A down run on Wall Street and the added costs of being publicly traded are making for another strong year for private equity and corporate buyouts.
This year, Orange County has seen some of its largest buyouts to date with major corporate deals and a string of private company acquisitions by investment firms.
Left on the sidelines: public offerings.
The county has seen two notable stock debuts this year,those of Costa Mesa-based surfwear maker Volcom Inc. (see story, below) and Irvine subprime mortgage lender ECC Capital Corp.
But the number and size of private equity and corporate buyouts dwarf public offerings. That’s not surprising given Wall Street’s major indexes are in the red for the year.
OC’s big deal: Minnesota-based Uni-tedHealth Group Inc.’s $8.1 billion pending buy of Cypress-based PacifiCare Health Systems Inc. The deal, set to close next year, is the largest yet for OC.
Not far behind is Charlotte, N.C.-based Wachovia Corp.’s $3.9 billion buy of Irvine-based Westcorp and subsidiary WFS Financial Inc. The deal is set to close in the first quarter.
The pace of deals in the county this year is on par with 2004, according to Santa Monica-based FactSet Mergerstat LLC.
From January to mid-October, 75 private equity deals worth more than $3.5 billion were done or announced in OC.
For all of 2004, the county saw 85 deals worth $3.8 billion.
“It’s reflective of an ongoing trend where there is still a large amount of pent up dollars in private equity funds available for acquisitions,” said George Wall, senior partner with Costa Mesa-based law firm Rutan & Tucker LLP. “We also are seeing more acquisitions of companies by public companies.”
As for corporate buyouts, OC has seen 261 deals worth $20.8 billion through mid-October. Last year, the county saw 333 deals worth $13.8 billion.
The trend is toward bigger deals, said Murray E. Rudin, a partner at Los Angeles-based private equity firm Riordan, Lewis & Haden Inc. and head of the OC office.
One of the county’s biggest private equity deals came last week: Seal Beach-based Baker Tanks Inc. was bought for a reported $500 million or higher by New York-based Light-year Capital LLC.
Last year, another private equity investor, Code Hennessy & Simmons of Chicago, bought the supplier of tanks to oil refineries and chemical plants for $275 million.
The Baker private equity deal is the latest of many this year:
n Irvine-based Mexican fast-food chain El Pollo Loco Inc. is being bought by New York’s Trimaran Capital Partners LLC for an estimated $400 million. The deal is set to close this quarter.
n Los Angeles-based Leonard Green & Partners LP paid an estimated $200 million to $250 million for a majority stake in Claim Jumper Enterprises Inc., which was sold by President Craig Nickoloff. He and his dad started the Claim Jumper chain in 1977 via a holding company, CWN Management Inc., in Irvine.
“From what we’ve seen in Orange County, the market is pretty robust,” said Tim Flynn, a partner with Leonard Green & Partners. “There’s a lot of high quality business in Orange County.”
n Anaheim-based Targus Group International Inc., maker of accessories and devices for portable computers, was bought by New York private equity firm Fenway Partners Inc. The firm bought a majority stake in Targus for $383 million from Apax Partners LP, which bought into Targus a decade ago.
“We tend to be drawn to a certain type of company,one with a strong brand, a leading market position and strong management,” said Timothy Mayhew, managing director of Fenway. “We increasingly find that there are companies like that in Orange County, and that has our attention.”
Fenway, which has a Los Angeles office, is in talks to buy another OC company, which Mayhew declined to name.
“I definitely think the market is running along at a nice clip,” he said. “I wouldn’t call it overheated, as people are pretty rational.”
Stephen Carley, El Pollo Loco’s chief executive, said his fast-food chain sought to sell to a private equity investor because it has been squeezed by debt interest payments and the costs of Sarbanes-Oxley compliance.
El Pollo isn’t publicly traded but reports to the Securities and Exchange Commission because of its publicly held debt, estimated at about $110 million as of June 30.
“We are a public filer with public bonds,” Carley said. “Many restaurant companies have had horror stories on the cost and complexity of implementing Sarbanes-Oxley, so we avoided that by going with a private equity.”
The company’s cost to comply with Sarbanes-Oxley rose tenfold in the past two years, Carley said.
“To avoid that massive headache is one reason to look to private equity,” he said.
Private equity firms are searching for companies that aren’t feeling heat from goods imported from China or feeling pressured by the retail sway of Wal-Mart Stores Inc., according to Carley.
“That’s what is driving all of this,” he said. “Private equity needs to buy solid, low-end companies that can add value over a three-to-eight year period.”
|
|
