Sept. 28 (Bloomberg) -- Oaktree Capital Management LP, BlackRock Inc. and Eaton Vance Corp. are raising funds to purchase leveraged-buyout loans that banks are selling at a loss.

At least 11 firms are seeking more than $12 billion as banks court buyers for more than $300 billion of debt they pledged to finance takeovers. Citigroup Inc., Credit Suisse Group and Deutsche Bank AG already have reduced prices on loans by as much as 4 percent to lure investors.

Investment groups such as Los Angeles-based Oaktree Capital, which oversees $47 billion, and BlackRock in New York see a chance to profit because banks are stuck with loans they made before demand for below-investment-grade debt dried up in the past three months. The Standard & Poor's/LSTA Leveraged Loan Index fell 3.1 percent in July and August as record defaults on U.S. subprime mortgages drove investors away from all but the highest-rated securities.

``Banks overextended themselves and there is enormous opportunity,'' said Michael Hennessy, who helps oversee $6 billion at Morgan Creek Capital Management LLC in Chapel Hill, North Carolina. ``There was a credit bubble and now it's burst.''

Oaktree Capital is seeking more than $3 billion to invest in loans, said three people who have read the offering documents. BlackRock, the largest publicly traded money manager in the U.S., and Eaton Vance of Boston also are soliciting investors.

``Clients are clamoring for these opportunities,'' BlackRock Chief Executive Officer Laurence Fink said in a Sept. 11 presentation to investors.
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NEW YORK (AP) -- In a time of collapsing mega-deals, a few well-structured buyouts with sound companies can still get done. Deals to take 3Com Corp. and Avaya Inc. private that made news on Friday show that major private-equity transactions are squeaking through these days, making a lie of the recent refrain that deal making is dead.

Wounded, yes. Dead, no.

"We've been through a real shock to the system, and if you're not somewhat nervous then you don't have a pulse," said Alfred E. Goldman, chief market strategist of A.G. Edwards & Sons. "But, it's like any investment, the good will triumph over the bad ones."

The dislocation of global credit markets -- where buyout shops raise money to acquire companies and then take them private -- has caused big private equity deals to dry up.

Wall Street has been watching closely to see if Kohlberg Kravis Roberts & Co. could complete its $26 billion acquisition of First Data Corp. amid the summer's market turmoil. It was considered a harbinger for future debt deals, and at one point there was concern the private equity firm wouldn't attract enough investors to buy billions of dollars in debt.

Bankers on the deal were able to sell about $10 billion -- nearly double what they set out to raise when they began marketing the deal last week. And that bodes well for some 85 pending deals that are seeking to raise $277 billion, according to data provided by Dealogic.

With the First Data deal nearly completed, it sends a very strong signal that the worst might be over. There is no question that buyout shops may never again see the kind of easy credit terms that helped fuel the industry in recent years -- but there's a growing sense that deals will still go through, as long as the companies involved are well run, are not loaded with debt and have good prospects to expand their business.

For example, private equity firm Bain Capital said Friday it is buying networking hardware and software maker 3Com Corp. for $2.2 billion. The deal also gives Huawei Technologies, China's largest telecom equipment maker, a minority stake in the U.S. company, providing 3Com a chance to delve further into the Asian market.
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Oct. 9 (Bloomberg) -- Shares in Simplex Investment Advisors Inc., the Japanese property manager that's a takeover target, were poised to rise after Goldman Sachs Group Inc. bid 124.7 billion yen ($1.1 billion) for its stock.

Shares in Simplex were bid 12,000 yen, or 8 percent, higher at 162,000 yen as of 9:15 a.m. in Tokyo. Buy orders outnumbered sell offers, preventing a trade under Tokyo exchange rules that require they match.

Goldman offered on Oct. 5 to buy Simplex, which owns 179 buildings in Japan, for 215,000 yen per share. Nikko Cordial Corp., Japan's third-largest securities firm, agreed to sell its 42.5 percent stake to Goldman's joint venture with New York-based Aetos Capital LLC. Shares of the Tokyo-based property manager have gained 11 percent this year.

Investment banks, real estate investment trusts and private equity firms are acquiring assets in the world's second-biggest economy after Japanese property prices rose last year for the first time since 1991. New York-based Goldman spent 2 trillion yen since 1998 on office buildings, golf courses and resorts in the nation while Morgan Stanley, the biggest owner of real estate among Wall Street firms, acquired offices and hotels in Japan.
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Nov. 11 (Bloomberg) -- Oak Hill Capital Partners agreed to buy Firth Rixson Plc, the British steel-processing company owned by Carlyle Group Inc. and Lehman Brothers Holdings Inc., in a transaction valued at 945 million pounds ($2 billion).

Oak Hill, a private-equity firm based in Menlo Park, California, will expand its holdings in the aerospace industry, which already include component maker Primus International, air cargo hauler Southern Air Holdings Inc. and a portfolio of aircraft on lease to airlines, the company said today in a statement.

Firth Rixson makes metal components for engines used by Airbus SAS and Boeing Co., the two largest manufacturers of commercial planes, and can expand by supplying parts for industrial gas turbines and power generation, said Rowan Taylor, a partner with Oak Hill, in a telephone interview.

``There are opportunities to continue to expand the business into adjacent and complementary businesses,'' Taylor said today.

The Sheffield, England, steelmaker supplies parts for Pratt & Whitney, General Electric Co. and Rolls Royce as well as the engine manufacturers for the Boeing 787 and two Airbus models, the A380 and the A350XWB, which is in development, Taylor said.

Carlyle has a 50 percent stake in Firth Rixson. Lehman Brothers bought one-third of the company last year through its Coinvestment Partners unit. Firth Rixson managers own the rest.
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NEW YORK (AP) -- Blackstone Group LP President and Chief Operating Officer Hamilton James said Monday the slumping private-equity market might not fully rebound until major Wall Street banks get a better handle on the credit crisis.

"The mortgage black hole is worsening...it is deeper, darker, scarier than what the banks originally thought," he told analysts during a conference call. "My sense is they don't have a clear picture of how this will play out, and their confidence is low."

James said the banks -- pressured by massive writedowns from losses linked to subprime mortgages -- will keep lending standards tight for the time being. He believes the market for leveraged loans, which buyout funds use to finance deals, appears to be picking up after a crippling summer.

Banks like Citigroup Inc. and JPMorgan Chase & Co. are doing a good job in selling an estimated $300 billion of backlogged debt committed to leveraged buyouts, he said. But, James doesn't see most of the subprime mess -- and a full rebound in the debt markets -- until sometime next year.

Blackstone's third-quarter loss was pinned on charges related to its initial public offering and lower real-estate fees. The buyout shop posted losses of $113.2 million, or 44 cents per share, which included the impact of $802.6 million of non-cash charges for compensation and other items linked to its IPO.

Stripping out those charges, the New York-based buyout fund reported a profit of $234 million, or 21 cents per share. Analysts polled by Thomson Financial expected a profit of 30 cents per share and Blackstone shares fell more than 6 percent Monday.

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KANSAS CITY, Mo. (AP) -- Cerberus Capital Management LP and H&R Block Inc. said Tuesday they terminated their agreement for Cerberus to purchase H&R Block's mortgage subsidiary, which has now stopped accepting new mortgage applications.

H&R Block said it will lay off about 620 employees, close three offices and take a $75 million restructuring charge as it shuts down lending at Option One Mortgage Corp.

About $34 million of that charge will be incurred in the quarter ended Oct. 31, with the rest incurred in the quarter ending Jan. 31, along with about $7 million in previously disclosed restructuring.

H&R Block said it will sell its servicing business, which will result in an another asset impairment charge for the quarter ended Oct. 31 of no more than $125 million. The company hired Lazard to handle that sale.

Cerberus and H&R Block have tried in recent months to renegotiate the agreement regarding Option One, first struck in April, as the mortgage market has been rocked by subprime defaults and tightened lending.

"The mortgage market today has undergone vast changes since last April when the original Cerberus deal was signed," H&R Block Chairman Richard Breeden said in a statement. "Despite the hard work and good faith of both sides we could not find a way to restructure the original transaction to mutual satisfaction."

The sides described the termination as "fully amicable" and said each would bear its own costs.

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Dec. 17 (Bloomberg) -- Even Goldman Sachs Group Inc., the world's leading takeover adviser since 2001, is prepared for a decline in mergers and acquisitions income next year when a slowing economy reduces the market for leveraged buyouts.

The value of transactions may fall 20 percent from a record $3.9 trillion this year, executives at JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and Bank of America Corp. estimate. That may reduce fees on Wall Street and contribute to Goldman's first profit drop since 2002, the last year M&A decreased, according to analysts surveyed by Bloomberg.

LBO firms, responsible for half of this year's 10 biggest purchases, now face financing costs that have more than doubled since June to the highest in four years. The pace of takeovers fell 33 percent since the end of the second quarter as chief executive officers at companies, including Virgin Media Inc. and Cadbury Schweppes Plc, delayed asset sales amid signs economic growth in countries ranging from the U.S. to Britain is ebbing.

``It's the end of an era for a while for the very large LBOs,'' said Piero Novelli, 42, the London-based head of global M&A at UBS AG, Switzerland's biggest bank.

Lehman's backlog of investment banking fees is lower than earlier in the year, Chief Financial Officer Erin Callan told investors on Dec. 13 after the No. 4 U.S. securities firm said fourth-quarter earnings dropped 12 percent. Callan estimates M&A may fall 20 percent next year. Her comments echoed Goldman CFO David Viniar, who said in September that the investment-banking pipeline at Wall Street's most profitable firm fell from a record in the second quarter.

Fed's Outlook

``We're in a very different environment than we were a year ago,'' said Stefan Selig, 44, the New York-based global head of mergers at Bank of America Corp. The value of deals may drop by 15 percent to 20 percent, he said.

The size of acquisitions may hinge on the U.S. economy, which the Federal Reserve has said will grow as little as 1.8 percent next year, which would be the slowest pace since 2002 when global mergers declined 29 percent.

The proportion of matchmaking from the U.S. declined to 42 percent since July 1, the lowest since the first half of 2002, data compiled by Bloomberg show. The largest transactions announced today were in the U.S., led by Ingersoll-Rand Co.'s $10.1 billion agreement to buy Trane Inc., the Piscataway, New Jersey-based maker of air conditioners for vehicles.

Botched Sale

Leveraged buyouts accounted for 24 percent of the $2.4 trillion of purchases announced in the first half, crowned by the $32 billion offer for Dallas-based power producer TXU Corp. by a group led by New York-based Kohlberg Kravis Roberts & Co. LBO firms comprised just 10 percent of the $1 trillion total since Aug. 1.

``There are more bankers chasing less transactions,'' said Jimmy Elliott, 55, global head of mergers at JPMorgan in New York, who predicts acquisitions may slump as much as 30 percent. ``There's no evidence that there will be any large public-to- private transactions in the near and intermediate future.''

UBS's Novelli expects global takeovers to drop at least 15 percent next year. The slowdown will be particularly severe in the U.S., where rising borrowing costs caused by the collapse of the subprime mortgage market hurt private-equity firms, he said.

Cerberus Capital Management LP, the New York-based private equity firm that buys troubled companies and corporate cast-offs, scrapped a $6.2 billion bid for Dallas-based Affiliated Computer Services Inc., the biggest processor of U.S. student loans, in October, saying funding had become harder to arrange. Georgica Plc, the U.K.'s largest operator of pool halls and bowling alleys, ended talks with bidders Dec. 12, blaming a ``difficult banking market and deteriorating trading conditions.''

Falling Fees

``There is a pure systemic lack of trust in the financial system,'' said Eric Bissonnier, Geneva-based chief investment officer for Asia and Europe at EIM, which has $14 billion invested in hedge funds. ``Costs are higher and the outlook for the economy is bleaker, so if you put that together, people will hesitate to do deals.''

Global fees from acquisitions will fall 5 percent in 2008 from this year's $36.9 billion, said Teck-Tjuan Yap, managing director at Freeman & Co., the New York-based research firm that tracks the securities industry. Revenue will decline 10 percent in the Americas and 3 percent in Europe, he said.

Morgan Stanley banker Michael Zaoui predicts 2008 will be a ``strong year.''

``The beauty of the mergers business is that it's a permanent feature of capitalism,'' said Zaoui, 50, chairman of European M&A, in a Dec. 10 interview in Paris.

Market Volatility

Goldman, Morgan Stanley, Citigroup Inc. and JPMorgan, all based in New York, were the top financial advisers this year, Bloomberg data show. Private-equity clients accounted for about 30 percent of their assignments.

Lehman, which ranks as the No. 6 adviser this year, won't cut jobs as M&A fees clients because it plans to win clients from rivals, said Mark Shafir, 51, the firm's global head of mergers, in an interview with Bloomberg TV today.

``The mega-LBO is dead,'' said Tom Willett, 39, joint head of European takeovers at ABN Amro Holding NV in London. ``Equity markets are extremely volatile.''

The recent increase in stock-market swings is making it difficult for buyers and sellers to agree on prices, said Joel Cohen, 69, chairman of Sagent Advisors Inc., a New York-based investment bank. Market movements measured by the Chicago Board Options Exchange SPX Volatility Index, or VIX, rose in November to the highest since 2003.

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Jan. 10 (Bloomberg) -- Blackstone Group LP, the world's largest leveraged-buyout firm, agreed to buy hedge-fund manager GSO Capital Partners LP for $930 million in cash and stock to increase credit investments as LBOs dry up.

GSO, founded by former Credit Suisse Group executive Bennett Goodman, oversees $10 billion in leveraged loans and distressed debt, New York-based Blackstone said today in a statement. Blackstone also announced a $500 million stock buyback. The company, which has lost 41 percent of its value since its initial public offering in June, rose as much as 7.5 percent in New York Stock Exchange composite trading.

Chief Executive Officer Stephen Schwarzman, 60, is increasing the company's debt funds to $21 billion after the U.S. subprime-mortgage crisis forced investors to shun all but the safest assets. Private-equity firms are struggling as the price of loans and bonds required to fund deals rises, limiting fees and profits they make from buying and selling companies.

``It's part of the morphing of Blackstone,'' said Paul Schaye, managing partner of New York-based Chestnut Hill Partners, which helps private-equity firms find investments. ``Getting debt financing is hard. Some firms are saying, `We're not just going to be a private-equity firm.' ''

Buyout firms announced $202 billion of deals worldwide in the second half of 2007, two-thirds less than in the first six months, according to data compiled by Bloomberg. Blackstone manages $98.2 billion of assets, including a $21.7 billion LBO fund that is the world's largest.

Largest Division

The firm had $35.8 billion in what it calls its marketable alternative-asset management division, which includes hedge funds, at the end of the third quarter. It's Blackstone's largest unit by assets under management.

Blackstone raised $7.3 billion in the IPO, priced at $31 a share, and the sale of a minority stake to the state-controlled China Investment Corp. The stock rose $1.12 to $19.22 at 10:13 a.m. after climbing as high as $19.45.

The takeover reunites Goodman, 50, with former Credit Suisse colleague Hamilton James. James, 56, left in 2002 and is now Blackstone's president. Goodman, the New York-based head of Credit Suisse's alternative-capital unit, left three years later to start GSO with Tripp Smith and Doug Ostrover, former co-heads of leveraged finance at the bank.

Milken, DLJ

Goodman began working with Michael Milken at Drexel Burnham Lambert Inc. in 1984. Four years later he joined Donaldson, Lufkin & Jenrette, helping to make it the No. 1 underwriter of high-yield securities during the 1990s. Credit Suisse bought DLJ in 2000.

Fixed-income hedge funds gained an average of 2.7 percent in 2007, compared with 10.4 percent for all managers, according to data compiled by Hedge Fund Research Inc. of Chicago. Funds that invested in distressed debt returned 6.3 percent. Merrill Lynch & Co. bought about 20 percent of New York-based GSO in May for an undisclosed amount.

Blackstone will pay $620 million in cash and stock when the takeover closes, and as much as an additional $310 million depending on GSO meeting earnings targets over the next five years. With the planned share buyback, the acquisition will not reduce earnings, Blackstone said in the statement.

``Given the current dislocation in the credit markets, this is an ideal time to create a more powerful, diversified platform,'' Schwarzman said in the statement.

Hedge funds, targeted at insurance companies, pension funds and individuals with at least $1 million, are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in the profits of the money invested. Hedge fund clients typically pay fees of about 2 percent of assets and 20 percent of investment profits.
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Jan. 14 (Bloomberg) -- EMI Group Plc, the music company bought last year by private equity financier Guy Hands, will cut about 1,500 jobs, or more than a quarter of the workforce, after piracy eroded sales and led to a record loss, according to people with direct knowledge of the matter.

Hands will outline his plans in a speech to EMI employees, artists and their managers tomorrow, said the three people, who asked not to be identified because Hands hasn't made his plans public. Hands will reduce expenses by merging music labels that run their own sales and marketing units, they said.

EMI's efforts have sparked a revolt among some of the company's artists, including Robbie Williams, whose manager said the singer may withhold his next album in protest of Hands's actions. The cutbacks will focus on recorded music, which is less profitable than publishing. Hands wants to better exploit the back catalogue at EMI, the label of Norah Jones and the Beatles, by digitizing more recordings.

``Digital music sales are still not able to make up for the decline in CD sales, so cutting costs is imperative at most music companies,'' Mark Mulligan, a London-based analyst at Jupiter Research, said via phone today. ``EMI still has a rather complex and inefficient structure, so Guy Hands should be able to slash quite a few jobs.''

EMI's reductions come as music companies struggle with a decline in global recorded music sales because of piracy and illegal downloading of songs over the Internet. Almost a third of the albums sold worldwide are counterfeit, according to statistics from the International Federation of the Phonograph Industry. About 20 billion music files were downloaded illegally in 2006, the federation found.
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Forbes, By Andy Greenberg, January 16

Sun Microsystems elbowed into the enterprise database market Wednesday with the announcement of a proposed $1 billion acquisition of MySQL, an open-source database software company. The deal, which Sun Chief Executive Jonathan Schwartz calls the "most important acquisition in the company's history," makes Sun one of the first major public companies to offer open-source software and puts the company head to head with the three big vendors in the $15 billion database market: IBM, SAP, and its former database partner, Oracle.

Compared to those three goliaths, which provide database software to 86% of the enterprise software market, according to Forrester Research, MySQL offers a simpler and cheaper solution. That makes MySQL an appealing option for small- and medium-sized businesses, says Forrester analyst Noel Yuhanna. "Unlike IBM, Oracle and SAP, MySQL has never had 50,000 features, but it does have maybe 10,000 relevant features that are relevant to enterprises," he says. "That cost savings is one of the key reasons that users have looked at open source, and fewer features means it's easier to use and manage."

MySQL's lighter-weight database system may also fit into Sun's ambitions of becoming a major player in "utility computing," a model of information technology infrastructure that pipes in software applications, processing and storage over the Internet rather than from a company's own data centers. "All other databases on the market today were designed for an offline, back-office use," says MySQL Chief Executive Marten Mickos. "Our relevance grows as enterprises shift to Web-based architecture, and that's what's happening right now."

One billion dollars, split between $800 million in cash and $200 million in stock options, may seem a hefty price tag for MySQL, which gives its software away to 99% of its customers. But the 1% of MySQL users who do pay for support include big names like Google (nasdaq: GOOG - news - people ), Yahoo! (nasdaq: YHOO - news - people ), Nokia (nyse: NOK - news - people ), and Alcatel-Lucent (nyse: ALU - news - people ). As Sun's (nasdaq: JAVA - news - people ) size lends legitimacy and the guarantee of long-term service to MySQL, the acquisition will likely convince more and larger enterprises to sign on to MySQL's cut-rate database systems, Yuhanna says.

SAN FRANCISCO (AP) -- Venture capital investments in U.S. startups climbed to a six-year high of $29.4 billion in 2007, raising hope that ample money will still be available to back promising new ideas even if the staggering economy falls into a recession.
The amount of venture capital spread across 3,813 deals represents the industry's busiest year since $40.6 billion went into nearly 4,500 U.S. startups in 2001, according to data scheduled for release Saturday by Thomson Financial, PricewaterhouseCoopers and the National Venture Capital Association.

The $29.4 billion invested last year marked an 11 percent increase from $26.6 billion in 2006.

In 2001, venture capitalists were actually curtailing their investments after the dot-com economy pushed the U.S. economy into its last recession.

Although many experts believe another recession is imminent, venture capitalists say there is little reason to believe their investment pace will slacken this year.

In a show of confidence, venture capitalists raised $34.7 billion for future investments during 2007, a 9 percent increase from the previous year.

The industry's optimism stems from a belief that many of today's hottest concepts either are recession-resistant or are developing moneysaving products that may have even more appeal during an economic downturn.

The investment areas spurring the optimistic outlook include: health care and biotech; the Internet; and technology aimed at developing alternative energy, reducing pollution and promoting conservation.

Combined, these sectors attracted nearly $16 billion in venture capital investments last year, accounting more than half of the total activity.

While focusing on specialties less susceptible to economic downturns, venture capitalists have been increasing their investments more gradually in recent years. During the dot-com boom, high-tech financiers had routinely entrusted millions of dollars with young Internet entrepreneurs who had never before run profitable businesses.

The newer, more disciplined approach makes it less likely there will be a dramatic about-face like the one that occurred after venture capitalists invested nearly $160 billion in 1999 and 2000. After that flurry, venture capital investments fell for the next three years before bottoming out at $19.7 billion in 2003.

"There is nothing to suggest we will fall off a cliff" this year, said P. Sherrill Neff, founding partner of Quaker BioVentures in Philadelphia.

Quaker BioVentures focuses on startups involved in pharmaceuticals, biotechnology and medical devices -- categories that Neff expects to remain in strong demand even in a feeble economy because people won't stop getting sick or growing older.

Other venture capitalists seem to share his opinion, helping to produce a record year for investments in "life sciences," which includes biotech and medical devices. Venture capitalists invested $9.11 billion in 862 life sciences deals last year, a 21 percent increase from $7.56 billion in 2006.

Internet startups also appear better positioned to weather any economic turbulence because the advertisers that generate most online profits appear likely to keep shifting their spending from television, print and radio to the Web even if there is a recession.

Venture capitalists invested $4.6 billion in Internet deals last year, a 12 percent increase from $4.1 billion in 2006.

Venture capital investments in so-called "clean technology" focused on alternative energy and reducing pollution from fossil fuels totaled $2.2 billion, a 47 percent increase from $1.5 billion in 2006.
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January 22 – Bloomberg (Edward Evans): “Cerberus Capital Management LP Chairman John Snow said banks need to ‘purge’ about $200 billion of loans for which they haven’t found buyers before leveraged buyout firms can resume last year's record pace. ‘The big issue here this year is the seizure of the credit markets and the prospect of a sharp downturn in economic activity,’ Snow said… ‘There’s got to be a purging’ of un-syndicated loans before deals will resume, he said.”

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Jan. 28 (Bloomberg) -- Tumbling equity markets prompted 24 companies this month to halt plans for initial public offerings, the most in at least a decade.

Tommy Hilfiger Corp., the fashion brand owned by London- based buyout firm Apax Partners Worldwide LLP, Denmark's Dong Energy A/S, and Chinese department store operator Maoye International Holdings Ltd. are among companies that have withdrawn or postponed sales, according to data compiled by Bloomberg.

``Unless we have a fairly dramatic shift, the IPO market is going to be pretty dormant,'' said Chris Kelly, head of the capital markets practice at law firm Jones Day in New York. ``IPO investors don't want to buy into an investment that has a decent likelihood of going down.''

The MSCI World Index fell 14 percent since reaching a record on Oct. 31 as subprime-mortgage defaults sparked a worldwide credit crisis and threatened to send the U.S. economy into recession. The Bloomberg IPO Index, which tracks new stocks in their first year of trading, dropped 9 percent in the past year, while the Standard & Poor's 500 Index declined 6.4 percent.

Mexico, Sweden, France, Poland and Australia are among the more than 40 countries whose benchmark indexes have slumped more than 20 percent from their highs of 2007, the common definition of a bear market. Europe's Dow Jones Stoxx 600 Index has tumbled as much as 24 percent from a six-year high on June 1. In the U.S., the S&P 500 dropped 14 percent from its record reached in October.
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Published: Friday, February 15, 2008

Silicon Valley was flush with cash and optimism just six months ago. Now as the region stares down the barrel of a possible recession, startup companies and their investors are beginning to hunker down and tighten their belts.

Small companies like Etsy Inc., which sells homemade crafts online, and Blackwave Inc., a video-storage outfit, recently raised funds partly to build up financial cushions in case business turns south. MFoundry Inc., which sells software to the banking industry, says it is holding the line on nonessential spending and making only critical new hires.

Online-jewelry retailer Ice.com Inc. is so worried about a possible drop in consumer spending that it loosened credit terms for customers in December. Now those who buy baubles of $300 or more on the Web site can spread their payments out over 10 months, instead of five, interest-free.

"We're very cautious about where (the economy) is going," says Shmuel Gniwisch, Ice.com's chief executive. If the economic picture worsens, "we'll definitely have to retrench and think about what we are doing." Last month, Ice.com raised $47 million from venture capitalists, partly to protect itself against a downturn. Many venture capitalists are making big investments despite the broader economic worries, as many of them raised big funds last year and need someplace to park their cash.

In Silicon Valley, the engine of the nation's high-tech economy, optimism is a guiding force - and few startup executives and investors believe a recession will wipe out the tech landscape the way the dot-com bust did eight years ago. Big deals are still being done, as evidenced by Microsoft Corp.'s bid for Yahoo Inc. Many new Internet companies also continue chugging along, having not spent as profligately as startups did during the late 1990s boom.

But what happens on Wall Street does eventually trickle down to Silicon Valley. So many entrepreneurs and venture capitalists - who invest in small companies in the hopes of taking them public or selling them later - are hedging their bets. Among their worries: that a tough economy will slash big companies' spending on the products sold by startups. It may also damp online advertising spending, which has fueled many Web companies over the past few years.

A University of San Francisco survey of venture capitalists, released last month, found their confidence in the San Francisco Bay Area "venture entrepreneurial environment" at a four-year low.

U.S. venture investors raised $34.7 billion in 2007 - the most since 2001, according to the National Venture Capital Association and Thomson Financial - and are still hoping to invest those funds and see payouts in five to 10 years.

But if a recession comes, "my guess is that we'll start to see (corporate) tech budgets, and advertising budgets, flatten or decline," says Dan Nova, a venture capitalist with Highland Capital Partners in Lexington, Mass. "Obviously that would have a ripple-down effect on venture-backed companies." He says two startups backed by Highland, which he declined to name, have already decided to delay initial public offerings because of market uncertainty.

To gird themselves, some venture capitalists are urging companies in which they invest to raise more money now because it may be harder to convince investors to give them cash later in a tough market. Other investors are passing up hot deals that look too pricey, concerned that overvalued companies have no hope of going public or being acquired for a commensurately high price if the economy dives.
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VANCOUVER, British Columbia (AP) -- A U.S. private equity fund will buy CHC Helicopter Corp. for 1.5 billion Canadian dollars ($1.48 billion) in what the companies described Friday as the largest oilfield services buyout ever.

First Reserve Corp., a private equity firm that invests in energy companies, said CHC's board unanimously approved the all-cash deal.

"This transaction will mark the beginning of an exciting new phase in CHC's history," CHC President and Chief Executive Sylvain Allard said in a conference call Friday. "I am delighted that First Reserve was able to recognize the value CHC has created over the years."

Allard added that the deal will help the company "strengthen our position as the largest helicopter service company in the world." CHC flies people and equipment to oil and gas drilling locations.

Shares of CHC soared nearly 40 percent, or $8.43, to $29.93 after the deal was announced.

First Reserve, based in Greenwich, Conn., will pay 32.68 Canadian dollars ($32.30) per share for the company, a 49 percent premium to CHC's closing price on Thursday.

First Reserve managing director Mark McComiskey said that while the value of the deal may seem high, he believes the business is worth it because of the rising price of oil and the company's strong position in the industry.

"I think the company has had some hiccups recently that has forced the stock down. ... We see an enormous amount of upside in CHC's business," McComiskey said in an interview Friday.

"CHC is the by far the best of the companies in the helicopter services sector because it is the largest and it's a global company. It's got a significant presence in every major growth basin for offshore oil and gas production in the world."

In addition to $1.48 billion in cash, First Reserve will assume $1.5 billion in aircraft liabilities and about $789 million in debt.

http://biz.yahoo.com/ap/080222/canada_chc_helicopter_deal.html

http://mauberly.blogspot.com/

NEW YORK (Reuters) - The U.S. national security concerns that scuppered network gear maker 3Com Corp's (COMS.O: Quote, Profile, Research) plan to bring in a Chinese investor could erase an already short list of foreign suitors for Motorola Inc's (MOT.N: Quote, Profile, Research) handset business.

The largest U.S. mobile phone maker, which also supplies communications systems to governments and public safety groups, has seen no company yet emerge with a public bid for the unit, while analysts have said it could attract an offer from China's Huawei Technologies Co Ltd HWT.UL or ZTE Corp (0763.HK: Quote, Profile, Research).

But Huawei and private equity firm Bain Capital Partners pulled their proposal to buy 3Com this week after failing to win approval from The Committee on Foreign Investment in the United States (CFIUS), a panel led by the U.S. Treasury Secretary that reviews corporate deals with foreign buyers.

So Huawei, or any foreign company from China to the Middle East, would likely think twice before talking to another firm such as Motorola with U.S. government contracts, analysts said.

"It's definitely a risk factor," said Stifel Nicolaus analyst Rebecca Arbogast, who was surprised the 3Com deal was not approved given that it had seemed ready to divest a sensitive unit that makes network protection systems for government agencies and large businesses.
http://www.reuters.com/article/innovationNews/idUSN2122175020080222

http://mauberly.blogspot.com/

Feb. 26 (Bloomberg) -- Blackstone Group LP, manager of the world's biggest private-equity fund, plans to bypass Wall Street firms and directly find lenders for leveraged buyouts, President Hamilton James said.

The firm is contacting hedge funds and mutual funds to provide loans for takeovers, James said after a panel discussion today at the Super Return conference in Munich. Other firms may follow New York-based Blackstone's lead, he added.

``We're bypassing the banks,'' James said. ``There's still ultimately demand for this paper out there if you can go directly to the buyers.''

The move may cut fees for Wall Street firms led by JPMorgan Chase & Co., which earned $412 million last year arranging loans for U.S. buyouts, more than twice its takeover advisory fees, according to data compiled by New York-based research firm Freeman & Co. and Thomson Financial. Banks are trying to cut a $230 billion backlog of debt they agreed to provide, making them less willing to back new buyouts.

``They found themselves holding the baby,'' Alchemy Partners LLP founder Jon Moulton said at the conference today. ``The banks aren't coming back for a while.''
http://www.bloomberg.com/apps/news?pid=20601087&sid=apKFdUbJq1UU&refer=worldwide

http://mauberly.blogspot.com/

Feb. 28 (Bloomberg) -- A muddy gravel road winds uphill through a redwood forest to Jake Terhune's $985,000 home just outside of Geyserville, in the heart of California's Sonoma County wine region. Terhune, 28, a self-employed cabinetmaker with tattoo-covered arms and a ginger goatee, put down $100,000 and agreed to pay about $6,900 a month for 30 years to buy the three-bedroom house in 2006.

Things started going wrong almost immediately after he moved in. Demand for Terhune's custom cabinetry dried up. His business's income, which had been about $20,000 a month, plunged 50 percent.

After making his first payment, he fell behind. Unable to persuade Irvine, California-based Ameriquest Mortgage Co. to modify his loan, he stopped paying and ignored calls threatening to take his home. By the summer of 2007, Ameriquest, once the biggest home lender to people with credit problems, put the loan up for sale.

``I was working on two houses, but they got foreclosed,'' Terhune says. ``If my customers can't pay what they owe me, the mortgage company can't get what I owe them.''

That's when Ralph Dellacamera got involved. Dellacamera, 54, is a hedge-fund manager with years of experience in vulture investing, the strategy of buying assets at distressed prices in an effort to profit when prices recover.

He is one of several investors -- among them Goldman Sachs Group Inc., the world's biggest securities firm; private equity firm Equifin Capital Partners; and billionaire Wilbur Ross -- seeking to make money from the collapse of the subprime mortgage market while helping borrowers hold on to their homes.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aaKT9Z_X9okg&refer=exclusive

http://mauberly.blogspot.com/

NEW YORK (AP) -- Blackstone Group has lost $170 million for the fourth quarter because of the declining value of its investment in a bond insurer and deterioration in the credit markets. The New York-based investment manager said its investment in Financial Guaranty Insurance Co. led to a decline in performance fees and investment income during the quarter.
http://biz.yahoo.com/ap/080310/earns_blackstone_group.html

http://mauberly.blogspot.com/

March 31 (Bloomberg) -- Mergers and acquisitions bankers suffered a 35 percent drop in fees during the first quarter, just weeks after cashing bonuses from a record year.

Advisory fees fell to about $8.7 billion from $13.4 billion in the first three months of 2007, data compiled by analysts at New York-based Freeman & Co. show. Executives at Lehman Brothers Holdings Inc. and Bank of America Corp. predicted in December that takeovers would decline about 20 percent this year.

``As recently as three months ago, we thought we had seen the worst and it was going to begin to get slowly better,'' said Eduardo Mestre, 59, the former head of Citigroup Inc.'s investment banking unit and now vice chairman of New York-based advisory firm Evercore Partners Inc. ``It only got worse.'' ...

``The first half of 2007 was very, very unusual,'' said Frank Aquila, 51, a partner at Sullivan & Cromwell LLP in New York, the top legal adviser on mergers last year. ``The private equity guys are smart. There was plentiful cheap credit so they took that horse and rode with it.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGDIGpFKILzM&refer=worldwide

http://mauberly.blogspot.com/

SAN FRANCISCO (AP) -- Venture capital investments in the United States dipped 5 percent to $7.1 billion during the first quarter compared to 2007, signaling the financing climate may be turning frostier for entrepreneurs as the slumping economy makes it more difficult for startups to go public or sell to a larger company.
This was the first year-over-year decline in the venture capital industry's quarterly investments since the end of 2005, based on data to be released Monday by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters.

In last year's first quarter, venture capitalists invested $7.5 billion.

Despite the decline, the $7.1 billion invested during this year's first quarter was the fifth-largest amount in a single quarter since 2001.

Although there were fewer dollars disbursed by venture capitalists, more deals got done in this year's first quarter than last year's -- a total of 922 compared with 861 last year.
http://biz.yahoo.com/ap/080419/venture_investments.html

http://mauberly.blogspot.com/

May 15 (Bloomberg) -- Jean-Bernard Lafonta broke a tacit rule of French business etiquette last summer when his firm amassed shares of Saint-Gobain SA, the nation's oldest company, without seeking the consent of its chairman, Jean-Louis Beffa.

Lafonta, 46, chief executive officer of Wendel, a private- equity fund that now owns 21 percent of Saint-Gobain, breached convention again in September when he called Beffa, 66, to say he wanted to help Europe's largest building-materials supplier boost profit. Beffa, dubbed ``the Pope of French industry'' by local newspapers, didn't appreciate the call, Lafonta recalls.

Investor activism is shaking up French boardrooms as funds buy stakes in listed companies following a credit shortage that dried up financing for leveraged buyouts. The confrontations are breaking down links between executives and directors who attended the same schools and sat on each other's boards, making managers more accountable.

``It's the end of the Beffa era in France, when shareholders simply didn't count,'' said David Thesmar, who teaches finance at business school HEC, near Paris. ``From a shareholder's point of view, a Lafonta can only be better than a Beffa.''

For more than two decades, Beffa ran Saint-Gobain -- the supplier of glass to Louis XIV's Chateau de Versailles -- with a board dominated by friends such as BNP Paribas SA Chairman Michel Pebereau and Suez SA CEO Gerard Mestrallet. They attended Ecole Polytechnique, an elite engineering school, held government positions and belonged to the same clubs.

``French CEOs long behaved as though they were the owners and were happy to have quiet shareholders,'' said Jean-Aymon Massie, chairman of the French Association of Corporate Governance.
http://www.bloomberg.com/apps/news?pid=20601109&refer=exclusive&sid=aMubMF7NWyGo

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July 14 (Bloomberg) -- Cerberus Capital Management LP's newest fund fell 1 percent since starting in November 2006, hurt by stakes in unprofitable companies including Chrysler LLC that may prevent the private-equity firm from matching past returns.

The $7.5 billion Cerberus Institutional Partners Series Four lost $32 million on $3.3 billion in investments through March 31, the New York-based company said in a presentation to investors last month, a copy of which was obtained by Bloomberg News. The Standard & Poor's 500 Index, a gauge of the largest U.S. stocks, fell 5.6 percent in the same period.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aUyaPTubNSMI&refer=home

http://mauberly.blogspot.com/

Aug. 6 (Bloomberg) -- Blackstone Group LP, manager of the world's largest leveraged-buyout fund, reported second-quarter profit that beat analysts' estimates as gains from hedge funds cushioned a decline in private-equity takeovers.

Profit excluding some compensation costs fell 75 percent to $165.6 million, or 15 cents a share, from $655 million, or 58 cents, a year earlier, New York-based Blackstone said today in a statement. That exceeded the average estimate of 8 cents a share by 10 analysts in a Bloomberg survey. Blackstone rose 3.3 percent.

Blackstone's gains from buying and selling companies have plunged as buyouts of more than $2 billion dried up and initial public offerings fell to their lowest in four years. Chief Executive Officer Stephen Schwarzman in March purchased GSO Capital Partners LP, a hedge-fund manager that focuses on debt investing and has helped Blackstone fund deals.

``It looks like Blackstone is really seeing the benefit of its GSO acquisition,'' said Jackson Turner, an analyst with Argus Research in New York who has a ``buy'' rating on the shares. ``The results seem fairly encouraging.''
http://www.bloomberg.com/apps/news?pid=20601087&sid=aO_5eV57lSOY&refer=home

http://mauberly.blogspot.com/

AP, By Joe Bel Bruno, September 16

NEW YORK - Goldman Sachs Group Inc., the world's largest investment bank, said Tuesday its third-quarter profit plunged 71 percent from a year earlier, an almost unthinkable drop for a firm widely described as the smartest on Wall Street.

Sept. 22 (Bloomberg) -- KKR & Co. LP, the private-equity firm planning to go public this year, posted $1.12 billion in investment losses in the first half of the year, wiping out net income for the period.

The net loss for the first six months was $1.1 million, compared with net income of $667.4 million a year earlier, the New York-based company said today in a regulatory filing. Investment profits were $3.37 billion a year earlier amid a record boom in leveraged buyouts.

KKR and private-equity competitors are struggling to complete takeovers after banks and investors cut off financing that had fueled a two-year buyout boom. Announced private-equity transactions worldwide fell 73 percent to $143.1 billion during the first half of 2008, according to data compiled by Bloomberg.

``The lack of credit has materially hindered the initiation of new, large-sized transactions for our private-equity segment and, together with declines in valuations of equity and debt securities, has adversely impacted our recent operating results,'' New York-based KKR said in a filing today with the U.S. Securities and Exchange commission.

KKR, like publicly traded Blackstone Group LP, prefers to focus on a measure called economic net income. On that basis, which doesn't conform to generally accepted accounting principles, KKR's private-equity business had a loss of about $12 million in the first half, compared with a profit of $645.8 million last year, according to the filing. Blackstone reported a net loss of $408 million for the first half of the year.
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a7bJSGmlKs3Q

http://mauberly.blogspot.com/

Reutuers, September 22

WASHINGTON - The Federal Reserve on Monday relaxed some rules regarding minority shareholder investments in banks, in a move that could encourage investments by private equity and other firms.

The eagerly awaited guidelines bring greater clarity to defining limits for investors that want to buy sizable stakes in banks, but do not want to own so much of a bank that they are subject to U.S. banking regulations.

The new rules do not represent a dramatic change from the past, but are likely to attract fresh capital to the sector at a time when there is dire need for it, said Chip MacDonald, a mergers partner at the law firm Jones Day.

"The Fed is evolutionary not revolutionary, and this change reflects that," MacDonald said.

SHANGHAI, China (AP) -- China Investment Corp., the government's sovereign wealth fund, may raise its stake in U.S. investment group Blackstone LP after the two agreed to boost the Chinese company's ownership limit.

CIC had paid $3 billion for a stake in Blackstone's June 2007 initial public offering, but has seen the value of that investment sink in the bear market, to the consternation of many in China.

According to a regulatory filing, a revised agreement reached Thursday between Blackstone and CIC unit Beijing Wonderful Investments Ltd. has raised the limit on the Chinese company's stake to 12.5 percent from 9.99 percent.
http://biz.yahoo.com/ap/081017/as_china_blackstone.html

This is a nice benchmark for the value of private equity in general.

http://mauberly.blogspot.com/

Bloomberg, By Frederic Tomesco, October 28

Stephen Schwarzman, chairman of Blackstone Group LP, said private-equity firms that buy companies during the credit crisis may see ``phenomenal'' profits once global economic growth resumes.

``In periods like this, people get scared out of their minds,'' Schwarzman said in a speech at the North American Venture Capital Summit in Quebec City today. ``This kind of environment is tailor-made for making absolute fortunes in the private-equity business.''

Falling asset prices are bound to help investors, said Schwarzman, whose New York-based firm oversaw $119.4 billion on June 30, including the world's largest buyout fund. Companies being acquired by private-equity firms at just three to four times earnings before taxes, depreciation and amortization will boost future returns, he said.

``I'm not Robert De Niro, but I'm close to a raging bull on private equity,'' Schwarzman said. ``This is a wonderful time to be an investor. In almost every asset class because of this dislocation, you can make phenomenal returns with very little risk.''

November 5 – Financial Times (Henny Sender): “Carlyle Group, the private equity firm, this week warned a group of its investors that they were unlikely to see returns on their money soon. ‘You should expect very few distributions from us,’ said Bill Conway, Carlyle’s co-founder and chief investment officer… Mr Conway also said: ‘You should also expect very few new deals.’ He added that asset prices did not reflect grim economic realities globally. The warnings come as investors grow increasingly concerned about the health of companies that private equity groups invest in. Carlyle noted that it was valuing its investment in ailing semiconductor company Freescale at 50 cents on the dollar and HD Supply at 65 cents on the dollar.”
http://www.prudentbear.com/index.php/commentary/creditbubblebulletin?art_id=10149

http://mauberly.blogspot.com/

More than 90 funds are no longer on CalPERS’ list of private equity funds, according to the alternative investment management program fund performance review as of June 30.

While he would not confirm the number of funds missing from the list, Clark McKinley, CalPERS spokesman said: “This is part of our strategic AIM restructuring CalPERS started in the fall of 2006, and that’s why there is a shorter list.”
http://www.pionline.com/apps/pbcs.dll/article?AID=/20081118/DAILY/811189973

http://mauberly.blogspot.com/

Dec. 1 (Bloomberg) -- A push by the richest U.S. universities to unload their stakes in private-equity funds is flooding the market, driving down prices for the world’s best- known buyout firms.

Investors led by Harvard University, which manages the largest U.S. endowment at $36.9 billion, may increase so-called secondary sales of private-equity funds to more than $100 billion during the next year, overwhelming available pools of capital. Interests in funds managed by KKR & Co., Madison Dearborn LLC and Terra Firma Capital Partners Ltd. all are being offered at discounts of at least 50 percent, according to people familiar with the sales.

Crippled financial firms such as American International Group Inc. and bankrupt Lehman Brothers Holdings Inc. are joining strapped endowments such as the ones at Columbia University in New York and Duke University in Durham, North Carolina, in trying to sell private-equity stakes. A deepening global recession that is crimping the value of buyout firms’ holdings is forcing further price cuts in a market where buyers already are scarce.
http://www.bloomberg.com/apps/news?pid=20601109&sid=azBqn85_aRXE&refer=exclusive

http://mauberly.blogspot.com/

CAMBRIDGE, Mass. (AP) -- Harvard officials say the university's largest-in-the-nation endowment lost about 22 percent of its value, or $8 billion, in the four months since the end of the last fiscal year.
The endowment was worth $36.9 billion as of June 30.

Harvard will have to take a "hard look at hiring, staffing levels, and compensation," university President Drew Faust and Executive Vice President Edward Forst wrote in a letter informing deans of the losses.

They say the university should plan for a 30 percent drop in endowment value by the end of next June.

Forst tells The Harvard Crimson student newspaper that the 22 percent estimate may be conservative because some university money is handled by external managers that have yet to report figures.
http://biz.yahoo.com/ap/081203/harvard_endowment.html

http://mauberly.blogspot.com/

Jan. 28 (Bloomberg) -- On the 18th floor of American International Group Inc.’s headquarters in Manhattan, Blackstone Group LP executives regularly gather to carve up what was once the world’s largest insurer. The battered giant is unloading more than two dozen businesses worth about $60 billion to repay the government after its bailout last year.

Blackstone, the No. 1 leveraged-buyout firm, has a seat at the table, but not as a buyer. The company that orchestrated the then record $34 billion acquisition of Equity Office Properties Trust in 2007 is now playing a more modest role -- as an adviser to AIG as it sheds units from auto insurance to aircraft leasing.

Blackstone is searching for profits in acquisition and restructuring advising and distressed debt as LBO dealmaking enters its gravest crisis in its 40-year history. After buyout firms helped inflate the credit bubble, its obliteration has crippled the global financial system and spurred a spate of bankruptcies at companies owned by the industry’s most-hallowed names.

Buyout firms themselves may be next to go. As many as 40 of the biggest 100 companies may collapse by 2011 as their debt- strapped assets default, according to a 2008 report by Boston Consulting Group Inc., which didn’t identify the firms in its study.

“These guys had a sense they could do no wrong,” says Paul Schaye, managing partner of New York-based Chestnut Hill Partners, which helps firms find deals. “They were the new masters of the universe. Now they’re going through a very sobering experience. They have to figure out how to survive this environment.”

http://www.bloomberg.com/apps/news?pid=20601109&refer=exclusive&sid=aWX0tLhaasZM

http://mauberly.blogspot.com/

Jan. 30 (Bloomberg) -- One of the things Wesley Edens did soon after his company bought Canadian ski-resort conglomerate Intrawest Corp. in October 2006 was to finance construction of a $43 million gondola at Whistler, British Columbia.

The new lift, completed in December 2008, is the longest unsupported span for any gondola, stretching 2.73 miles (4.4 kilometers). It’s also the highest, dangling 1,427 feet (435 meters) over Fitzsimmons Creek between Whistler mountain and its sister peak, Blackcomb. Visitors to the 2010 Winter Olympics, for which Intrawest’s Whistler Blackcomb resort is a venue, are likely to ride it just for thrills: Two of the 28 cars have glass bottoms.

Two years after commissioning the ski lift, Edens, 47, finds himself staring into an abyss of a different sort. He’s the chief executive officer of money manager Fortress Investment Group LLC. Edens and his partners became instant billionaires when the company, which manages $34.3 billion in private equity and hedge fund holdings, went public in 2007. The Montana-born Edens, who ski-raced in high school, could have paid for the gondola himself.

In the past four months the shares of Fortress have lost most of their value, falling 96 percent to $1.34 from $31 on Feb. 9, 2007, their first trading day. “There’s been a lot of hardship in the world since then,” says Edens in a rare interview.

The stock prices of a half dozen other publicly traded companies controlled by Fortress have also plunged.

Analysts are bearish on Fortress, even at a rock-bottom price.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a7rJVe6G62rA&refer=exclusive

http://mauberly.blogspot.com/

The Guardian, By Andrew Clark & Phillip Inman, February 3

New York - The private equity industry poses a "looming disaster" to the economy as firms struggle to refinance billions of dollars of loans taken out during a buyout boom earlier in the decade, a transatlantic coalition of unions warned today.

Britain's Unite union joined forces with the US Services Employees International union (SEIU) to kick off a campaign for greater transparency and tighter regulation over the finances of powerful, low-profile private equity firms.

The unions warned of "crippling defaults around the world" as more than $500bn (£346bn) of private equity debt needs to be renegotiated by 2010. They cited a prediction by Alchemy Partners' boss Jon Moulton that up to 30% of mid-market buyouts could end in default.

"The next bubble to burst will be private equity," said Jack Dromey, deputy general secretary of Unite. "There's no question but that we have a looming disaster in our economy."

Bloomberg, By David Wilson, February 4

U.S. taxpayers may be stuck with losses on $30 billion of Bear Stearns Cos. assets owned by the Federal Reserve even though the central bank has said otherwise, according to Robert A. Eisenbeis, Cumberland Associates Inc.’s chief monetary economist.

“There is no prospect for a profit on the assets,” Eisenbeis wrote in a report yesterday. “Losses are mounting.”

[...]

“The transaction was not structured with adequate over- collateralization to protect the taxpayers from losses,” based on the risks associated with housing-related assets at the time, Eisenbeis wrote.

Feb. 19 (Bloomberg) -- Two of Japan’s eight nationwide banks are braced for $2.6 billion in losses after investments by U.S. private equity groups, which the Obama administration is counting on to help bail out the U.S. financial system.

The lenders took on increased risks under foreign ownership. Aozora Bank Ltd., acquired in 2003 by Cerberus Capital Management LP, reported reverses on subprime mortgages, GMAC LLC shares and Bernard Madoff’s fund. Shinsei Bank Ltd., bought in 2000 by private investors including billionaire J. Christopher Flowers, had losses on a stake in Germany’s Hypo Real Estate Holding AG.

“Aozora and Shinsei were managed like many banks in America, investing in derivatives and other toxic assets,” said Neil Katkov, head of Asia research at Boston-based Celent LLC. “It was a bargain with the devil.”

Buyout firms including Cerberus and J.C. Flowers & Co. are stumbling with investments from Japan to Germany as their acquisitions are battered by the credit crisis and the deepest recession since the early 1980s. As many as 50 percent of companies owned by private-equity firms may default by 2011, according to a study of 328 holdings by Boston Consulting Group.

The failures are affecting a cross section of the global economy. Mervyn’s LLC, Lyondell Chemical Co. and Linens ‘n Things Inc. -- all controlled by buyout firms -- have filed for bankruptcy. Cerberus received U.S. government aid for Chrysler LLC and GMAC, the lender affiliated with General Motors Corp.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aFC_U5GBjZOc&refer=exclusive

http://mauberly.blogspot.com/

March 11 (Bloomberg) -- The restaurant operator that trademarked the Bloomin’ Onion, a deep-fried, 1,560-calorie appetizer, is giving its private-equity owners indigestion.

Bain Capital LLC, which has made more than $100 billion of investments since its founding in 1984, has hired restructuring specialists AlixPartners LLP and Miller Buckfire & Co. to help salvage its $3.2 billion 2007 takeover of Tampa, Florida-based OSI Restaurant Partners Inc. The company, which owns the Outback Steakhouse chain, is struggling with declining revenue and a 30- fold increase in losses during the worst economic crisis since the Great Depression.

Boston-based Bain isn’t the only leveraged buyout firm trying to bail out its investments. Apollo Management LP and Blackstone Group LP are employing an arsenal of tools, including debt exchanges and equity infusions, to rescue leveraged buyouts, such as Freescale Semiconductor Inc. and Realogy Corp. After spending a record $1.2 trillion on acquisitions during 2006 and 2007, LBO firms are now focused on deal-saving, not dealmaking.

“They are looking at existing deals and asking, ‘How can I buy myself time?’” said Bryan Marsal, co-founder of Alvarez & Marsal Inc., who has taken over the operations of bankrupt New York-based securities firm Lehman Brothers Holdings Inc. Marsal said his firm is also working for LBO managers who are “looking inwardly.”

Since November, at least seven companies owned by private- equity firms, including Blackstone’s Freescale and Apollo’s Harrah’s Entertainment Inc., have sought to pare more than $50 billion of borrowings by offering lenders the chance to exchange debt at a discount for cash or new securities.
http://www.bloomberg.com/apps/news?pid=20601109&refer=exclusive&sid=apUN4GkGPA.I

http://mauberly.blogspot.com/

No surprise that private equity firms (even the publicly-traded ones) are reluctant to disclose the individual performance of their funds, particularly in a down market.

A letter from Blackstone Group to the SEC argues against disclosing such information to its public shareholders. Looks like investors voted with their wallets on Monday, with Blackstone’s shares down 9 percent. Here’s an extract from the Dec 5 letter, first reported by Bloomberg:
http://blogs.reuters.com/reuters-dealzone/2009/03/30/fund-details-under-lock-and-key-at-blackstone/

http://mauberly.blogspot.com/

April 6 (Bloomberg) -- Japanese funds that buy stakes in start-up companies are struggling to survive amid the worst market for initial offerings in 17 years, Kazuhiko Tokita, chairman of the Japan Venture Capital Association, said.

Only 49 companies went public last year, the fewest since 1992, depriving venture firms of the source of 45 percent of revenue and 90 percent of profits, based on data from 2007. The investors are likely to pool their holdings to create bigger stakes so they can pressure companies to merge or buy back stock, Tokita said.

“The industry needs to gather its power during this ice age, and that means combining,” said Tokita, a former director of Mitsubishi UFJ Financial Group Inc.’s venture capital unit. He predicts funds will lose money this year and possibly next. “When this is finished, what’s left standing will be the real venture capitalists.”

The country’s three biggest firms saw two years of profits wiped out since April 2008 as Japan’s economy shrank at a 12.1 percent rate in the fourth quarter, according to data compiled by the Venture Enterprise Center and Bloomberg. Japanese funds, which together manage 1.04 trillion yen ($10.6 billion), get more than twice as much revenue from IPOs as U.S. and European firms, according to Venture Enterprise.
http://www.bloomberg.com/apps/news?pid=20601109&sid=afpWYmx_Xp.0&refer=exclusive

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NEW YORK (AP) -- Goldman Sachs Group Inc. said Monday it raised its fifth dedicated private equity secondaries fund, GS Vintage Fund V, with about $5.5 billion in capital commitments.

The fund will focus primarily on acquiring portfolios of private equity assets, Goldman said. Limited partners in the fund include existing and new institutional and private investors throughout the Americas, Europe, Asia and Australia.

http://finance.yahoo.com/news/Goldman-raises-55B-for-apf-14908201.html?sec=topStories&pos=4&asset=TBD&ccode=TBD

http://mauberly.blogspot.com/

May 12 (Bloomberg) -- Quantum Energy Partners, the Houston private-equity firm that put together a $3.5 billion bankroll to go bargain-hunting for acquisitions after oil and natural-gas prices plunged, is waiting for a better time to pounce.

Buyers will accelerate acquisitions late this year and in early 2010 as the hedging contracts that shielded potential takeover targets from tumbling prices expire, said Wil VanLoh, Quantum’s chief executive officer.

“By the first quarter of next year, we’ll be pretty darn active,” VanLoh said in an interview at his downtown office. “Many companies are very well hedged for 2009, so the squeeze hasn’t happened yet. The point of capitulation probably will arrive in the fourth quarter or the first quarter of 2010.”

http://www.bloomberg.com/apps/news?pid=20601109&sid=azhEBUdwRKrc&refer=exclusive

http://mauberly.blogspot.com/

May 29 (Bloomberg) -- Yale University and Harvard University may have to cut investments in hedge funds and private equity because the risks of holding the hard-to-sell assets outweigh the returns, said Bill Gross, co-chief investment officer of Pacific Investment Management Co.

“The Yale and Harvard portfolios, which have succeeded enormously over the past 10 or 20 years in terms of the emphasis on illiquidity and private investments and risk-taking -- you have to question that model,” Gross said yesterday at an industry conference in Chicago.

The two Ivy League schools had more than half of their endowments in hedge funds, private equity, real estate and hard assets such as commodities at June 30. Gross, who manages the $150 billion Pimco Total Return Fund, the world’s biggest bond mutual fund, recommended in March buying securities that provide stable income this year rather than more speculative and illiquid investments, as slowing economic growth and higher unemployment depress returns.

“Everything in this ‘new normal’ world should be questioned in terms of the returns going forward,” Gross, 65, told the audience at Morningstar Inc.’s annual fund-industry conference.

“New normal” in the global economy means heightened government regulation, slower growth and a shrinking role for the U.S., Mohamed El-Erian, who shares the position of investment chief with Gross at Newport Beach, California-based Pimco, said earlier this month.

These conditions will force people to question traditional strategies, such as putting 60 percent of their money in riskier investments including stocks and hard-to-sell assets and 40 percent in bonds and cash, Gross said.
http://www.bloomberg.com/apps/news?pid=20601109&sid=at0iuIc8_ga0&refer=exclusive

http://mauberly.blogspot.com/

July 21 (Bloomberg) -- The British government said it’s considering whether to impose legal restrictions on the amount of money “vulture funds” can recover from buying up the debts of 40 poor nations receiving relief from western countries.

The Treasury is studying new laws that would restrict the amount that fund managers could recoup through the courts from bonds they buy at distressed prices when the countries have difficulty paying. The rules would cover only those receiving relief under the Heavily Indebted Poor Countries program.

“By opting out of international debt relief efforts and pursuing the full value of claims in the courts this minority of creditors can negate the benefits of debt relief,” Treasury minister Paul Myners said in a written statement to Parliament in London today. “This is at the expense of poor countries and British tax payers.”
http://www.bloomberg.com/apps/news?pid=20601013&sid=aoQOdhqTIjIs

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Aug. 20 (Bloomberg) -- U.S. pension funds contributed to the record $1.2 trillion that private-equity firms raised this decade. Three of the biggest investors, state pensions in California, Oregon and Washington, plunked down at least $53.8 billion. So far, they only have dwindling paper profits and a lot less cash to show the millions of policemen, teachers and other civil servants in their retirement plans.

The California Public Employees’ Retirement System, the Washington State Investment Board and the Oregon Public Employees’ Retirement Fund -- among the few pension managers to disclose details of their investments -- had recouped just $22.1 billion in cash by the end of 2008 from buyout funds started since 2000, according to data compiled by Bloomberg. That amounts to a shortfall of 59 percent. In total, they haven’t reaped a paper gain from funds formed in the past seven years.
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DUBAI (Reuters) - Private equity firm Blackstone Group's (NYSE:BX - News) chief executive said the worst of the industry's problems were behind it, and dealflow and IPO opportunities were opening up again.

Stephen Schwarzman also said on Wednesday he was seeing "more than green shoots" of economic recovery, though the scale of growth through next year was still unclear.
http://finance.yahoo.com/news/Blackstone-sees-more-than-rb-458263572.html?x=0&sec=topStories&pos=6&asset=&ccode=

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