Sears hasn't been able to attract people to brands like its competitors Target and Kohl's (Target moreso) have been; Target's been able to have low-price collections with high-end designers. Two pros come out of the potential bid:
• By acquiring J. Crew, Sears can promote to consumers that they now carry J.Crew merchandise; their main stores are in rural towns where J.Crew has no footing, so it's a potential win-win for both companies. 
• Moreover, Sears has to have a few small but strong brands (which I cannot name since, well, I don't any - I don't go to Sears, haha) that could sell in J. Crew stores.
• Urban Outfitters: UO has really changed from the "go-to store for hipsters" to a store that carries a bunch of nice and affordable clothes and cool accessories. I say "cool" because they sell random things like coffee table books, drinkware, and home items. With their collection of those brands, I see collaboration with UO and J.Crew to introduce their brands to the other's stores.
• My only problem with UO though is what DealBook mentioned: they have a strong management team that may force Mickey Drexler out. While UO has been very good at building up their brand, stores, and company, you can't force him out of the board.

Looks like we'll find out about bids within the next week or so; the go-shop period for the TPG/Leonard Green bid ends January 15.
Stay tuned!

BONUS: Remember when I wrote about how the SBIC is a key area for private equity? PEHub's Jon Marino has a more detailed take in this latest opinion piece.

Industry Thoughts | ACG And Lobbying

UPDATE: This post got mentioned in Dan Primack's The Term Sheet!! Thanks so much, Dan!!
http://finance.fortune.cnn.com/2010/12/29/pre-marketing-12-29-10/


NOTE: I know, I said I wouldn't write any more pieces in 2010, but this post was absolutely necessary.

After a brief chat with Dan Primack (of Fortune and PEHub fame), I learned that a few years ago in Boston during a keynote, he discussed the opportunity for ACG (the Association for Corporate Growth, the largest and well-known middle market private equity community organization) to start a lobbying arm.
The global organization now has more than 13,000 members and has been making a strong effort to recruit young professionals (e.g., the New York chapter's Young Professionals events always get a good crowd, including myself), so why wouldn't this work? Dan told me that some ACG professionals in Boston were taking the idea pretty seriously, but here we are a few years later and nothing's happened.

I mentioned in my very first post here that the PEGCC can't keep going on with white papers full of typos and incorrect data. It's a matter of time before Congress takes a deeper look at private equity and focuses on operations and not just on the carried interest debacle. The banking industry's lobbying arms have learned how to manage tough political attacks, and I'm concerned that the private equity industry will have no strategy whatsoever when attacks come to their front.

That being said, here's why ACG should seriously consider a lobbying arm:

• Community: I already mentioned it earlier, but having a powerful member base will help with support, data, and talent to help push the effort.
• Star Power: Besides having powerful executives that have had exposures to politics, private equity has a rather, well, prominent sports figure who has provided a positive view on private equity. That man is Hall of Fame quarterback Steve Young. (Thank you Rich Lawson, Co-Founder and MD at Huntsman Gay, for the CNBC link!)
• Marketing: ACG's e-mail newsletters are well-written and easy to find any ACG-specific information. There easily is room for adding a division about lobbying efforts and news.
• M&A: ACG's main publication, Mergers & Acquisitions, also has its own subscriber and member base, which can provide more marketing help, advice, and data to stronger lobbying efforts.

Thus, there's very little risk to building a lobbying arm. I hope members of ACG are reading this, because we really don't know when private equity will come back into Congress's sights.

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!! 

_____________________________________

Conference Notes | The 2010 ACG CT Private Equity Expo

Man, it's been a while since I've started my day at 5 AM. One Metro North train later, I made it to the Stamford Marriott for the 7th annual ACG Connecticut Private Equity Expo. With more than a dozen private equity firms exhibiting, I was able to catch up with some clients and contacts, make some new contacts, and see what's been going on regarding deal flow.

Moreover, Ramsey Goodrich, the president of ACG CT, presented some results from the ACG-Thomson Reuters DealMakers Survey. Luckily, PEHub already posted the results in text form here.

Some quick takeaways:

• Closing Deals Before Year-End: I asked many firms on how many deals they're trying to close before the end of 2010. I got various answers from "We're looking for new deals" to as many as 3. Deal flow for mid-market firms is at a case-by-case basis.
• Tax Situation: Some firms were more worried than others about the current tax situation, but not all of them mentioned it when we talked. A few mentioned that they're not worried at all, as they believed it's going to drag along for at least another 6 months.
• Strategic Buyers' Market: A whopping 74% of respondents on the DealMakers Survey said that most buyers are going to be strategic, while 11% said it would be moreso private equity firms.   

A great conference overall, and if you're curious about which firms were there, feel free to ask! 

A side note to ACG Connecticut: For the next event, please post the agenda on the event website. People were fine that they had to wait outside 45 extra minutes so private equity firms could talk amongst themselves, but at least let us know that that's going to happen beforehand.

Industry Thoughts | Turning the Other Cheek

Dan Primack of Fortune mentioned in a tweet a while back about a common tactic private equity executives use on journalists, service providers, and the curious public: "No comment." I wasn't sure what that was in regards to, but Dan was more specific in today's Term Sheet.


Trimaran Capital Partners, a firm with $1.6B under management, invests $25 to $100 million of equity in transactions ranging in value from under $100 million to $1 billion. They acquired Charlie Brown's from Castle Harlan in 2005, and out of nowhere, they laid off 2,000 employees. While I understand that there's an explanation for this, the fact that Trimaran's answer for Dan was "no comment" and that, on top of that answer, "someone else might choose to discuss the matter at a later date," is disturbing.


This situation reminded me of another food-related spat between a portfolio company and a private equity firm: Stella D'Oro. The firm sold the company to Lance Inc., who was aiming to close the Bronx plant and move operations to Ashland, Ohio. The union backing the workers fought back, but lost heavily and everyone lost their jobs. Only recently were the workers able to get some sort of success; Crain's reported that workers will get some money back in back pay and benefits. 


When it's highly confidential information, sure, I understand that you cannot share details. However, even a general answer is helpful, as in Dan's words, "private equity firms [...] also have a responsibility to company employees." It's a trust the firm violated.


Oh, and if you're reading this, Dan, according to Pitchbook, Bugaboo Creek Steakhouse has been on the block since July 2010 (Charlie Brown's hired Raymond James to seek strategic alternatives).

Industry Thoughts | Del Monte and the Reunions

I'm already missing vacation. The Del Monte deal came in while I was museum hopping in Washington DC; I hope that you all had a restful and great Thanksgiving!

What a busy Thanksgiving weekend it's been!

First you have the J. Crew deal with TPG and Leonard Green for $3 billion, now you have KKR's, Vestar Capital's, and Centerview's deal to buy Del Monte Foods.

Now, as some publications have mentioned, this deal does not award the consortium with all the Del Monte divisions (such as the fresh fruits sector). However, the most powerful asset in the firm's arsenal IS included: the Pet Food division.
As DealBook explains, half of the company's revenue comes from its pet food division. 65% of EBITDA comes from the division of well. Strong and stable pet foods businesses are tough to come by (the most recent one was Irving Place Capital's acquisition of Pet Supplies Plus, and you also have KKR buying the British company Pets At Home), so this is a great move for the consortium. However, one other key piece in this transaction is that the alliance reunites executives with firms:

• David Hooper at Centerview is an ex-Vestar Capital Partners guy; he is the top executive at Centerview with a private equity background
• Many members of Centerview worked at Nabisco, which KKR used to own
• Jim Kilts, the head of Centerview and former CEO of Gilette, also was in a high command at Nabisco (which, again, KKR owned)
• KKR used to own Del Monte but spun it off after it acquired Nabisco

Private equity firms usually don't have an extensive amount of specific experience when it comes to their portfolio companies. However, with the powerful consumer goods experience amongst all 3 firms (and Centerview was probably getting itchy while sitting on a $500MM pile of cash for a while), it's in my opinion of the best deals done this decade.

Who's next? DealBook mentions a few firms like Smucker's and ConAgra, but one area I see getting busier that they mention are small private-label brands like Richlieu Foods (which Centerview bought from Brynwood Partners).
The valuation is amazing too (from DealBook):

Del Monte was trading at a low price-to-earnings ratio of under 10, was on track to realize $259.2 million in free cash flow for this year, and its pet food business, which featured brands like Meow Mix, was heavily undervalued.

The thing is, will we get another Del Monte-style deal? Not for a LONG time.