As pricing for junk bonds and leveraged loans falls, more private equity firms are looking at U.S. and emerging market retail opportunities for buyouts. T.H. Lee Partners just purchased CKE restaurants in February and Indian and Brazilian buyouts have been closing recently as well. As the rest of the world grows faster than the U.S. and Europe, there will be more and more buyouts overseas.
According to Mr. Kelly and Ms. Coleman of Bloomberg, private-equity firms looking to buy retail and consumer companies said they’re now able to finance deals and pay reasonable prices after the credit crisis and global recession triggered a buyout slump.
“It feels like it’s a little bit of Goldilocks now,” Alex Pellegrini, a New York-based partner with Apax Partners LLP, said today. “It feels just right.”
Buyout managers are getting back to business after the global credit crisis that began in 2007 froze them out of buying companies or selling what they owned. About $12.9 billion worth of private-equity deals have been announced in the past three months, compared with $2.5 billion in the same period a year earlier, according to data compiled by Bloomberg.
“The last couple months would suggest that people are getting active again,” said John Howard, chief executive officer of New York-based Irving Place Capital Management LP, noting his firm hasn’t made a retail investment in four years. “We’re seeing more real opportunities.”
Financing from Wall Street banks is returning for some deals after financial institutions suffered losses of $1.7 trillion since the onset of the credit crisis. Howard said deals require investors to contribute more of their own cash and less borrowed money, which means he and other managers are most interested in targets they think will boost sales and profits.
U.S. comparable-stores sales climbed 4.1 percent in February, topping the 3 percent growth estimate by researcher Retail Metrics. It was the sixth-straight monthly gain and the biggest in more than two years.
‘Quality Companies’
A stabilizing economy is helping broaden the number of potential targets beyond distressed companies that had no choice but to sell during the recession, said David Oddi, a co-founder of New York-based Goode Partners LLC.
“Over the past couple years, the best businesses have had the luxury of sitting on the sidelines,” Oddi said. “What we’re seeing now is more of the quality companies return to the market.”
The private-equity executives spoke on a panel moderated by Les Berglass, founder of executive-search firm Berglass + Associates, at Bloomberg’s headquarters in New York.
Thomas H. Lee Partners LP agreed last month to buy CKE Restaurants Inc., the owner of Carl’s Jr. and Hardee’s fast-food chains, for about $619 million cash and assuming about $309 million in debt. CVC Capital Partners agreed to buy the retail unit of PT Matahari Putra Prima for 7.2 trillion rupiah ($772 million) in January.
Carlyle Group, the world’s second-biggest private-equity company, is among the firms looking beyond the U.S. for deals, said Sandra Horbach, who runs the Washington-based firm’s consumer and retail group from New York.
Dunkin’ Donuts
“There are certainly some countries today that have more robust growth than we’re seeing here in the United States,” Horbach said, noting the firm’s purchase of Brazilian tour operator CVC Brasil Operadora e Agencia de Viagens SA this year.
Carlyle also is poised to take advantage of stabilized capital markets to sell some of its investments, Horbach said. The firm is among the owners of Dunkin’ Brands, the operator of the Dunkin’ Donuts and Baskin Robbins chains, which is a likely candidate for an initial public offering, Horbach said.
“That’s a company that we know will go public at a very attractive valuation and it’s just a question of timing,” she said.
Buyout-backed companies including Dollar General Corp., owned by KKR & Co., have successfully gone public. Shares of the Goodlettsville, Tennessee-based discount retailer have gained almost 20 percent since they were sold in an IPO in November.
Strategic Acquirers
Private-equity firms may more often reap profits from consumer-focused investments by selling them to other investors or to larger companies, so-called strategic acquirers, rather than selling them to the public, Horbach said.
Shifting out of a defensive mode into a mindset of growing, and eventually selling companies, has private-equity owners looking to hire top executives. Berglass, the executive-search executive, said his business has increased 50 percent since last June. It’s a signal that things are picking up, he said.
“Every time the economy has dipped, we find ourselves the first ones coming back,” Berglass said.
