Private equity deals continued flowing in Orange County in the past two years, topping more than $4 billion, according to data compiled for the Business Journal by Thomson Reuters Corp.
The county saw 118 private equity buyouts of companies here or acquisitions by private equity firms based here in the past two years, about even with 2006 and 2007, despite the recession and credit crisis that started taking hold in late 2007.
Private equity deals here topped $4.4 billion in the past two years, likely setting a record. The actual dollar amount of deals here was higher, as the values of only about 20 deals were disclosed. Prices for roughly 100 more—mostly smaller deals—weren’t made public.
In 2006 and 2007, disclosed deals here were valued at about $2.4 billion.
Two big 2008 deals dominated in the past two years: Lake Forest-based home healthcare provider Apria Healthcare Group Inc.’s $1.7 billion sale to Blackstone Group LP, and Newport Beach-based medical software provider TriZetto Group Inc.’s $1.3 billion sale to Apax Partners Inc.
Those big deals were followed by a string of smaller deals in 2009 after Wall Street’s meltdown.
“The new normal in private equity is smaller deals,” said Matthew Toole, research analyst at Thomson Reuters.
The county felt the pullback in private equity deals that took hold last year, but not to the same extent as the rest of the nation.
The number of local companies bought by private equity firms went from 49 in 2008 to 41 last year. Local private equity firms themselves saw a steeper drop, going from 24 deals in 2008 to four last year.
Private equity acquisitions of companies here peaked in 2007 at 57 deals. 2008’s buying was the top year for private equity firms based here.
Across the U.S., private equity deals peaked three years ago. Some 3,285 different transactions valued at $867.8 billion took place from 2006 to 2007.
In the past two years, national deals fell to 2,217 and an estimated $122.5 billion.
“What happened wasn’t just tied to the economy,” said Dan Lubeck, managing director at Solis Capital Partners LLC, a private equity firm in Newport Beach. “It was also symptomatic of private equity’s growing pains as an industry.”
Smaller Deals
Smaller deals helped keep activity in Orange County relatively steady in the past two years, according to private equity investors.
Markets dominated by smaller companies tend to hold up better during recessions as private equity firms look to bolster previous acquisitions by adding companies in similar businesses, said Michael Kaye, managing partner at ClearLight Partners LLC in Newport Beach.
And the county’s ripe for deals, said Matthew Witte, managing partner of Newport Beach-based Marwit Capital LLC, the most active local private equity firm in the past two years.
“One of the reasons why there has been a fairly consistent level of private equity activity is because OC’s economy is relatively new,” he said. “A lot of new people have moved here in the past 30 years and opened businesses. And many of those owners have now reached the stage where they’re looking to take some chips off the table.”
In other cases, publicly traded companies here decided to quit Wall Street, ridding themselves of costs related to the Sarbanes-Oxley Act of 2002 and quarterly scrutiny of their results.
Along with Apria and Trizetto, companies that traded public life for private equity buyouts include Santa Ana software maker MSC.Software Corp., which was bought for $372 million in October by Palo Alto-based Symphony Technol-ogy Group LLC, and Irvine printer maker Printronix Inc., which was bought in 2008 for $108 million by San Francisco-based Vector Capital Corp.
Private Equity Buying Again, Eyes Undervalued Cos., Growth Prospects
Local private equity firms are gearing up to invest after a pause last year.
Newport Beach-based ClearLight Partners LLC’s latest fund has about $175 million left to invest, according to Michael Kaye, ClearLight’s managing partner.
“It’s still a tough environment,” Kaye said. “But we’re definitely looking at new opportunities.”
ClearLight, which has invested about $600 million from two funds, bought a small maker of water purification systems—Idaho’s Pure Health Solutions Inc.—in December. In 2008, it bought a gold miner, Arizona’s Gold Canyon Mining & Construction LLC.
Both companies showed growth prospects in niches favored by ClearLight’s fund managers, Kaye said.
Solis Capital Partners LLC of Newport Beach is starting a leveraged buyout fund and aims to raise $100 million, said Dan Lubeck, managing director.
The fund plans to invest in companies that Solis’ managers believe are undervalued, he said.
“Managers with a stable base of investors and a longer-term strategy for buying smaller companies are still finding opportunities,” Lubeck said.
The Contrarian Group, a Newport Beach-based private equity firm founded by Peter Ueberroth, is looking for more long-term investments in small companies with unique growth prospects, according to Tim Fogarty, a partner.
He estimated Contrarian’s eight-company portfolio has a total of around $40 million.
The firm has “open term sheets out right now” with several companies, according to Fogarty.
“We’re looking at several other opportunities right now,” he said. “Money is still scarce. But we’re seeing more deals along the West Coast since the second half of last year. People are approaching us.”
—Murray Coleman
