It was the best of times, it was the worst of times

05.28.2011 - Private Equity

It seemed very apropos to borrow Charles Dickens famous quote to describe the current state of the private equity industry.

The excellent report, Private Equity in 2011, recently issued by Rothstein Kass indicates a renewed sense of optimism for 2011 on the part of industry leaders.  Several factors are cited including an expectation of an increase in attractive investment opportunities, a more receptive IPO market for portfolio company exits and an improved fund raising environment.

Our view for 2011 is somewhat more benign especially given the anemic economic recovery which will likely continue to impact portfolio company performance and in turn exits.

The M&A market has improved significantly but it still has a long way to go to return to the robust levels seen from 2004 – 2008.

As noted in a prior post the significant increase in transactions in the 4th quarter of 2010 was not expected to continue.  This was confirmed when PE Digest published the GF Data Resources First Quarter 2011 Report which revealed that deal volume in the middle market leveled off at a little less than half of the 60 deals reported in the fourth quarter of 2010, an all time high that was fueled by anticipated (yet never enacted) tax law changes.

Yet another data point comes from PitchBook’s May 16, 2011 newsletter is somewhat disconcerting  indicative all is not yet well -

“The U.S. PE capital overhang steadily increased each year from $197 billion in 2004 to $521 billion in 2009. However, it crested in 2009 before dropping to $477 billion as of September 30, 2010. About three-fourths of that dry powder is sitting in funds with vintage years from 2007 to 2009. While the large amount of dry powder is allowing PE firms to pursue bigger, more expensive companies, it has also contributed to a tough fundraising environment, as limited partners wait on distributions before committing capital to new funds.”

One likely scenario is that with this massive overhang of capital needing to be deployed and the increased availability of financial leverage, private equity firms are likely to overpay for acquisitions in 2011 affecting realizations in coming years.

The forecast remains hazy at best.

Recently Completed Private Equity Transactions

Winona Capital Management has provided CIRCA with $13 million of growth capital in exchange for a minority stake. CIRCA is the leading global buyer of fine jewelry, diamonds and watches from the public

Riveria Investment Group has provided JBC Holdings with a significant amount of development capital in exchange for a minority stake. JBC Is a leading provider of staffing and recruiting solutions to the retail, creative services and fashion industries.

Eureka Growth Capital, in partnership with senior management, has acquired Project Leadership Associates which is a leading provider of senior level consultative services to formulate, implement and manage a wide range of critical information technology and business strategy solutions for clients.

Monument Capital Group has acquired Persistent Sentinel which provides security and surveillance software products used by the military, international governments and commercial entities.

Prospect Partners backed Kronos Foods has acquired Pita King Bakery’s commercial baking assets. Pita King produces Middle Eastern bread and its operations will be moved to Kronos’ manufacturing facility in Madera, CA. Kronos produces gyros and other Mediterranean specialty foods.

Ridgemont Equity Partners has partnered with management to acquire a majority stake in Gallus Bio-Pharmaceuticals, a contract manufacturer of clinical and commercial-grade bulk biologics products.

Alpine Investors has recapitalized Berkeys Plumbing and Air Conditioning which  provides residential plumbing and HVAC services in the Dallas/Ft. Worth metropolitan area.

Superior Capital Partners backed Edge Adhesives has acquired Rubex, a manufacturer of engineered butyl mastics, converted tapes and sealants.

Chicago Growth Partners has recapitalized FineLine Technologies which provides outsourced ticketing and labeling solutions for retailers and their suppliers.

Monitor Clipper Partners has acquired Pharmetics, a manufacturer of vitamin, mineral and dietary supplements, as well as over-the-counter drugs.

Huntington Capital has completed a significant investment in Crescent House Publishing. Proceeds will be used to facilitate deployment of high definition digital media screens and in-store advertising solutions for retailers.

Southfield Capital Advisors has acquired Hallcon, a provider of specialty outsourced services to the railway and transit sectors in North America.

SK Capital Partners has recapitalized Calabrian in partnership with the company’s CEO.  Calabrian produces sulfur dioxide and related derivatives.

TSG Consumer Partners has acquired Sexy Hair Concepts, a marketer of hair care products distributed through professional salons that had been in Chapter 11 bankruptcy.

Atlantic Street Capital backed EZE Trucking has acquired Patterson Motor Freight, a provider of specialized trucking services to the oil and gas industry.

Abacus Financial has acquired STAR Concrete Pumping which provides concrete pumping delivery services throughout the U.S., Canada and the northern part of South America.

The Sterling Group backed Roofing Supply Group has acquired Construction Resource, a distributor of commercial roofing and waterproofing materials in Northern California.

Bounds Equity Partners has acquired Beacon Promotions in partnership with company management. Beacon provides logo imprinted promotional products, such as pens, calendars and drinkware.

Lynx Equity has purchased Techni-Lite Systems, a manufacturer of lighting systems and illuminated sign boxes using both T5 fluorescent lighting and LEDs.

Wolseley Private Equity has recapitalized its portfolio company Cartridge World which provides printer cartridge refilling services and has been backed by Wolseley since a buyout in 2007.