Subject: WSJ on Private Equity...
From: "Daniel McHale" <[email-masked]>
To: "Devon Archer" <[email-masked]>, "Hunter Biden" <[email-masked]>, "Eric Schwerin" <[email-masked]>
Date: Wed, 30 Jul 2014 17:36:17 -0400

Buyout Shops Look to Rivals for Deals
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By
RYAN DEZEMBER
CONNECT
<http://online.wsj.com/articles/buyout-shops-look-to-rivals-for-deals-1406755244?mod=WSJ_hp_LEFTWhatsNewsCollection#>
July 30, 2014 5:20 p.m. ET

Private-equity firms have all but stopped buying public companies,
retreating from a cornerstone of their business as rising stock prices push
acquisition targets out of reach.

Public companies taken private accounted for 3.5% of the $89 billion of
U.S. leveraged buyouts in the first half of this year, the lowest share on
record, according to data tracker S&P Capital IQ LCD. In the first half of
2008, at the apex of a buyout boom, these types of deals represented about
68% of all buyouts by dollar volume.

Instead, private-equity firms are buying companies from one another, a
shift driven in part by the relative simplicity of completing an
acquisition of a private company compared with a publicly traded one.
Transactions between private-equity firms have made up 60% of U.S.
leveraged buyout volume through June, according to S&P. That is a higher
percentage than the ratio for any full year tracked by the firm, whose data
date to 2002.

Overall dollar volume of U.S. leveraged buyouts through June was up 30%
over the same period a year ago.

Carlyle Group <http://quotes.wsj.com/CG> CG +0.93%
<http://quotes.wsj.com/CG> LP this week said it would buy Acosta Inc., a
marketing firm that helps consumer-goods companies launch products and
track sales, from Thomas H. Lee Partners LP. Carlyle is paying roughly $4.8
billion, according to people familiar with the matter, making the deal one
of the year's largest buyouts.

The Jacksonville, Fla., company has had four private-equity owners since
2004, including Carlyle, an increasingly common occurrence for businesses
that generate enough cash to keep up with payments on the debt that
private-equity firms use to buy and extract dividends from companies.

The trend marks a big change from earlier eras of private equity, when
buyout firms plucked multibillion-dollar companies off the stock market
with regularity. The bidding war leading up to KKR & Co.'s $25 billion
buyout of RJR Nabisco Holdings Inc., in 1988, was detailed in a
best-selling book, "Barbarians at the Gate," and a movie.

That deal opened the door to a burst of public-company takeovers in
subsequent years and in the run-up to 2007's financial crisis.

The handful of public companies to go private this year are tiny in
comparison. The largest deal has been Apollo Global Management
<http://quotes.wsj.com/APO> APO +0.94% <http://quotes.wsj.com/APO> LLC's
$1.3 billion takeover of Chuck E. Cheese parent CEC Entertainment Inc. The
other four, a maker of robotic cutting tools and a real-estate developer
among them, cost private-equity buyers less than $400 million apiece.

"There have been some lessons learned," said David Mussafer, managing
partner at Advent International, which is investing a $10.8 billion fund.
"The badge of honor comes from the returns you generate for your fund, not
the size of the deal."

Private-equity firms combine investors' cash and borrowed money to buy
companies with the aim of selling them profitably a few years later. Public
companies have historically been a top target, along with family-owned
businesses and divisions carved out of corporations. Purchases of companies
owned by buyout industry rivals aren't new, but they have become more
frequent.

Higher stock prices are one reason, as they drive up public-company
valuations. After a number of large deals backfired on private-equity firms
amid the financial crisis, the companies since then have generally shied
away from big buyouts.

The S&P 500 index soared 30% in 2013 and is up 6.6% this year.

Plus, with the rise of acquisition activity this year, corporate buyers who
for long sat on the sidelines are now competing for deals.

Some say the private deals are proving good for business. On a call
Wednesday discussing Carlyle's second-quarter results, co-Chief Executive
David Rubenstein said returns on these deals "have been pretty robust for
investors in recent years, and I think, therefore, you're likely to see
more."

Private-equity executives also say deals with peers are simply easier. The
stock market's run has prompted private-equity firms to seek ways to cash
out of older investments in droves, making these firms motivated sellers,
unlike many public companies that resist takeovers.

And public-company buyouts are more complex. They can require postagreement
auctions, called "go-shop" periods, in which boards seek higher offers.
Shareholders must approve deals. Lawsuits from shareholders challenge
nearly every deal. Activist investors can enter the fray and agitate for
higher prices.

"If you have a choice between a public company and a private company in the
same industry, certainty of closing is much greater in a private deal,"
said Mel Cherney, co-chairman of the corporate department at law firm Kaye
Scholer LLP.

Meanwhile, private-equity firms need to find companies to buy, if not
public, then private. They have about $326 billion to put to work in
buyouts, according to data provider Preqin.

Criticism of deals between firms has focused on what value one manager can
bring after another has owned the company.

Mr. Rubenstein of Carlyle on Wednesday said that the deals "have had their
ups and downs in terms of the way that people look at them" and the key is
to "have a good management approach and a plan when you're buying."

A 2012 study by three European researchers compared the results of more
than 5,300 leveraged buyouts from 1986 to 2007 and found that there often
wasn't a big difference in performance between the 435 deals made between
investment firms and buyouts of companies with other types of owners.

The researchers said the downside of these deals is limited, and so, too,
is the upside