In July, three companies that were targets of some of the largest-ever leveraged buyouts — Univision, the Spanish-language broadcaster; technology company First Data; and supermarket Albertsons — filed to go public.
The companies are also notable because they have been owned by private-equity funds for much longer than anticipated — as much as a decade in Albertsons case.
An IPO filing is still a long way away from a clean exit: Even with a public listing it can take years for private equity investors to sell down their shares and be done with an investment.
In the wake of the financial crisis, so-called “hold times” at private equity firms increased to an average of 5 to 9 years for a North American company compared to an average time of 4.2 years before markets crashed, data from Preqin shows.
Hold times are the duration a private equity-backed company sits in its owner’s portfolio. Hold times have also irked some private equity investors like state pensions after revelations of fee abuse at some of the industry’s top firms.
“I hate long hold times in private equity, personally,” Don Vollum, managing partner at Vista Ridge Capital Partners, a private equity investor based in Oregon, told Business Insider.
“That’s not to say that I want to see managers rush a company to market before it’s ready, but rather that the point of ‘private equity’ is to transform a company in a relatively short, fixed amount of time — 3 to 5 years, typically.”
For private equity firms, that’s meant having to run businesses for much longer than they planned. In some cases, they have used the time to sell off pieces to manage a smaller business as they push toward an IPO.
In other cases, big private equity firms like TPG Capital and KKR found themselves facing problems they couldn’t strategize past. Deals like Harrah’s Entertainment and Energy Future Holdings went belly-up, costing sponsors billions in the process and making it harder for them to raise new funds in the aftermath.
Business Insider took a look at five deals that represent about $US100 billion in invested capital to see how private equity is working through some of the transactions that proved most difficult in the wake of the financial crisis.
Blackstone Group bet big on Equity Office Properties in 2007 and was fortunate to quickly flip a large chunk of the real estate after acquiring it for $US36 billion. Blackstone has continued to pare down the assets in a series of sales, like last year's sale of $US3.5 billion of California office buildings and has now offloaded more than half of the properties it acquired in the original deal.
It is very likely the private equity firm will reel in a profit on its Equity Office deal, in a similar fashion to how Steve Schwarzman's firm won with its bet on Hilton Worldwide Hotels, that is, piece-by-piece.
One of the things that has made Hilton a successful deal is that the sponsor has sold stakes of around 10% in the company into what has been a rising market for its stock. Hilton also exited properties held within its own portfolio at a high valuation.
KKR has had a tough time with some of its biggest deals, but Henry Kravis' PE firm is on the verge of making a big exit more than seven years after acquiring First Data. It took a lot of extra homework and the attentive eye of Kravis himself to get there.
First Data's IPO filing shows that it hasn't recorded an annual profit since at least 2010 -- as far back as the financial statements go.
Seven years after the initial $US27 billion buyout, KKR had to invest more than $US1 billion to prop up First Data. The IPO will be a big test for KKR. After another of its mega-buyouts (Energy Future) filed for bankruptcy it remains to be seen if Kravis' PE firm will ever again do a deal north of the $US10 billion mark again.
Rather than cutting down, like Blackstone has done with Equity Office, the owners of supermarket giant Albertsons have gone the other way -- scaling up the business with acquisitions.
The initial $US9.6 billion buyout of Albertsons by Cerberus Capital Management dates back to 2005. It was followed by a handful of deals, most notably a $US9.4 billion bid for Safeway that closed in January of this year. By July, the merged company had filed for an IPO. But it hasn't yet disclosed a share price (crucial in determining valuation). Cerberus controls a majority stake leading up to the IPO.
In 2006, a group of private equity investors agreed to buy out the U.S.' largest radio and billboard company, Clear Channel Communications, in a deal that was worth over $US18 billion. In the time since, the company has given its owners headaches. Some crafty corporate engineering has seen the sponsors put together and split apart operations. That is, when they're not selling bits of the business off to pay down the company's staggering debt load.
The next turn could come in 2016, when more than $US900 million in loans mature. All told, the company is facing more than $US20 billion in total indebtedness as of December 31, 2014. This pushes a potential exit further off into the future.
The LBO of the leading Spanish-language broadcaster in the U.S. was larded with debt, but the private equity investors behind the deal think it is now ready for public markets. It took over eight years since the company's buyout to get it ready for public markets again, however. In the beginning of July, Univision filed paperwork with the S.E.C. for its IPO.
TPG Capital, Thomas H. Lee Partners, Providence Equity, Madison Dearborn and Saban Capital did sell a stake to Mexico's Grupo Televisa in 2012, but it was at a discount to where they invested in the broadcaster five years prior. The silver lining to this market debut is that Univision's debt has been largely been refinanced, giving the broadcaster some breathing room in coming years.