Sycamore Partners moved to terminate its purchase of a controlling stake in lingerie brand Victoria’s Secret from L Brands Inc. (NYSE: LB), saying the retailer can’t blame the coronavirus outbreak for violating terms of the agreement. The private equity firm said moves such as failing to pay rent and furloughing thousands of workers amid widespread retail disruption sparked by the outbreak have reduced the company’s value. “That these actions were taken as a result of or in response to the Covid-19 pandemic is no defense,” according to the complaint in the Delaware Chancery Court. If the deal is canceled, it will be the highest-profile transaction yet to fall victim to impact from the coronavirus pandemic. Read the full story by Bloomberg News: Sycamore seeks to scrap Victoria’s Secret deal.
The coronavirus pandemic has already quashed a number of previously announced deals, including Xerox’s hostile takeover bid for HP. More deals are expected to fail, as companies focus on preserving cash and ensuring debt access just to make it through the challenging economic cycle. The auto, retail, restaurant, travel and manufacturing sectors have been particularly hit hard, as they face declining sales and location closures. Automotive manufacturers are restructuring their businesses, and car dealerships are seeing fewer people walk in the door. Manufacturers are cutting investments and production. The restaurant industry is also facing extreme challenges. Social distancing is restricting restaurants to take-out and delivery offerings only, and many chains have seen a drastic drop in sales, while others have gone bankrupt. Read our full coverage: 5 derailed deals: HP, TGI Fridays among those losing buyers during coronavirus crisis.
MORE ON CORONAVIRUS IMPACT
Private equity’s decade-long debt binge is coming back to haunt it when it comes to obtaining the U.S. government’s coronavirus aid. Already largely shut out of the popular small business rescue loan program, the industry is now realizing that it’s likely to be excluded from the Federal Reserve’s $600 billion lending initiative because it bars companies that have loaded up on borrowed money. The prohibition strikes at the heart of the buyout-shop business model, where firms saddle the companies they purchase with debt in order to mint bigger profits on their investments. Read the full story by Bloomberg: Private equity to get squeezed out of another stimulus program.
The largest U.S. banks, flooded with requests for loans from blue-chip companies in recent weeks, are starting to use their newfound leverage over corporate America to insert safer, more favorable terms into billions of dollars of deals. Anti cash-hoarding stipulations, interest-rate floors and mandatory prepayment clauses — provisions more commonly found in junk-rated transactions or bridge loans — are creeping into investment-grade financings as demand outstrips how much Wall Street is willing to lend. Read the full story by Bloomberg: Wall Street seizes on corporate loan binge to dictate new terms.
To explore how the coronavirus is affecting the middle market, Mergers & Acquisitions interviews dealmakers from Alvarez & Marsal, Merrill Corp., M33 Growth, M-III Partners, Paul Hastings and the Riverside Co. Read our full coverage: “Brace for impact,” say private equity firms to portfolio companies about the coronavirus.
Deal structures are changing, especially in terms of what happens after a deal is completed. Read our story: How to manage post-closing disputes in M&A as a result of the coronavirus.
Covid-19 is forcing M&A practitioners to assess appropriate risk allocation mechanisms to address the impact of the virus on global business operations, including Representations and Warranties Insurance (RWI). Read the guest article: How the coronavirus forces dealmakers to assess effectiveness of RWI policies.
As consumer spending and business investment is declining, we expect a slowdown in private equity transaction volume. Read the story: Private equity deals will slow down, as global economy stalls amid coronavirus pandemic.
For more on how to cope with these challenging times, see: Coronavirus contingency planning checklist for the middle market.
York Capital Management has closed its third and largest ever North American middle-market special opportunities private equity fund at $800 million. The fund will invest up to $200 million in businesses and will “take advantage of unique company situations.” “We are eager to bring our financial and operational expertise to bear and assist companies and management teams in navigating these turbulent times and executing their growth strategies,” says York partner Zalmie Jacobs. Campbell Lutyens & Co. acted as placement agent on the fundraise and Kirkland & Ellis LLP provided legal counsel.
Cyprium Investment Partners has raised its fifth fund at $445 million. “Over the next several months, Cyprium anticipates a growing need from non-sponsored companies looking to refinance, respond to strategic acquisitions, and expand as the competitive landscape evolves and the economy begins a path toward recovery,” the firm says in a release.
Flexpoint Ford has invested in TigerRisk Partners, a capital and strategic advisor to the insurance and reinsurance industry. “Our partnership with Flexpoint Ford will provide us with the added resources to help our clients navigate this difficult period, capitalize on a dynamic competitive landscape and continue our strong growth trajectory,” says TigerRisk CEO Rod Fox. TigerRisk Capital Markets & Advisory and Willkie Farr & Gallagher LLP advised TigerRisk Partners. Kirkland & Ellis LLP advised Flexpoint Ford.
Putri Pascualy was hired by Angelo Gordon as a managing director. She was most recently with Paamco Prisma, and is focusing on multi-credit strategies.
Mitchell Presser has joined law firm Morrison & Foerster as a partner where he is focusing on private equity and M&A.
Tal Unrad was hired by law firm Arent Fox as a partner where he is concentrating on M&A, including distressed transactions.
In the challenging times we face now, it’s more important than ever to come together as a community and recognize the people and companies that excel and lead. We invite you to join us in honoring the 2019 winners of Mergers & Acquisitions’ M&A Mid-Market Awards. In contrast with the volatile coronavirus-driven conditions unfolding in 2020, the dealmaking environment of 2019 was remarkably stable. Among the PE firms benefitting from the auspicious fundraising climate was Vista Private Equity, which raised a $16 billion fund – the largest technology-focused PE fund ever raised. Mergers & Acquisitions is honoring Vista founder and CEO Robert F. Smith with our 2019 Dealmaker of the Year award. In addition to leading his firm’s unprecedented fundraising, Smith excelled in philanthropy. When he spoke at the commencement of Morehouse College, he announced he would pay off all the student loans of the HBCU’s 2019 graduates, providing a helping hand in the student debt crisis facing many U.S. families. The financial services sector saw a lot of consolidation in 2019. Piper Jaffray wins our 2019 Deal of the Year for buying Sandler O’Neill to form Piper Sandler, which instantly became a leading investment bank in the financial services sector. And Stifel wins our 2019 Investment Bank of the Year for growing dramatically and making several acquisitions. Read our full awards coverage: Meet the winners of Mergers & Acquisitions’ M&A Mid-Market Awards.
Once venture capital-backed startups themselves, today’s tech giants know a thing or two about VC seed money. It’s fitting that many of them have created corporate venture capital groups of their own. These CVCs help their owners experiment and nurture new technologies and ideas in the early stages, without requiring the commitment of an acquisition. The CVC strategy often augments a company’s research and development efforts as well as complementing its M&A strategy. Middle-market dealmakers would be wise to track the VC investments of the five companies we highlight: Amazon.com Inc. (Nasdaq: AMZN), Google (Nasdaq: GOOG), Intel (Nasdaq: INTC), Microsoft Corp. (Nasdaq: MSFT) and Salesforce.com Inc. (NYSE: CRM. Read our full coverage: Venture forth: How five of the biggest tech companies explore new territory through early-stage investments.
In a period of accelerating technology innovation and investment, it’s critical to stay aware of new technologies, offerings, data and analytics types and business models in your space, and adjacent spaces. Most companies are looking for ways to get better and earlier access to the startup space. While corporate venture capital (CVC) is only one method, it can be a fairly powerful one. Read full coverage: How corporations can benefit from VC investments in technology
Houlihan Lokey, Lincoln International, Jefferies Financial Group, William Blair and Piper Sandler Cos. rank as the top five most active M&A investment banks in 2019, based on the volume of completed private equity-backed deals in the U.S., according to PitchBook. Besides advising on M&A deals, the investment banks on the top 10 list also had a busy year with acquisitions of their own in 2019, including two acquisitions by Houlihan Lokey and three by Stifel Financial. Piper Sandler Cos., was created when Minneapolis-based Piper Jaffray Cos. acquired New York-based Sandler O’Neill & Partners in a deal representing more than half of Piper Jaffray’s $930 million market capitalization. The firm also had another acquisition in 2019 and sold a company to exit the traditional asset management business. See our full coverage: Top investment banks for PE-backed deals in 2019: Houlihan Lokey led the pack.
Audax, HarbourVest and Genstar ranked as the top three most active private equity firms in 2019, based on the volume of completed deals in the U.S., according to PitchBook. Three companies tied for fourth place: Abry, Carlyle and Shore Capital. Where were these PE firms looking for deals? Eight of the firms on our list name the software and technology sector among their top investment targets, and seven put healthcare companies on their priority list. Financial services and consumer services are each named by five of the firms as industries they focus on, with four naming business services companies. Fundraising from investors in 2019 led to two notable fund launches earlier in 2020: KKR’s Global Impact Fund and HarbourVest’s $2.6 billion HarbourVest Fund XI. See our full coverage: Top private equity firms in U.S. deals in 2019: Audax Private Equity ranked No. 1.
To celebrate deals, dealmakers and dealmaking firms, Mergers & Acquisitions produces three special reports every year: the M&A Mid-Market Awards; the Rising Stars of Private Equity; and the Most Influenital Women in Mid-Market M&A. For an overview of what we’re looking for in each project, including timelines, see Special reports overview: M&A Mid-Market Awards, Rising Stars, Most Influential Women.