Another Look at the Numbers
January 12, 2010
The New York Times, yesterday, described the outlook for the private equity fundraising market as anemic, citing that the average fund size is down 13 percent, while the time it took to raise funds -- specifically the 25 largest -- extended out to 18 months on average. Of course, the annual totals were down too.
There's no doubt the market was bad last year, but "anemic" doesn't quite work for me; it implies that 2007 and 2008 were somehow normal.
I spend a good portion of my day poring over Form D filings (often wondering why I didn't become a travel reporter). From what I can tell, the fundraising market seems like it is picking up.
Atlas Holdings, Riverside Partners, Marlin Equity, and Littlejohn, Cressey & Co. all either closed or launched funds in recent weeks, and these are just the filings that cluttering up my desk top. A quick search on Edgar this morning turns up funds from RCP Advisors, Crestview and Wind Point, although the latter two just look like affiliated vehicles of larger funds. Still, six months ago, I'd go weeks without seeing anything.
The thing is these are core mid-market firms. Marlin turned away over a billion dollars in raising $650 million, while Atlas, a first time fund, re-adjusted its target upward to $350 million and Riverside, at $406 million, closed well above its stated target.
The problem with looking at data at face value is that there is no context. In 2007 and 2008, private equity firms raised $369.8 billion and $345.7 billion, respectively, according to PitchBook Data Inc. Last year, sponsors raised $175 billion.
It sounds grim, but I have old copies of Buyouts littering my office celebrating 2004 as "The Year of More." That year, sponsors raised $42 billion. Silver Lake Capital's Alan Austin was even quoted in the article saying that the market was "in a very healthy place" at the time.
All of a sudden, five years later, a market that is four times as strong is considered sickly. If this were baseball, Stephen Schwarzman and Leon Black would be out making the same rounds that Mark McGwire made yesterday.
I saw Shark Tank for the first time this weekend. I'm not sure how this show escaped my radar before now, because it's a great way to spend an hour. It's not Jersey Shore good, but I like it.
Kevin O'Leary, famous for ripping off Mattel is on it, and so is FUBU founder Daymond John and Corcoran Group namesake Barbara Corcoran.
Just going through the bios on the website is pretty entertaining. Robert Herjavec, another shark, is driven in business by the memory of his mother losing the family savings "to a smooth-talking vacuum salesman." How does that even happen? Was it multiple vacuums? Accessories? A non-binding contract for replacement bags?
Whatever it was, Robert has since vowed that he won't let his family be taken advantage of again. This is important, because it helps explain why he passed on backing a motorcycle helmet startup that has patented the process of applying 3D devil images on helmets. Herjavec wanted majority control, he later admitted, but Daymond John ended up backing the company with only a 50% stake.
There was an interesting deal yesterday, in which Hillenbrand acquired K-Tron. Hillenbrand, which was spun out of Hillenbrand Industries last year, is best known for its Batesville casket business. K-Tron manufacturers handling equipment.
In the conference call Hillenbrand CEO Ken Camp described that the goal was to diversify beyond its casket and cremation business. It didn't sound like the end market even mattered other than the company had to be a manufacturer. The initial screen, Camp said, was purely cultural.
To me this is curious because we've heard so much about the death of the conglomerate. Even GE seems to be narrowing its focus.
Last month we saw Steak n Shake make a move to buy an insurance company and now we have a casket maker looking to buy a manufacturer of conveyance and feeder equipment. It seems like as the private equity market has moved to the sidelines, there's a growing number of corporate buyers stepping in as value investors.
Hillenbrand executives even sounded like PE pros in highlighting that the deal came outside of a traditional process. The company's search canvassed more than 400 targets, which was winnowed down to two dozen candidates that Camp said would have been "a very good fit." The only criteria beyond culture that Camp mentioned was an ability to generate cash.
Throughout the year, I try to keep track of all the candidates for our Mid Market Awards. This past year, as readers might imagine, has been a bit more difficult. As always, we're open to any and all recommendations.
As far as deals go, we're basically looking for the diamonds in the rough that would be distinguished for creativity or challenges that were overcome. For the firms, we're seeking out constructive activity, whether it was buying or selling. Last year's winners included firms such as Advent International, Golub Capital and Moelis & Co., among others.
The format is going to be the same as last year, but I'll be updating our website soon to hopefully answer any questions you might have.
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