YOUR SOURCE FOR LEVERAGED AND MANAGEMENT BUYOUTS

CONTENTSNovember 10, 2014 | BUYOUTS | 1www.buyoutsnews.com

Vol. 27 No. 23 November 10, 2014

Executive Editor: David Tolldavid.toll@thomsonreuters.com (646) 223-6784Editor-in-Chief: Lawrence AragonSenior Editors: Steve Gelsi, Sam SuttonResearch Editor: Paul CentopaniContributing Editors: Luisa Beltran, Chris Witkowsky, Iris DorbianEuropean Editor: Angela Sormani

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Buyouts

“We are bringing in two more team members to focus on China and Southeast Asia.”

—Myron Zhu, partner in Hong Kong office of FLAG Capital Management

CHARTS OF THE WEEK 6FIRM NEWS

Pension questions legality, ethics of Saybrook investment 7Report finds correlation between specialization & returns 8SEC probing private equity performance figures 10Testy Illinois governor race holds no cure for state finances 11Big four sponsors seeing little pain from lower oil 13

FRESH CAPITALPenn. pension cancels $100M Centerbridge commitment 14Arizona bets $25M on $1.8B Apollo energy deal 14LPs in Carlyle IV ‘not happy’ w/ share of $115M settlement 14New York State Teachers’ inks $350M in PE commitments 15Sunshine State shines in Q3, commits more than $500M 15New Mexico PERA backs Garrison for up to $60M 16Allianz Capital plans to back North American PE funds 16Forsingdal leaving ATP Private Equity to join Allianz Capital 17Illinois Teachers’ targets Asia with $200M 18PennSERS alts portfolio with Korean commitment 18LP Scorecard: Austin Ventures, KKR lead Washington 18Recent LP Commitments 19Meet The LP Video buyoutsnews.com

FUND NEWSKKR mulls growth equity, wraps Asia fund 20Carlyle nears cap on energy fund, NGP raises $6.5B in Q3 20Billionaire Elon Musk commits to Valor Equity’s 3rd fund 21Blackstone to seek $13B for global real estate fund 21Apollo hits $3.4B hard cap on credit fund; eyes real estate 22LFM Capital debut fund hits $110M hard cap 22Francisco Partners sets sights on $2B for Fund IV 22Former Goldman, BDT executive raises $602.7M for debut 23Apollo to launch new natural resources fund 23Financial services specialist Aquiline seeks $1B 24Tinicum forms LP as part of portfolio company spinoff 25Blackstone real estate fund, 1st to offer quarterly liquidity 25Novacap Industries IV reaches 70 percent of $425M target 26

LEVERAGED LOANSFifth Street Asset Management pulls IPO 28Debt specialist Oaktree buys half of energy trader HETCO 28All eyes on Scientific Games LBO bond: IFR 29Ratings Wrap-Up 30

PORTFOLIO COMPANIESAquiline puts car lender First Investors Financial on block 32Private equity job openings 33

DEAL FLOWPSA Healthcare is up for sale, seeks bids of at least $200M 35Lighting and sensor provider Excelitas up for sale 35Sale of yearbook maker Herff Jones parent for $1.5B near 35Contract sterilization company Sterigenics up for sale 36Advent, Avista near deal for UCB’s Kremers Urban 36

EXITSAdvent sells Christ jewelry stores to 3i 37CPPIB-backed energy company set to raise C$810M in IPO 37TPG hires Lazard to sell Australian energy retailer Alinta 38Talking Top Quartile with Hazem Ben-Gacem of Investcorp 39

INSIDE THE DEAL Looking to raise money from sovereign wealth funds? 43

MARKET INTELLIGENCE 50-63ON THE MOVE 64-65

Corrections 65

BUYOUTS BEAT 66*67EDITOR’S LETTER

ACG preps for another run at Dodd-Frank 68

GP PROFILE: WL Ross & Co aims to pay well under 10x EBITDA 44 By Steve GelsiFunds expected back to market in 2015 46By Angela Sormani and Paul Centopani

FEATURES:

Demand for new fund managers creates wave of oversubscribed funds 40By Sam Sutton

2 | BUYOUTS | November 10, 20142 | BUYOUTS | November 10, 2014

COMPANY INDEX

AABRY Partners 15Advent International 36, 37Allianz Capital Partners 16, 17Apollo Global Management 3, 10, 13, 14, 22, 23, 37Aquiline Capital Partners 24, 32ARC Financial 37Ares Management LP 28Ardian 37Arizona State Retirement System 14Arkansas Teacher Retirement System 18Asia Alternatives 18ATP Capital Partners 16, 17Avista Capital Partners 36

BBain Capital 10, 15BDT Capital Partners 23Blackstone Group 10, 13, 14, 15, 21, 24, 25

CCaisse de dépôt et placement du Québec 26California Public Employees Retirement System 8, 15, 16, 23, 40California State Teachers’ Retirement System 15, 40Canada Pension Plan Investment Board 37Carlyle Group 10, 13, 14, 20Centerbridge Partners 14Charlesbank Capital Partners 15, 35CIC Partners 40Consonance Capital Partners 40

DD3 Family Funds 35DB Private Equity 67

FFifth Street Asset Management 28Florida Retirement System 15Florida State Board of Administration 15Fondaction CSN 26Fonds de solidarité des travailleurs du Québec FTQ 26Francisco Partners 22

GGarrison Investment Group 16Gauge Capital 40Genstar Capital Management 24Georgia Division of Investment 16Goldman Sachs Group Inc 15GTCR 12, 36

H, I, JHahn & Company 18Hamilton Lane 41Hellman & Friedman 15Illinois Municipal Retirement Fund 21Illinois State Board of Investment 21Inflexion Private Equity 15Insight Venture Partners 18JPMorgan Partners 40

KKentucky Retirement System 14KERN Partners 37Kohlberg Kravis Roberts & Co 13, 15, 20

LLFM Capital LLC 22, 40Lone Star Funds 18Los Angeles City Employees’ Retirement System 7, 15Los Angeles Fire and Police Pensions 7

NNew Mexico State Investment Council 15New York State Teachers’ Retirement System 15Novacap 26NPG Energy Capital Management 20Nuveen Asset Management 13

OOaktree Capital Management LP 28Oklahoma Police Pension and Retirement Fund 22, 25Ontario Teachers’ Pension Plan 23Oregon Public Employees Retirement Fund 24

PPamplona 37Partners Group AG 35Pennsylvania Public School Employees’ Retirement System 14Pennsylvania State Employees’ Retirement System 18Pinebridge Investments 29Portfolio Logic 35Public Employees Retirement Association of New Mexico 16

RRaine Group 41RCP Advisors 8, 40RedBird Capital Partners 23, 41Riverside Company 68Rubicon Technology Partners 15

SSan Francisco Employees’ Retirement System 14, 15Shore Capital Partners 40, 41Silver Lake 15Siris Capital Group 3, 18State of Wisconsin Investment Board 3, 40

TTaurus Funds Management 18Teachers’ Retirement System of the State of Illinois 18Teachers’ Retirement System of Louisiana 14, 41Thompson Street Capital Partners 23Tinicum Inc 25TPG Capital Management LP 15, 38, 68Turnbridge Capital Partners 41TVV Capital 22

V, WValor Equity Partners LP 21Veritas Capital Fund Management LLC 35Vista Equity Partners 14, 29Warburg Pincus 3, 13, 24Washington State Investment Board 3, 18Webster Capital 35

www.buyoutsnews.com

November 10, 2014 | BUYOUTS | 3

By Paul CentopaniU.S.-based buyout and mezzanine firms

raised an estimated year-to-date amount of $157.9 billion through Oct. 31. That figure is up from $129.6 billion at this time a year ago.

In the past two weeks, Warburg Pincus closed its first energy fund, going beyond its target of $3 billion and closing with a robust $4 billion in commitments. Some of the notable investors in the energy fund are the State of Wisconsin Investment Board and the Washington State Invest-ment Board. Another fund that exceeded its target was middle market-focused Gauge Capital with its debut, Gauge Fund LP. The initial target was $175 million, and it raised all the way up to its $250 million hard cap. Meantime, Sorenson Capital Partners is re-entering the market with its third buyout fund. It is aiming for a $400 million target to invest in consumer goods, technology and manufacturing.

As the U.S. economy continues to gain steam, so does the amount of investing U.S.-based sponsors do. The year-to-date total of $111.3 billion is nearly $10 billion ahead of $101.4 billion at this time last year. A note-worthy deal that took place was Siris Capi-tal Group agreeing to buy Digital River, a commerce-as-a-service solutions provider, for about $840 million. Apollo Global Manage-ment was also active, purchasing Express Energy Services.

November 10, 2014 | BUYOUTS | 3www.buyoutsnews.com

MARKET AT A GLANCE

Lincoln international2/3

0 50 100 150 200

Deals Completed

Buyout/Mezzanine Funds Raised

$111.3B

$101.4B

$130.1B

$157.9B

$129.6B

$190.8B

(in billions)

YTD 2014 Comparable 2013 FY 2013

Golub Capital2pg spread

6 | BUYOUTS | November 10, 2014

As expected, the compensation figures here are depressed, directly in line with the economic recession.

PARTNER NON-PARTNER ALL

Years Salary Salary + Bonus

Salary + Bonus +

Carry

Salary Salary + Bonus

Salary + Bonus +

Carry

Salary Salary + Bonus

Salary + Bonus +

Carry

2007/2008 11% 14% 23% 13% 34% 35% 12% 18% 25%

2008/2009 0% -6% -12% 6% 10% 11% 3% 1% -5%

2009/2010 0% -5% -9% 5% 7% 8% 0% 5% 5%

2010/2011 1% 9% 12% 4% 7% 8% 2% 4% 10%

2011/2012 5% 11% 25% 21% 27% 33% 10% 15% 26%

2012/2013 6% 10% 16% 6% 19% 24% 6% 13% 16%

2013/2014 5% 14% 30% 6% 22% 22% 6% 18% 26%

Source: 2014-2015 Holt-MM&K-Thomson Reuters North American PE/VC Compensation Report

Firm Classification All Committed Capital All Invested Capital Deal by Deal

LBO/VC/Mezzanine 24% 39% 37%

LBO/Growth Equity 16% 26% 58%

Venture Capital 36% 45% 18%

Mezzanine 22% 67% 11%

Fund of Funds 50% 38% 13%

Corporate Venturing/Secondary/Co-Investment

60% 20% 20%

Institutional 8% 58% 33%

All Firms 26% 40% 33%

Source: 2014-2015 Holt-MM&K-Thomson Reuters North American PE/VC Compensation Report

6 | BUYOUTS | November 10, 2014

CHARTS OF THE WEEKwww.buyoutsnews.com

Changes in median compensation, all firms, 2006-2014

How much capital does your firm have to return before carried interest distributions are made?

Over the past year, compensation by North American buyout, venture capital and other private equity firms has continued to follow an upward trend after several lean years during the financial crisis and Great Recession.

More than half of LBO/Growth Equity firms studied have a GP-friendly deal-by-deal distribution waterfall.

The European distribution method is most prevalent amongst Venture Capital, Mezzanine and Fund of Funds, all using it over 80% of the time.

The table below shows the distribution waterfall for different types of private equity firms in North America, according to a recent survey. Some two-thirds of all firms have adopted the “European distribution waterfall” of returning all committed or drawn-down capital to investors before receiving profit distributions.

By Paul Centopani

November 10, 2014 | BUYOUTS | 7

FIRM NEWSNovember 10, 2014 | BUYOUTS | 7

Pension questions legality, ethics of Saybrook investmentBy Sam Sutton

• Saybrook acquired TTSI in 2011• Truck drivers awarded $1.2 mln in unpaid wages, reimbursements• LA pensions readying letters of concern

Three pensions plan to raise concerns with an investment by Saybrook Capi-tal in Total Transportation Services Inc, a transportation and logistics company that a California labor division found had improperly characterized truck drivers as independent contractors rather than employees.

On Oct. 21, the Los Angeles City Employees’ Retirement System’s gover-nance committee instructed its investment staff to compose a letter to Saybrook Capi-tal that will encourage the private equity firm to “behave legally” in the resolution of the labor dispute, LACERS Commission-er Elizabeth Greenwood told Buyouts. The letter is to be considered by the retirement system’s full board at a later date.

“What we’re concerned about is that you manage your business legally, ethi-cally and that you produce a return,” Greenwood said, describing the tenor of the proposed letter to Saybrook Capital. “When it comes out that you may not have managed your business legally or ethically, and that it could affect the return, you have our attention.” LACERS committed $8 million to Saybrook Capital’s $350 mil-lion, vintage-2008 debut fund, earmarked for investments in mid-market compa-nies that present operational or financial complexities.

Saybrook Capital used the fund to recapitalize Rancho Dominguez, Calif.-based TTSI in 2011. Saybrook executive Jonathan Rosenthal chairs the company’s board of directors, according to his Linke-dIn profile. It is not clear if executives at the firm take an active role in the day-to-day management of TTSI.

TTSI leases company-owned trucks to drivers, who sign independent contractor

agreements. Drivers use their leased trucks to transport cargo containers on behalf of TTSI’s clients. The company pays drivers for each container they move, deducting the cost of fuel, maintenance, insurance and registration from their payments. The leases allow drivers to purchase the truck upon the completion of their contract.

The dispute with truck drivers cen-ters on whether TTSI improperly uses the independent contractor model. The driv-ers argue that their relationship with TTSI is more like employee to employer than independent contractor to company; for example, they point to a lease clause in their agreement with the company that they say prohibits them from using the leased trucks to transport cargo for other drayage companies.

Several drivers filed claims to that effect with the California Department of Industrial Relations’s Division of Labor Standards Enforcement (DLSE). Since Feb-ruary 2013, the DLSE has ruled against TTSI in 17 cases, awarding more than

$1.2 million in the form of unpaid wages, reimbursements for expenses paid by the workers, and interest, spokeswoman Jules Bernstein told Buyouts in an email. As of early October, TTSI still faced about 40 active wage and hour claims at the state level, though some of those may be dismissed.

In a letter sent to Los Angeles officials and Saybrook Capital investors, TTSI char-acterized the claims as “nothing more than an ongoing attempt to unionize inde-pendent contractors” and said that orga-nizers are trying to “discredit the stellar reputation TTSI has built over the last 20 years in business” by engaging with Say-brook’s limited partners.

LP ConcernsThe increasingly expensive dispute

between TTSI and its truck drivers appears to have LACERS and the Los Angeles Fire and Police Pensions worried.

“We usually don’t get involved,” Ray Ciranna, general manager of Los Angeles

www.buyoutsnews.com

2007-2008 Saybrook raises its $350 mln debut fund, Saybrook Corporate Opportunity Fund

Spring, 2009 Alejandro Paz begins working as a truck driver for TTSI

Oct. 3, 2011 Saybrook Corporate Opportunity Fund recapitalizes TTSI

June 2013 Paz files a claim with the California Department of Industrial Relations’s Division of Labor Standards Enforcement

May 20, 2014 The DLSE hears Paz’s case

May 24, 2014 TTSI notifies Paz that his contract was terminated

Aug. 18, 2014 Paz speaks in front of the CalPERS investment committee; CalPERS plans to investigate

Aug. 26, 2014 The DLSE awards Paz roughly $50,000

Oct. 2, 2014 Los Angeles Fire and Police Pensions discusses Saybrook and TTSI at its board meeting

Oct. 21, 2014 LACERS governance committee instructs staff to compose letter to Saybrook

Timeline of TTSI labor action

FIRM NEWSwww.buyoutsnews.com8 | BUYOUTS | November 10, 2014

Fire and Police Pensions, told Buyouts. The pension system committed $5 million to the Saybrook Capital fund in 2008 and plans to draft a letter outlining its con-cerns. “Our concern is that we don’t really want to lose money,” Ciranna said.

The C alifornia Public Employees ’ Retirement System is also examining Saybrook Capital’s stake in TTSI. CalP-ERS committed $19.8 million to the Say-brook Capital fund through an emerging managers program run by adviser GCM Grosvenor.

On Aug. 18, the CalPERS investment committee heard Alejandro Paz describe his experience as a TTSI driver during a period allotted for public comments. After Paz’s remarks, Investment Com-mittee Chairman Henry Jones said that he would ask CalPERS staff to investigate the matter.

“Our staff, as well as our fund-of-fund advisor that manages the Saybrook strat-egy, are engaging on this issue,” CalPERS spokesman Joe DeAnda told Buyouts.

Saybrook Capital’s debut fund had net-ted a 16.7 percent internal rate of return and 1.4x investment multiple as of March 31, according to CalPERS.

Executives at Saybrook Capital and TTSI did not respond to requests for com-ment. Attorneys named as TTSI represen-tatives did not respond to a request for comment.

An Independent ContractorFormer TTSI drivers, including several

members of the International Brotherhood of Teamsters, allege that the company took improper deductions from their payments. They also accuse the company of retaliat-ing when they filed claims with the DLSE.

Paz did not own a truck when he start-ed working for TTSI in 2009, so he leased a company-owned vehicle for approximate-ly $1,600 per month, he told Buyouts. The lease, which included a clause specifying his status as an independent contractor, also made him responsible for the truck’s insurance and registration costs, as well as maintenance and fuel costs, according to a TTSI lease agreement provided by a labor organization that represents the truckers.

“Once I figured out what I had gotten myself into, I started to see some red flags,” Paz said. “I had to maintain the truck, and then all the expenses were on me.”

Drivers had to haul enough cargo to earn $1,500 in payments from TTSI in

order to clear $300 to $400 per week after deductions, Mario Marquez, a former TTSI driver, told Buyouts. Doing so became hard-er when shipping traffic at Southern Cali-fornia ports slowed, and less transportable cargo was available.

In June 2013, Paz filed a claim with the DLSE saying that TTSI misclassified him as an independent contractor and that he was entitled to roughly $159,000 in unlawful deductions (including the lease payment) and expenses. Later that year, Paz said that TTSI’s President, Chief Executive and Co-founder Victor La Rosa asked him to con-sider withdrawing the complaint.

After Paz refused, “That’s when things started to get bad,” he said.

Paz relied on TTSI to dispatch him to specific hauls. After they filed claims with the DLSE, both Paz and Marquez allege that TTSI dispatchers switched their shifts and assigned them to slower-moving loads, which limited the number of containers they could transport in a pay period.

Ruling Favors TruckersThe DLSE heard Paz’s case on May 20,

2014.According to an “Order, Decision or

Award” document provided by a labor organization that assisted Paz, TTSI con-tended that Paz was an independent con-tractor “engaged in his own truck-driving business” who could drive for other com-panies. TTSI characterized its business as that of middleman between independent drivers and customers and that it had no control over the manner in which Paz delivered cargo.

Paz argued that TTSI dictated which loads he hauled, the rates at which he was compensated, and the deductions taken from his compensation—more character-istic, he argued, of an employee-employer relationship. “The truck’s under TTSI’s name. The registration is under TTSI’s name. The customer’s under TTSI’s name. I don’t negotiate anything,” Paz told Buyouts.

On May 24, Paz received a letter from TTSI that said his contract had been ter-minated. A termination letter signed by La Rosa cites Paz’s testimony in front of the DLSE, in which he argued that he was not an independent contractor, as the reason for his firing.

“Your statements, made under oath, that you are not an independent contrac-tor as you had previously represented by signing the agreement constitute a mate-

rial breach of the Independent Contractor Agreement,” according to a copy of the letter shown to Buyouts.

In August, the DLSE found in Paz’s favor, noting that TTSI failed to prove that he had been an independent con-tractor and that the company controlled “all meaningful aspects of the business relationship,” including rate of compensa-tion, schedule, the location and delivery of cargo, as well as compliance with laws, rules and regulations.

The DLSE awarded Paz approximately $50,000 in its decision, including roughly $18,000 to reimburse deductions to his compensation, $26,300 for truck fuel and $5,100 in interest. The DLSE did not con-sider Paz’s lease payment to be a deduction and excluded that total from the award.

TTSI appealed the decision to the Department of Industrial Relations appeal board, Paz told Buyouts. To date, he has not received any payment related to the award.

New report finds flimsy correlation between industry specialization and returnsBy Sam Sutton

• More than 50 pct of lower mid-market firms specialize• Few GPs identify as generalists• Lower mid-market funds outperform mega-funds

Industry specialization is only “weak-ly” correlated to performance in the lower middle market, according to a recent white paper from fund-of-funds manager RCP Advisors.

More than 50 percent of the 550 firms that RCP includes in its lower middle-mar-ket database have carved out niches as specialists in one or two industries. That specialization differentiates them from generalist firms that invest opportunisti-cally across a variety of sectors.

Lexington Partners

FIRM NEWSwww.buyoutsnews.com10 | BUYOUTS | November 10, 2014

Industry specialization allows limited partners to build up investment expo-sure to specific sectors such as energy or healthcare by directing commitments to managers that specialize in those industries. While targeting industry spe-cialists has its advocates—and its advan-tages, from a portfolio diversification standpoint—it has not necessarily led to superior returns within RCP’s portfolio, Managing Principal Charles Huebner told Buyouts.

“We still live by the notion that each manager has to be uniquely good at something and the most tangible dif-ferentiator is that you’re an industry specialist,” he said. However, “the data didn’t show a demonstrable boost to returns just because of that.”

GPs that specialize in one or two sec-tors tend to invest across market cycles, whether or not their industry of focus is performing well. That can negatively impact returns, Huebner said. He added that even industry specialists can be poor fund managers.

“On one hand you’re an expert, on the other, you could have blinders on” to sec-tor-specific problems, he said. “It’s still very much a manager-specific game. And relying on someone just because they are an industry specialist isn’t alone a path to returns.”

Although specialization has not been found to deliver outsize returns, few GPs describe themselves as generalists “due to competitive positioning and their attempts to show a differentiated strat-egy,” according to the white paper.

In addition to highlighting issues with industry specialization, the white paper addresses the ways in which lower mid-dle-market private equity firms generate outsize returns compared to their peers at the larger end of the market. (RCP defines lower mid-market firms as active GPs with less than $1 billion of capital.)

Citing Preqin, the RCP white paper reports that top-quartile lower middle-market buyout funds raised between the years 2000 and 2009 netted a 20 per-cent internal rate of return as of Dec. 31, compared to 18.2 percent for upper middle-market funds and 16.2 percent for mega-funds. RCP cites lower purchase price multiples, as well as firms’ strategic emphasis on operational improvement and portfolio company growth, as key contributors to performance.

SEC probing private equity performance figuresGreg Roumeliotis

• Looking at calculation of net IRRs• Issue is whether GP contribution included• How much is disclosed to investors?

The U.S. Securities and Exchange Com-mission is examining how private equity firms report a key metric of their past per-formance when they market new funds to investors, as the regulator boosts its scru-tiny of the industry, people familiar with the matter told Reuters news service.

At issue is how private equity firms report how they calculate average net returns in past funds in their marketing materials, the sources said.

Net returns, also known as the net internal rate of return (IRR) and an indi-cator of investors’ actual profits, deduct private equity fund investors’ fees and expenses from a fund’s gross profits. Pri-vate equity fees are not standard and dif-ferent investors in the same fund can pay different fees.

Fund investors such as pension funds, insurance companies and wealthy individ-uals—known as limited partners—pay the fees to the private equity firm. The private equity firm and its managers, called gen-eral partners, also typically invest some of their own money into the funds, but don’t pay any fees.

Including the general partner’s money in the average net returns can inflate the fund’s average net performance figure, and the SEC is investigating whether private equity fund managers properly disclose whether they are doing that or not, the sources said.

An SEC spokeswoman declined to comment.

The SEC’s focus on the average net IRR disclosures, which has not been previ-ously reported, marks a new phase in the agency’s efforts to regulate private equity and comes at a time when the industry is already under pressure from investors to simplify its fees and expenses structure.

The emphasis on performance figures is likely to cause many buyout firms to

review their regulatory compliance mea-sures and force them to increase disclo-sures and make their numbers more intelligible to investors.

There is no standard practice for calcu-lating average net IRRs among the roughly 3,300 private equity firms headquartered in the United States.

A Reuters review of regulatory filings and interviews with people familiar with different firms’ practices show the calcu-lation varies widely even among the top private equity firms.

The Blackstone Group, The Carlyle Group, and Bain Capital LLC, for example, do not include money that comes from general partners in average net IRR calcu-lations, while Apollo Global Management LLC does, the review shows.

Fund marketing documents are not public, but the sources said all these firms disclose to investors whether they include general partner capital in the calculation or not.

The SEC’s review comes after the agen-cy put together a dedicated group earlier this year to examine private equity and hedge funds that had to register with it as part of the 2010 Dodd-Frank financial reform law, Reuters first reported in April.

Much of the SEC’s focus so far had been on fees that private equity funds charge. In a May 6 speech, Andrew J. Bowden, director of the SEC’s Office of Compliance Inspections and Examinations, said more than half of the private equity funds the agency examined had inappropriately allo-cated expenses and collected fees.

Complex CalculationThe average net IRR figure is crucial to

investors’ understanding of their actual profits from private equity funds. That’s because not all investors in a fund pay the same amount of fees to the private equity firm for managing their money.

Typically, fund managers charge a man-agement fee of about 1.5 percent of com-mitted capital and take 20 percent of the fund’s profits assuming performance meets a returns hurdle agreed with investors.

Investors, however, are usually offered fee breaks if, for example, they commit money early during the fundraising pro-cess or if they make a larger allocation to the fund.

The SEC expects private equity firms to report average net IRRs alongside gross IRRs with equal prominence in marketing

FIRM NEWSwww.buyoutsnews.com November 10, 2014 | BUYOUTS | 11

materials when they are seeking to raise a new fund.

Industry sources said including general partner capital in the average net IRR cal-culation can make a material difference if that commitment is sizeable.

“Over the past five years, some general partners have started to invest more of their personal capital into their vehicles on a non-fee basis and that obviously can create some IRR distortion,” said David Fann, chief executive officer of TorreyCove Capital Partners LLC, a private equity advi-sory firm.

Reporting by Greg Roumeliotis of Reuters news service.

Testy Illinois governor race holds no cure for state financesBy Karen Pierog• Ratings for Illinois bonds are lowest in U.S.• Reform law for underfunded pension plan stuck in court• Big union opposes plan from ex-GTCR exec Rauner

Whichever candidate won the pitched battle for Illinois governor on Nov. 4 faces the prospect that the state supreme court next year could toss hard-fought changes to the woefully underfunded state pension system, according to Reuters news service.

Neither incumbent Democratic Gov-ernor Pat Quinn nor wealthy Republican private equity investor Bruce Rauner has revealed a workable “Plan B” to strengthen the pension system, the most underfunded of any U.S. state. (At press-time, Rauner was declared the winner by The Associ-ated Press.)

In the municipal bond market, the credit ratings for Illinois’ bonds are A3 and A-minus, the lowest among the U.S. states. Credit rating agencies have warned that without cost-saving pension changes, ratings on the state’s nearly $30 billion of general obligation debt could fall to the triple-B level. Only a few states have ever had their ratings drop this low.

The ratings could also take a hit from a scheduled partial rollback of a temporary

Compass holding2/3

FIRM NEWSwww.buyoutsnews.com12 | BUYOUTS | November 10, 2014

hike in state income tax rates in January. The added tax revenue has helped the state make its pension payments.

Illinois’ pension reform law, on hold due to litigation in a county court, reduces and suspends cost-of-living increases for pensions, raises retirement ages and limits salaries on which pensions are based.

Quinn hopes the law, enacted last December to ease a $100 billion unfunded liability, will survive the court challenge brought by unions and others claiming it violates a state constitutional provi-sion designed to protect public worker pensions.

“We don’t have a decision in the

supreme court. If the court acts in a way that is contrary we will take necessary steps,” Quinn said during a recent guber-natorial debate.

Rauner, who was previously a top exec-utive at private equity firm GTCR for more than 30 years, contends the pension law is unconstitutional. His campaign website says he would ensure pay and benefits do not rise faster than the rate of inflation; eliminate massive pay raises before retire-ment that increase pensions; and move toward a defined contribution system.

Union leaders say Rauner’s approach would not survive a court challenge.

“It’s blatantly unconstitutional. It

would strip public employees of security in retirement, and it would bankrupt the retirement systems by draining them of funds,” said Anders Lindall, a spokesman for American Federation of State, County and Municipal Employees Council 31, the state’s biggest public labor union.

Pension reform remains at the center of the governor’s race in part because of a state supreme court ruling in an unrelated case in July. The court found that health care for retired state workers is a pension benefit, and as such is protected from cuts by the state constitution.

Amanda Kass, research director at bipartisan think-tank Center for Tax and Budget Accountability, said the correla-tion with the state pension law is clear. “That ruling indicates that the law is going to be struck down,” she said.

Calls for Action Business groups worry that the two can-

didates have offered no realistic plan for dealing with a likely court setback.

“The would-be governor and the mem-bers of the General Assembly have to be thinking about what do we do if they over-turn it,” said Ty Fahner, president of the Civic Committee of The Commercial Club of Chicago.

Fahner, a former Illinois attorney gen-eral, said the state could prevail with its argument that its duty under the state constitution to protect health and wel-fare overrides the constitution’s pension provision.

Laurence Msall, president of The Civic Federation, a Chicago-based fiscal watch-dog, said the next governor needs “a laser-like focus” on a long-term fiscal plan that eschews gimmicks. The group estimated the $1.8 billion revenue loss from the upcoming tax rate rollback would balloon Illinois’ chronic stack of unpaid bills to $6.4 billion by June 30, the first increase in three years.

Quinn based his fiscal 2015 budget on maintaining the tax increase. Rauner’s plan calls for eliminating the 2011 income tax hike, raising more than $600 million by extending the state sales tax to certain services, and freezing local property taxes.

Regardless of who wins, Illinois is headed for tough times even if the court approves pension reform, according to the Institute of Government & Public Affairs at the University of Illinois. Taking into account the projected $1 billion in annual

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budget savings from pension reform and no rollback in tax rates, Illinois over the next decade would still see budget defi-cits topping $1 billion a year, the institute estimates.

John Miller, co-head of fixed income at Nuveen Asset Management, said munici-pal bond investors already are demanding fatter yields on the state’s debt. The yield spread for Illinois bonds due in 10 years is about 150 basis points over the market’s benchmark scale for triple-A-rated bonds.

“That is costing taxpayers,” Miller said.Reporting By Karen Pierog, editing by David

Greising and David Gregorio.

Big four sponsors say they’re seeing little pain from lower oil pricesSteve Gelsi

• KKR, Carlyle, Blackstone and Apollo see opportunities with $80 oil• Prices stabilized after quick drop early in October• Energy investing thesis mostly intact at current prices

The Carlyle Group, Apollo Global Man-agement, The Blackstone Group and Kohlberg Kravis Roberts & Co in their quarterly updates to Wall Street investors all said their energy investments will withstand the quick drop in oil prices that took place in October.

The big four sponsors all tackled ques-tions from analysts about energy, a place of increasing investment as the U.S. boosts domestic oil and natural gas production to avoid imports.

Most said the drop wasn’t entirely unexpected given the historic volatility in the commodity space. Lower prices could actually make the energy sector more appealing for investments, some said.

Across the private equity industry, energy and natural resource funds have drawn about $20 billion in commitments thus far in 2014, according to fundrais-ing totals compiled by Buyouts. About 13 percent of all the money raised by buy-out funds so far in 2014 has gone toward energy, up from less than 10 percent for all of 2013.

Against this backdrop, oil prices dropped about $20 a barrel to the $80 level in early October and held there in recent weeks, partly due to concerns about oversupply.

“In general, lower energy costs and lower feedstock costs, for a lot of our companies, actually is helpful for (profit) margins,” Stephen Schwarzman, chair-man and CEO of Blackstone Group, said on Oct 16. “Our long-term view of energy prices was below most of the price levels in the last two years…Our investments that we’ve made in energy will be quite successful if oil prices even stay at this level.”

Apollo Global Management co-founder Josh Harris said it’s unlikely that the price will stay this low over the next five years, the firm’s typical investment horizon.

“In energy, we always look at the long-term fundamentals, not the short-term market fluctuations,” he said on Oct 30. “So the move down in oil is not surpris-ing to us.”

Bill Conway, co-CEO of Carlyle Group, said the drop in energy prices could pro-vide consumers with billions more to spend on other things. “Consumer goods companies tend to do pretty good when energy prices are falling,” he said on Oct. 29.

As for energy producers, about 95 per-

cent of the wells in the United States can still cover costs at $80 a barrel, he said.

Scott Nuttall, global head of capital and asset management for KKR, said the firm manages about $8.7 billion of capital in its energy and infrastructure business across its funds, balance sheet and sepa-rate accounts.

“While falling oil price can adversely impact some of our existing investments, we feel the firm’s overall oil exposure is limited compared to the available oppor-tunities,” Nuttall said on Oct 23. “The capital needs within the energy complex are material, and if short-term commod-ity price swings create supply/demand imbalances, that is generally good for our business.”

Some private equity firms have nev-ertheless absorbed share price losses in energy companies in their portfolios.

Blackstone Group and Warburg Pincus, for example, own shares in Kosmos Ener-gy, which saw its share price fall below $9 a share, its lowest point since it went public at $18 a share in 2011. Since then, the stock has risen to about $9.50. Apollo Global Management and Riverstone Hold-ings own shares of EP Energy, whose share price recently fell to below $15 after trading at more than $17 in September.

Three of four big PE shops post drop in EIN in Q3Firm Total AUM as of Sept 30 Change Economic Net Income Change Insight

Apollo $163.9B 45% $48M -91% Distributed $4.6 billion to fund investors in the quarter.

Blackstone $284.4B 15% $758.4M 18% Long-term underlying growth fundamentals have never been stronger, as evidenced by the momentum in Blackstone’s earnings, distributions, assets and investment activity.

Carlyle $203B 9.50% $166M -15% $8 billion in new investements in 2014 as of Sept 30, equal to all of 2013

KKR $96.1B 7% $508.7M -17% Realization activity in the first nine months of 2014 drove a 68% increase in year-to-date distribution per unit to $1.55.

Source: Quarterly statements

“In energy, we always look at the long-term fundamentals, not the short-term market fluctuations”—Josh Harris, Apollo Global Management

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Pennsylvania pension cancels $100 mln Centerbridge commitmentBy Sam Sutton

• Parties could not agree on contractual terms• More oversubscribed funds pushing for GP-friendly terms• Centerbridge expected to hold final close in October

T h e Pe n ns y l va nia P u b lic S cho o l Employees’ Retirement System will not invest in Centerbridge Partners’s third flagship fund after allocating up to $100 million to the vehicle in August, Buyouts has learned

“We could not agree on contractual terms so we are not moving forward with the investment in Centerbridge III,” PennSERS spokeswoman Evelyn Williams told Buyouts in an email. The $52 billion retirement system declined to provide details on the source of the disagreement.

PennSERS requested a seat on the fund’s advisory committee and needed to finalize its commitment roughly a month before the fund’s final close, which was scheduled for late October, according to a source familiar with the situation. Centerbridge typically assembles its advi-sory committees in the final stages of fundraising.

Centerbridge is targeting $5.75 billion with a $6 billion hard cap, according to Pennsylvania documents. The fund is expected to be oversubscribed.

Some general partners are using strong demand for their funds as an excuse to ask LPs to accept more GP-friendly fund terms, several LPs have said to Buyouts.

In October, Oregon State Treasury Chief Investment Officer John Skjervem said that Oregon pulled two previously approved commitments this year after failing to agree on fund terms with its private equity managers.

“In every case it was a re-up with an existing manager,” Skjervem said. “They were oversubscribed and decided to change the terms and conditions. So, we have to at some point philosophically say, ‘We were a founder and we’re losing our

founders’ fees. Or we feel strongly that director fees should be offset.’ You have to draw a line in the sand, stand up for what you believe in, and walk away.”

The Teachers’ Retirement System of Louisiana walked away from an approved $75 million commitment to Vista Equity Partners’s fifth fund after negotiations with the firm broke down, Maurice Cole-man, Louisiana’s director of private mar-kets, told Buyouts in September.

Kentucky Retirement Systems consid-ered taking a similar stance with Vista. Interim Chief Investment Officer David Peden told Buyouts in September that he was unsure whether the retirement sys-tem would actually invest the $50 mil-lion it approved for the fund, as strong demand from other investors might force Kentucky to reduce its commitment to a size that would not be appropriate for its long-term investment strategy.

It is not clear if Kentucky invested in the fund, which held a final close on $5.8 billion on Oct. 22. Peden could not be reached for comment as of press time.

Arizona bets $25 mln on $1.8 bln Apollo energy deal; backs Centerbridge, BlackstoneBy Sam Sutton

• $33.7 bln retirement system co-invests in Jupiter Resources deal• Commits $75 mln each to Blackstone Energy, Centerbridge funds

The Arizona State Retirement System plans to invest $25 million alongside an affiliate of Apollo Global Management in its acquisition of “certain energy assets” from Encana Corp, according to Oct. 20 investment committee meeting materials.

In September, the Canadian oil and natural gas company sold roughly 360,000 acres in the Bighorn area of Alberta to Jupiter Resources, a Calgary-based com-

pany backed by Apollo Global, along with its interests in pipelines, facilities and ser-vice arrangements. The price tag was $1.8 billion.

Apollo Global declined to comment on how much co-investment capital it raised for the Bighorn acquisition.

In addition to the co-investment, the $33.7 billion retirement system approved a $75 million commitment to Blackstone Energy Partners II, which is targeting $4 billion for investments in energy and natural resources. The Blackstone Group scheduled a final close for the fund in the first quarter of 2015, according to San Francisco Employees’ Retirement System documents released earlier this year.

The Arizona retirement system also approved a $75 million commitment to Centerbridge Capital Partners III, ear-marked for a blend of distressed debt investments and leveraged buyouts. Cen-terbridge Partners is expected to hold a final close on its $6 billion hard cap in late October, according to Pennsylvania Public School Employees’ Retirement Sys-tem documents.

LPs in Carlyle IV ‘not happy’ with 75% share of $115 million settlementBy Steve Gelsi

• Carlyle Group paid about one quarter of $115 million settlement• LPs in Carlyle Partners IV required to pay about $86 million• Fund IV’s net multiple dips to 1.96x from 1.98x

The Carlyle Group co-CEO Bill Conway said the buyout firm paid about 25 per-cent of the cost of a $115 million settle-ment in a multi-year collusion lawsuit that wrapped up over the summer, while lim-ited partners in Carlyle Partners IV picked up the rest of the tab.

“You know we thought the case was without merit,” Conway told Wall Street investors on the firm’s third-quarter con-ference call. “Once everybody else settled, we thought the risk to our fund investors

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and unit holders was just too great for us to continue.”

Carlyle Group’s share of the settlement came to about $28.8 million. The firm’s insurance policy paid an undetermined portion of that sum, a source familiar with the firm said. That left LPs on the hook for about $86.3 million in settlement costs.

“Of course no one wants to pay these kinds of expenses, least of all us,” Conway said. “The investors in the fund—clearly they weren’t happy—but I think they gen-erally understood what happened.”

Conway said that Carlyle Partners IV, which drew in nearly $8 billion in commit-ments, was doing all of the firm’s investing during the time frame that the collusion lawsuit covered.

The settlement payment represented about 1 percent of the fund’s $10 billion in gross gains. As a result of the settlement, the fund’ s net multiple on invested capital dipped to 1.96x from 1.98x, Conway said.

Buyouts reported on Sept. 25 that Carlyle LPs would share settlement costs in the col-lusion settlement. LPs in the fund include California Public Employees’ Retirement System, the California State Teachers’ Retirement System, the Los Angeles City Employees’ Retirement System, as well as the New Mexico State Investment Council.

The lawsuit alleged that seven firms conspired to not outbid each other on eight separate deals in order to avoid pay-ing higher prices. Firms involved in the litigation included Bain Capital, The Black-stone Group, Goldman Sachs, Kohlberg Kravis Roberts & Co, Silver Lake and TPG Capital, along with Carlyle Group.

Carlyle Group was the last of seven firms to settle without admitting wrong-doing. The settlement payments totaled $590.5 million. Reuters reported on Sept. 1 that Carlyle agreed to pay a settlement.

New York State Teachers’ inks $350 mln in PE commitmentsBy Sam Sutton

• Retirement system allocates $67.8 mln for two Inflexion funds• ABRY Partners, Hellman & Friedman get commitments• Pension fund’s PE portfolio valued at $8.2 bln

The New York State Teachers’ Retire-ment System finalized roughly $350 mil-lion of commitments across four private equity funds in August and September, indicating an appetite for both European and U.S. buyout funds, according to Oct. 29-30 meeting materials.

The retirement system committed £42 million ($67.8 million) across two Inflexion Private Equity funds, Inflexion Buyout Fund IV and Inflexion Partner-ship Capital Fund I. The latter fund will pursue minority investments in middle-market businesses.

The U.K. firm closed its buyout fund on £650 million in October. The partner-ship capital fund closed on £400 million at the same time.

New York State Teachers’ committed $200 million to Hellman & Friedman’s eighth buyout fund, which had raised roughly $10 billion as of September, Buy-outs reported. Hellman & Friedman set a $10.25 billion hard cap for the fund and expected to hold a final close by the end of October, according to a San Francisco Employees’ Retirement System memo.

New York Teachers’ also closed an $80 million commitment to ABRY Partners’s latest buyout fund in August. The final commitment was $20 million less than the maximum amount Executive Director and Chief Investment Officer Thomas Lee approved for ABRY Partners VIII, accord-ing to meeting materials. ABRY Partners raised $1.9 billion for the fund, according to the firm’s website.

Earlier this year, New York State Teachers’ committed $75 million to ABRY Advanced Securities Fund III, a senior debt fund that was scheduled to hold a final close on $1.5 billion in April.

The New York State Teachers’ Retire-

ment System, which as of last year had more than $90 billion in assets, has a 7 percent target allocation to private equi-ty. The retirement system valued its pri-vate equity portfolio at $8.2 billion as of Sept. 30, according to meeting materials.

As of June 30, the portfolio had gen-erated a 12 percent net internal rate of return and 1.5x multiple since inception, according to meeting materials.

Sunshine State shines bright in Q3, commits more than $500 mln to PEBy Chris Witkowsky

• Florida SBA committed to 6 PE funds• Backs two Inflexion funds• ABRY, Hellman, others feel warmth

The Florida State Board of Administra-tion was busier than usual in the third quarter, committing $505.6 million to six private equity funds, according to an investment summary.

The board, which manages the invest-ments of the $149.4 billion (as of Aug. 31) Florida Retirement System, commit-ted 33 million pounds ($53.2 million) to Inflexion buyout Fund IV and 17 million pounds ($27.4 million) to Inflexion Part-nership Capital Fund I. Inflexion Private Equity is a U.K.-based firm that sponsors middle-market buyouts and makes minor-ity investments.

The system committed another $425 million combined to funds from ABRY Partners, Charlesbank Capital Partners, Hellman & Friedman, and Rubicon Tech-nology Partners.

In addition to PE funds, Florida com-mitted a combined $220 million to a ven-ture capital fund of funds, early-stage VC fund and a drug royalty fund. The sys-tem also made numerous commitments to real estate and hedge funds, bringing its total investment activity to more than $2 billion.

In Q2, Florida put about $872.5 mil-lion into alternative investment funds, including about $622.5 million for private

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equity. It made about $625 million in com-mitments to private equity funds in the first quarter.

Florida’s private equity and venture capital portfolio is valued at around $8.4 billion.

Earlier this year, Florida SBA hired Wesley Bradle from the California Public Employees’ Retirement System as a senior portfolio manager on the private equity team.

Private equity portfolio manager Melis-sa Griffin left Florida SBA earlier this year to join the Georgia Division of Investment as a private equity analyst. Florida SBA ran a search for a replacement for Griffin, but wound up promoting existing staffer Reid Hanway to Griffin’s portfolio manager position, according to system spokesman John Kuczwanski.

Florida SBA also transferred Lucy Reams from the governance unit to the private equity team to take over Hanway’s role as senior investment analyst, Kucz-wanski said.

New Mexico PERA backs Garrison for up to $60 mlnBy Sam Sutton

SNAPSHOT:Firm: Garrison Investment GroupFund: Garrison Opportunity Fund IV AOffering amount: $500 mlnAmount sold: $55.6 mln

The Public Employees Retirement Association of New Mexico allocated up to $60 million for a commitment to Gar-rison Opportunity Fund IV A at its Oct. 30 meeting, Portfolio Manager Joaquin Lujan told Buyouts.

Garrison Investment Group will use the fund to take non-control positions in middle-market companies by originating loans or acquiring debt on the secondary market, according to a redacted invest-ment memo provided by New Mexico PERA. The fund’s assets could include consumer installment loans, commercial and industrial loans, distressed corporate

workout loans and commercial real estate loans.

“Garrison’s edge is based on a concert-ed effort to occupy a small niche within the capital market ecosystem,” according to the memo. Large funds tend to com-pete over deals that require investments of $50 million or more. “This leaves Gar-rison competing with only regional and local investors for assets.”

The firm plans to charge investors a 1 percent management fee on committed capital and a 2 percent fee on funded cap-ital, according to the memo. Fees received by Garrison “specifically in connection with an actual or a potential portfolio investment” will be used to offset the cost of the management fee.

The general partner will use a man-agement fee offset to provide 1 percent of the fund’s investment capital.

The firm filed a Form D for Garri-son Opportunity Fund IV A on April 16. The document indicates a $500 million offering amount with $55.6 million sold. The filing lists Brian Chase, Steven Stu-art, Joseph Tansey and Julian Weldon as executive officers of the fund.

A separate SEC filing indicates the existence of a Garrison Opportunity Fund IV B but it is not clear if the firm treats it as a related or parallel vehicle.

The investment memo did not disclose a fund target. Executives at Garrison did not respond to requests for comment.

New Mexico PERA valued its invest-ment fund at roughly $14.6 billion as of Sept. 30, a total that included approxi-mately $650 million in private equity assets. The retirement association holds a 4.5 percent allocation to private equity, below its 7 percent target.

Allianz Capital plans to back more North American PE fundsBy Chris Witkowsky

• Susanne Forsingdal will lead U.S. effort• North America offers “significant opportunities”• May also expand into Latin America

Allianz Capital Par tners plans to expand its private equity limited partner activity in the Americas and is hiring a noted LP to help lead that effort.

As Buyouts previously reported, Susanne Forsingdal, head of U.S. fund investing at ATP Private Equity Partners, is leaving the fund of funds to join Allianz in January. She will be head of U.S. fund investment and co-investing for the group, Stefanie Rupp-Menedetter, an Allianz Capital spokesperson, said in an interview with Buyouts.

The hiring of Forsingdal represents the first step in what will be an expan-sion into the Americas market, especially North America and possibly Latin America, Rupp-Menedetter said.

“We said, ‘let’s expand our presence in the U.S. and focus more on private equity funds in the Americas,’ and that’s why Susanne is coming to us,” Rupp-Menedet-ter said.

“North America is the largest and deep-est private equity market globally and con-tinues to offer significant opportunities for our fund investment business,” she said in a separate email.

Rupp-Menedetter declined to provide a monetary goal of how much the group would like to spend on fund investments and co-investments in the Americas. Alli-anz Capital has existing exposure to the region, she added.

It’s not clear what specific strategies Allianz Capital will seek to back. Allianz Capital focuses on fund and co-investing, as well as investing in renewable energy and infrastructure. The group has about €2 billion in renewable energy invest-ments, €2 billion in infrastructure expo-sure and €6 billion in fund commitments and co-investments. Allianz Capital does

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not disclose how much it has invested in the Americas.

Allianz Capital uses money from the balance sheet of financial services com-pany Allianz Group. Allianz Capital has no current plans to raise external funds, Rupp-Menedetter said.

The group has offices in Munich, Ger-many, Singapore and New York. Allianz Capital’s fund investment activities are led by global co-heads Michael Lindauer and Andress Goh.

Forsingdal leaving ATP Private Equity to join Allianz Capital PartnersBy Chris Witkowsky

• Forsingdal will leave by year end• Will focus on fund commitments at Allianz• Jesper Voss Hansen will now lead NY office

Susanne Forsingdal, who has led U.S. fund investing for Danish fund-of-funds ATP Private Equity Partners for the past five years, is leaving the firm.

Torben Vangstrup, a managing partner at ATP PEP, confirmed Forsingdal’s deci-sion, and said she will leave by year end. Jesper Voss Hansen, who has worked at ATP PEP for nine years and has been based in its New York office for the past seven, will take over the lead of the New York office, Vangstrup said.

Forsingdal, a partner, is joining Alli-anz Capital Partners, where she will be doing essentially the same job she had at ATP PEP, focusing on fund commitments and co-investments, according to a source familiar with the matter.

Forsingdal declined to comment.Allianz Capital Partners was set up

in 1998 as insurance company Allianz Group’s in-house alternative investment platform, according to its website.

Forsingdal has worked at ATP PEP for 12 years. Previously, she worked for seven years in equity research at Nordea Bank, Codan Bank and Danske Bank. She sits on the advisory boards of Apollo Fund VI

and VII, Atlas Capital Resources I and II, Bridgepoint III and IV, Cinven III and IV, Core Capital Partners II, Endeavour Capital VI, Lake Capital Partners and Wicks Com-munication & Media III and IV, according to the ATP PEP website.

ATP PEP was founded in 2001 and man-ages about 7.7 billion euros on behalf of Danish pension fund ATP. The fund-of-funds closed its fifth fund, ATP PEP V, on 800 million euros earlier this year. Fund V has so far committed to Altor Capital Partners IV, Charlesbank VIII, Hitec Vision VII, Sequoia Capital China Venture V and Spectrum Equity VII, according to ATP’s website.

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“North America is the largest and deepest private equity market globally and continues to offer significant opportunities for our fund investment business”

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Illinois Teachers’ targets Asia with $200 mln separate accountBy Sam Sutton

• Illinois TRS makes three commitments totaling $330 mln • Biggest check goes to IL Asia Investors• PE allocation stands at 10.5 pct allocation, below 14 pct target

The Teachers’ Retirement System of the State of Illinois approved $330 million of commitments to private equity at its Oct. 30 meeting, including $230 million for managers based in Asia and Australia, according to a statement released by the retirement system.

The $45.3 billion retirement system’s largest single commitment went to Asia Alternatives, a Hong Kong-based fund of funds that invests in Asian private equity funds. Illinois Teachers’ committed $200 million to a separate account called IL Asia Investors, spokesman Dave Urbanek told Buyouts in an email.

Illinois Teachers’ approved $30 mil-lion for Taurus Funds Management’s Tau-rus Mining Finance Fund. The Sydney, Australia-based firm invests in mined commodities.

Illinois Teachers’ also approved $100 million for Siris Capital Group, a technol-ogy and telecommunications specialist tar-geting $1 billion with a $1.5 billion hard cap for its third fund. Siris will invest Fund III in established mid-market companies with revenue between $100 million and $1 billion, according to Arkansas Teacher Retirement System documents.

The Teachers Retirement System of Illinois said it had a 10.5 percent alloca-tion to private equity as of March 31, well below its 14 percent target. The portfolio was valued at about $4.6 billion as of the same date.

PennSERS diversifies alts portfolio with Korean commitmentBy Sam Sutton

• Hahn & Company held $900 mln first close in October• Hahn said to have “a lot of influence” in Korean PE• PA also commits up to $50 mln to Insight Ventures IX

The Pennsylvania State Employees’ Retirement System has expanded its alter-native investment portfolio’s geographic reach by approving up to $50 million for Hahn & Company II, a South Korean mid-dle-market private equity fund, at its Oct. 29 meeting.

Seoul-based Hahn & Company intends to use Fund II to take control of compa-nies with a significant presence in Korea, according to a Pennsylvania SERS press release and the firm’s website.

South Korea’s reputation as a destina-tion for foreign private equity firms to invest took a hit during Lone Star’s pro-tracted battle with authorities over the sale of Korea Exchange Bank, according to reports. Lone Star finally exited Korea Exchange Bank by selling to Hana Finan-cial Group in 2012 for $3.9 billion, six years after its first attempt to sell the bank in 2006.

In September, The Financial Times report-ed that many funds continue to struggle in their disposal of assets, despite a recent appeal for more foreign private equity investment from one of Korea’s top finan-cial regulators, Shin Je-yoon.

Hahn & Company’s strength lies in its position as a domestic fund with “a lot of influence over there,” one market source told Buyouts, adding that many internation-al firms struggled to grasp Korea’s invest-ment culture.

On Oct. 14, Asian Venture Capital Journal reported that Hahn & Company held a first close on its $900 million target after roughly 10 weeks of marketing. Hahn & Company set a $1.2 billion hard cap for the fund.

Two Oct. 2 Form Ds filed with the U.S.

Securities & Exchange Commission list Sang-Won Hahn and Pratish Patel as direc-tors of Fund II.

The firm did not respond to a request for comment.

In addition to its allocation to Hahn & Company, Pennsylvania SERS’s $27.9 bil-lion retirement system also approved up to $50 million for Insight Venture Part-ners’s ninth fund at its Oct. 29 meeting. Insight Ventures Partners IX is a growth equity vehicle earmarked for investments in software, software-enabled and Internet companies, according to a press release.

Insight Venture Partners closed its eighth fund on roughly $2.6 billion in 2013. Chief Financial Officer Mark Less-ing, who handles investor relations for the firm, could not be reached for comment.

Both of the retirement system’s com-mitments remain subject to contract negotiations.

As of June 30, Pennsylvania SERS held $5.8 billion in exposure to alternative investments, which it defines as private equity, venture capital and special situa-tion strategies. The retirement system was 0.9 percentage points above its 20 percent target allocation to alternatives as of the same date.

LP Scorecard: Austin Ventures, KKR bring in Texas-sized cash-on-cash return for WashingtonBy Paul Centopani

Much goes into the decision investors make when figuring out where to place their money, but none is more paramount than the potential cash-on-cash return of their investments. In our latest scorecard, we take a look at the Washington State Investment Board portfolio and rank funds by cash-on-cash return as of March 31. The top ten results are presented in the accompanying table.

The 1994-vintage Austin Ventures IV LP

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fund leads the way by a huge margin for the state, having posted an 8.4x cash-on-cash multiple and a 742.2 percent cash-on-cash gain. The next two funds that follow are significantly larger by capital committed. Although they have impressive cash-on-cash return multiples and percent-age numbers in their own right, they can-not match the mammoth figures of the Austin Ventures IV LP. Coming in second and third place are the vintage-1986 KKR 1986 Fund, which produced a 5.5x cash-on-cash investment multiple (447.7 percent) and the vintage-1994 Warburg Pincus Ven-tures LP, which produced a 5.1x cash-on-cash investment multiple (412.9 percent).

All told, Washington State’s private equity portfolio consisted of $42.1 bil-lion in committed money over 285 active funds as of March 31. Of that committed total, sponsors had drawn down $37.1 bil-lion, returned $38.5 billion and valued the remaining holdings at $17.7 billion.

In the first quarter of 2014, the state received an estimated $1.1 billion in dis-tributions. It is an impressive figure over a three-month span, especially because it equates to roughly 6.2 percent of its remaining holdings value.

Recent LP CommitmentsLimited Partner Fund Name Fund Strategy Amount

CommittedFund Target/Size

Insight

Arizona State Retirement System

Blackstone Energy Partners II Energy and Natural Resources

$75 million $4 billion Blackstone scheduled a final close for the first quarter of 2015.

Centerbridge Capital Partners III

Buyouts, distressed $75 million $6 billion Centerbridge closed Fund III in late October on its $6 billion hard cap.

New York State Teachers' Retirement System

Inflexion Buyout Fund IV Buyouts £26 million ($41.6 million)

£650 million ($1.04 billion)

Both of Inflexion's funds closed in October.

Inflexion Partnership Capital Fund I

Middle Market £16 million ($25.6 million)

£400 million ($641 million)

Hellman & Friedman Capital Partners VIII

Buyouts $200 million $10 billion Hellman & Friedman set a hard cap at $10.25 billion for its eighth fund.

ABRY Partners VIII Buyouts $80 million $1.9 billion The final commitment was $20 million less than originally expected.

Pennsylvania State Employees' Retirement System

Hahn & Company II Middle Market $50 million N/A Hahn & Company's second vehicle launched in August and has a $1.2 billion hard cap.

Insight Ventures IX Software $50 million N/A Insight Venture Partners targets growth-stage software and internet based companies for their investments.

Public Employees Retirement Association of New Mexico

Garrison Opportunity Fund IV A

Middle Market, distressed

$60 million $500 million Garrison Investment Group will use the fund to take non-control positions in middle market companies by originating loans or acquiring debt on the secondary market.

Texas County & District Retirement System

Baring Asia Private Equity Fund VI

Buyouts $50 million $3.2 billion Their first close was held in early October and has a hard cap of $3.85 billion.

Source: Buyouts

Washington’s top funds by cash-on-cash returnVintage Fund Capital

Committed Capital Contributed/Cash In

Distributions/Cash Out

Cash-on-Cash Return Percentage

Cash-on-Cash Return Multiple

1994 Austin Ventures IV, L.P. 15,000,000 15,000,000 126,322,781 742.2% 8.4

1986 KKR 1986 Fund 84,354,306 173,980,206 952,917,260 447.7% 5.5

1994 Warburg Pincus Ventures, LP

100,000,000 100,000,000 512,860,595 412.9% 5.1

1988 Menlo Ventures IV, L.P. 25,000,000 25,000,000 128,179,179 412.7% 5.1

1997 Menlo Ventures VII, L.P. 25,000,000 25,000,000 117,760,153 371.0% 4.7

1984 KKR 1984 Fund, L.P. 127,099,299 130,233,549 576,002,374 342.3% 4.4

1988 Menlo Evergreen V, L.P. 25,000,000 25,008,714 90,391,102 261.4% 3.6

1986 KKR Beatrice, L.P. 75,000,000 75,000,000 268,259,707 257.7% 3.6

1998 Nordic Capital Fund III, L.P.

47,276,164 51,026,056 181,833,354 256.4% 3.6

1994 Code, Hennessy & Simmons II, L.P.

12,325,000 12,325,000 43,068,703 249.4% 3.5

Source: Washington State Investment BoardData current as of March 31, 2014

www.buyoutsnews.com20 | BUYOUTS | November 10, 2014

FUND NEWS

KKR mulls growth equity, wraps Asia fundBy Steve Gelsi

• Has taken minority stakes in Magic Leap, Lemon Drop, Ping Identity• Finding more “interesting” deals that aren’t buyouts• Will invest off balance sheet for now

Kohlberg Kravis Roberts & Co is mull-ing the launch of a growth equity fund after three recent minority investments that marked a departure from its focus on traditional buyouts.

Scott Nuttall, member and head of glob-al capital and asset management group, mentioned the possibility of a growth fund in a conference call about Q3 results.

KKR in October joined a $542 mil-lion financing round led by Google Inc for Magic Leap, a technology company focused on 3-D imaging for entertainment and other uses. Earlier in the month, it invested an undisclosed sum in Lemonade Restaurants, a Los Angeles-based operator of 14 fast-casual eateries founded in 2008. In the prior month, KKR led a $35 mil-lion investment in Ping Identity, a Denver-based provider of next-generation identity security solutions.

“Think of these as opportunities sourced by our investment teams that his-torically we passed on and now we have a way to monetize,” Nuttall said. “Histori-cally, we have passed on those because it didn’t fit into a private equity mandate or any of the other strategies that we man-age, but we’ve found many of them to be quite interesting.”

He noted that KKR’s move into real estate started as balance sheet invest-ments that were later dropped into a for-mal private equity fund.

“We may do that with growth equity down the line (or) we may not,” Nuttall said.

Elsewhere in its private equity busi-ness, KKR has used all the capacity it had in its real estate fund for European invest-ments, so it’s going to be launching a real estate strategy, he said. He did not provide any additional details.

On the fundraising front, Nuttall said KKR wrapped up its KKR Asian Fund II with $6 billion. About “seven or eight” Fund II strategies are in the market now or will be launching shortly around infra-structure, special situations, mezzanine and private credit. KKR is also readying a second real estate fund, he said. KKR Real Estate Partners Americas raised $1.5 billion in 2013, according to Thomson Reuters.

Nuttall said about 70 percent of KKR’s new deal activity in the third quarter took place outside the United States, where the firm has been more cautious. A drop in oil prices in recent weeks may create oppor-tunities for investments in the energy sec-tor, he said.

“Overall, where there’s a little bit of fear, we get excited and find opportunity,” he said. “And when valuations are a bit elevated, we have a big portfolio and the opportunity to access the markets. And so we actually are pleased with the current environment.”

Carlyle nears cap on international energy, NGP funds; raises $6.5 bln in Q3By Chris Witkowsky

• Carlyle close to closing international energy fund on $2.5 bln hard cap• NGP Energy Capital Management closing in on $5.3 bln hard cap• Sees strong demand from LPs for diverse array of products

The Carlyle Group is moving closer to wrapping up its debut international energy fund at its $2.5 billion hard cap, which would make the fund the largest debut effort in the firm’s history, Carlyle co-CEO David Rubenstein said during the firm’s third quarter earnings call Wednes-day, Oct. 29.

Carlyle International Energy Partners, which launched in May 2013, is earmarked for investments in companies outside

North America working in oil and gas exploration, production, refining and mar-keting and energy services, Buyouts previ-ously reported.

Along with the international fund, Carlyle-backed NGP Energy Capital Man-agement, which has been targeting $4.5 billion for its eleventh fund since earlier this year, is heading for its hard cap.

Rubenstein said NGP Natural Resources XI “is in a position to be at the cap of $5.3 billion.” He said the fund had recently held a significant close, but didn’t provide details on the earnings call.

Fund XI held a first close on $1.3 bil-lion from 92 investors, according to an August filing with the U.S. Securities and Exchange Commission. NGP targets invest-ments in oil and gas production, oil field services and “midstream,” including gath-ering, transporting and processing.

Carlyle bought a 47.5 percent revenue interest in NGP, the former Natural Gas Partners, in 2012, Carlyle said in a state-ment at the time.

Outside of real assets, the firm has col-lected $600 million for its Carlyle Japan Partners III, which is targeting around $1 billion, Rubenstein said. Carlyle Europe Technology Partners III, meantime, has raised about 60 percent of its 500 million euros ($630 million) target, he said on the call.

“Neither will have a problem” getting to their target, Rubenstein said.

Carlyle also closed its fourth Asia fund on $3.9 billion, making it more than 50 percent bigger than the previous Asia fund.

Overall, the firm raised $6.5 billion in capital in the third quarter across all busi-ness segments, and $23.2 billion over the last 12 months, according to Carlyle’s third quarter earnings report. Carlyle contin-ues to see strong LP demand for products, including from investors in Asia, Ruben-stein said.

“One-third of new capital in the third quarter was from Asia,” he said.

Carlyle continues to see a strong fund-raising market going forward.

Private equity fundraising “is still below the 2007 peak” so Carlyle could “still raise significant sums, even more than we raised now, and still be below our peak year,” Rubenstein said. In 2007, LPs were “shoveling money to people like us,” he said. The markets are steadily “moving back toward that level.”

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 21

Billionaire Elon Musk commits to Valor Equity’s third fundBy Steve Gelsi

SNAPSHOT:Firm: Valor Equity Partners LPFund: Valor Equity Partners III LPOffering amount: $350 million Amount raised: $390 millionPlacement Agent: Moelis & Co.

Valor Equity Partners LP has drawn in $390 million in commitments for its third buyout fund, ahead of the $350 mil-lion offering amount listed on a regulatory filing, with support from billionaire Elon Musk, a source familiar with the firm told Buyouts.

The Chicago-based firm, which invests in companies where it can provide exper-tise on operations, production efficiency and customized software, may end up securing as much as $450 million when the fund wraps up later this year or early next year, our source said. Limited part-ners backing Fund III include the Illinois Municipal Retirement Fund, as well as the Illinois State Board of Investment.

Musk has himself drawn backing from Valor Equity. The firm invested at least $75.9 million in SpaceX, according to a reg-ulatory filing from earlier this year, and Valor Equity on its website lists SpaceX as one of its active investments. Three other companies with connections to Musk are listed as prior investments: PayPal Inc, SolarCity Corp and Tesla Motors Inc.

A spokeswoman for Valor Equity declined to comment. A spokeswoman for Musk at Tesla Motors declined to comment.

Founded by Antonio Gracias in 2001, Valor Equity invests $10 million to $35 million per platform company. Gracias holds the titles of chief executive officer and chief investment officer at the firm, as well as chairman of the investment committee.

After Gracias initially heard about Tesla Motors in 2004, Valor Equity became the company’s biggest outside investor, according to an article about Valor Equity published earlier this year in Bloomberg Businessweek.

In a 2012 speech at the Economic Club of Chicago, Musk said assistance from Valor Equity in cutting Tesla’s produc-tion costs helped the company get off the ground. “I don’t think we would have made it without Antonio’s help,” Musk said in the speech, according to the Businessweek article.

“We don’t want to turn around stuff and fire a bunch of people,” Gracias said in the Businessweek article. ”We’re looking for people that are product experts and want to go from growth to fast growth.”

Valor Equity also lists several other portfolio companies on its website, includ-ing restaurant manager Sizzling Platter Inc, Family Home Health Services, Fooda, and Marathon Pharmaceuticals.

In a Form D filing dated Nov. 7, 2013, Valor Equity disclosed a total offering amount of $350 million and $0 sold in Fund III. Executives listed on the filing for Valor Equity Partners III LP are, along with Gracias, Juan Sabater, Jonathan Shulkin and Timothy Watkins. Sabater, Shulkin and Watkins are listed as managing directors on the Valor Equity website.

Buyouts Editor-in-Charge David Toll contrib-uted to this story.

Blackstone to seek $13 bln for global real estate fundBy Gregory Roumeliotis

SNAPSHOT:Firm: The Blackstone GroupFund: Blackstone Real Estate Partners VIIITarget: $13 bln (est.)

The Blackstone Group, the world’s larg-est private equity investor in real estate, is preparing to seek around $13 billion for its next flagship global real estate fund, in line with its predecessor fund, people familiar with the matter told Reuters news service.

Blackstone, which derived 45 percent of its earnings from real estate in the first nine months of 2014, has started preliminary conversations with potential investors about the new fund and expects marketing documents to be ready in the

next few weeks, the people said.From buying single-family homes in

the United States to distressed commer-cial property in Europe, real estate has overtaken private equity as Blackstone’s most high-profile and lucrative business. The $26 billion leveraged buyout of Hilton Worldwide Holdings, carried out jointly by Blackstone’s real estate and private equity funds in 2007, ended up being the most profitable deal in the firm’s history.

Blackstone has enjoyed phenomenal success in the sector. Its latest fund, Blackstone Real Estate Partners VII, which raised $13.4 billion in 2012, reported a net internal rate of return of 27 percent as of the end of September. As a result of Black-stone’s success in the sector, its head of real estate, Jonathan Gray, is being viewed as a potential successor to Chief Executive Stephen Schwarzman, who is a co-founder of the firm, people familiar with the mat-ter have previously told Reuters.

Blackstone has sought to moderate expectations, telling potential investors that it will be hard for the new real estate fund to beat the high returns of Blackstone Real Estate Partners VII, the people said.

The sources spoke on condition of ano-nymity because Blackstone’s conversations with its investors are private. Blackstone declined to comment.

Blackstone’s chief financial officer, Lau-rence Tosi, said on the company’s third-quarter earnings call on Oct. 16 that the firm would launch its eighth global real estate fund early next year. He did not dis-close the fundraising target.

Blackstone President Tony James said on the same day he saw real estate invest-ment opportunities in Europe and emerg-ing markets, particularly Asia. He said Blackstone would continue to sell real estate assets in the United States, where rents are still on the rise.

Blackstone also has regional private equity funds in real estate. Its first Asian real estate fund is expected to complete fundraising soon at its cap of $5 billion. The firm’s fourth European real estate fund has been reopened to investors to allow it to raise another $2 billion, bring-ing it to about $8.8 billion.

Blackstone has also said it expects to raise another $4 billion by the end of 2014 for its “core-plus” real estate strategy that focuses on higher quality, safer assets.

Reporting by Greg Roumeliotis of Reuters news service.

FUND NEWS

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Apollo hits $3.4B hard cap on credit fund; looks to raise real estate fundBy Steve Gelsi

• Exceeds original target by $1.5B• Apollo confirms plan to raise second natural resources fund• Firm charting new real estate fundraising effort

Apollo Global Management said it reached a $3.4 billion hard cap on Apol-lo Credit Opportunity Fund III LP during its third fiscal quarter as part of at least three fresh fundraising developments by the marquee private equity firm led by Leon Black. The firm also said to expect the launch of a U.S. real estate fund in coming months.

Fund III drew in $2 billion of the total $2.4 billion inflows into the firm’s credit unit during the quarter to exceed its initial target by $1.5 billion. Apollo said the investment period for Apollo Credit Opportunity Fund III began in June and the fund is now about one-third invested.

Apollo also confirmed plans to follow up its $1.3 billion Apollo Natural Resourc-es Partners fund that closed in 2012. The firm said the fund is more than 70 per-cent invested or committed with a net IRR of 11 percent as of Sept 30.

“We expect to launch fundraising for a successor fund early next year,” Gary Stein, head of corporate communications, said in the firm’s quarterly conference call with Wall Street investors.

Reuters reported Oct. 22 that Apollo Global would target $2 billion to $3 bil-lion for the new natural resources fund.

Apollo said its U.S. private equity real estate fund’s base capital is now fully invested or committed.

“We look forward to launching the fundraising process…in the coming months,” Stein said.

The firm’s AGRE U.S. Real Estate Fund, which closed in 2012, drew in $865 mil-lion in capital commitments and logged a net IRR of 13 percent as of Sept 30.

Keeping up a brisk pace of exits, Apollo said its private equity funds dis-

tributed $2.8 billion in capital to fund investors in the third quarter from sev-eral transactions, including the sale of its remaining stake in Berry Plastics Group Inc, and the sale of interests in Athlon Energy, Rexnord Corp and Sprouts Farm-ers Market Inc.

LFM Capital debut fund hits $110 mln hard cap for industrial dealsBy Steve Gelsi

SNAPSHOT:Firm: LFM Capital LLCFund: LFM Capital PartnersTarget: $100 mlnAmount raised: $110 mln, hard cap

LFM Capital LLC’s debut private equity fund raised $110 million for manufactur-ing and industrial service deals, beating its target by $10 million, an executive at the Nashville-based firm said.

Fundraising for LFM Capital Part-ners drew support predominantly from university endowments, Steve Cook, firm co-founder and executive manag-ing director, told Buyouts. He declined to reveal the names of LPs. From start to fin-ish, fundraising took about five months, Cook noted.

LFM Capital hopes to line up its first acquisition target by the middle of next year, “There are a number of people that we’re in talks with, but we don’t have a deal under a letter of intent yet,” said Cook, who was previously a principal with TVV Capital. The firm hopes to acquire manufacturing and industrial services companies with enterprise val-ues of $15 million to $75 million. To source deals, LFM Capital plans to build direct relationship with business owners rather than buy through an auction.

Rather than accumulate a track record of deals first, LFM Capital opted to raise a buyout fund right out of the starting gate. The firm’s website lists a team of executive managers and private equity professionals offering more than 14 years

of lower middle-market private equity experience and 36 years of executive management and operating experience.

Cook’s co-founders are Rick Reisner and Dan Shockley, who are both man-aging directors. Like Cook, Reisner was previously a principal with TVV, where he worked from 2004 until 2014. Prior to LFM, Shockley served as a general man-ager at Ditch Witch and Caterpillar and as a director of data center operations for Amazon.com.

LFM Capital filed a Form D with regu-lators on Oct. 21 that said it had raised $109 million from nine investors. Cook, Reisner and Shockley are listed by name in the document.

Francisco Partners sets sights on $2 bln for Fund IVBy Steve Gelsi

SNAPSHOT:Firm: Francisco PartnersFund: Francisco Partners IVTarget: $2 billionHard Cap: $2.5 billion

Technology-focused Francisco Part-ners is targeting $2 billion for Francisco Partners IV, with a first close expected by the end of last month, according to sources familiar with the fundraising and an investment document.

Francisco set a hard cap of $2.5 bil-lion and projects a final close by early next year.

The Oklahoma Police Pension and Retirement System committed $10 mil-lion to fund IV as a first-time LP, accord-ing to a memo from its Sept. 17 meeting.

Francisco plans to make between 20 and 25 equity investments ranging from $30 million to $250 million, according to an investment memo prepared for Okla-homa by Asset Consulting Group. The documents state that the fund is target-ing an IRR of 15 percent to 20 percent.

The fund includes a base management fee of 150 basis points on capital com-mitments during the investment period, and 125 basis points on contributed

FUND NEWS

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capital less the portion attributable to investments that have been disposed of or written off, the fund document said. The minimum investment for the fund is $10 million, the document states.

Francisco’s new fund comes three years after it raised $2 billion for Fran-cisco Partners III LP. That fund generated a 1.3x investment multiple and an IRR of 18.2 percent as of March 31, accord-ing to the California Public Employees’ Retirement System, an LP in Fund III. The firm’s vintage 2006 Francisco Part-ners II LP logged a 12.9 percent IRR and an investment multiple of 1.6x as of the same date, according to CalPERS.

A spokesman for Francisco Part-ners was not immediately available for comment.

In an interview with Buyouts in Janu-ary, Dipanjan “DJ” Deb, Francisco’s man-aging partner, said the firm avoided excessive leverage during the years prior to the financial crisis, which helped its portfolio companies navigate the downturn.

“The thing we’re most proud of is the multitude of winners, rather than one home run conquering other sins,” Deb said in January. “FP II was a demonstra-tion of our strategy of being able to invest in fast-changing technology markets in a low-beta manner. We maniacally focused on operational improvements, and (we structured) investments in a manner to reduce downside risk.”

Francisco’s areas of focus include soft-ware and services, security and systems, Internet, health care information tech-nology, hardware and industrial, and communications.

Former Goldman, BDT executive raises $602.7 mln for debutBy Sam Sutton

• Gerald Cardinale left BDT to pursue growth equity deals• Single investor chips in $500 mln• Firm has acquired cloud-computing provider TierPoint

RedBird Capital Partners, a new invest-ment fund managed by former Goldman Sachs and BDT Capital Partners executive Gerald Cardinale, picked up $500 million from a single investor, according to a Form D filed with the U.S. Securities and Exchange Commission on Oct. 28. The fil-ing did not name the investor.

RedBird has now raised roughly $602.7 million altogether, considerably more than the $400 million the firm was said to be targeting when it launched. RedBird Capi-tal filed a separate Form D in June indicat-ing that it raised $102.7 million from 28 investors. The firm does not appear to have held a final close.

Cardinale left BDT Capital in 2013 to pursue investments in early-stage growth equity deals.

In October 2013, Fortune reported that BDT Capital agreed to provide a seed com-mitment to RedBird Capital. A spokesper-son for BDT Capital did not respond to a request for comment as of press time.

Prior to BDT Capital, Cardinale man-aged roughly $6 billion as the co-head of Goldman Sachs Americas’s private equity funds. Cardinale is widely reported to have led the firm’s investment in the Yankees Entertainment & Sports (YES) Network as well as its initial investment in Clear-wire Corp, a wireless broadband service provider.

RedBird Capital has participated in at least two deals to date. In June, the firm joined an investor group that included The Stephens Group, Jordan/Zalaznick Advis-ers and Thompson Street Capital Partners to acquire Cequel Data Centers, the par-ent company of cloud-computing provider TierPoint.

In October, that investment group used additional equity provided by Ontario Teachers’ Pension Plan to fund TierPoint’s acquisition of Xand, which owns six North-eastern data centers.

Apollo to launch new natural resources fundBy Greg Roumeliotis

SNAPSHOT:Firm: Apollo Global Management LLCFund: Apollo Natural Resources Partners IITarget: $2 bln to $3 bln (est.)

Apollo Global Management LLC plans to start raising between $2 billion and $3 billion for a second natural resources pri-vate equity fund, sources familiar with the situation told Reuters news service, in the latest sign that the firm is doubling down on the U.S. shale boom

Apollo’s plans for a new fund come amid a steep fall in oil prices, with Brent crude oil plunging 15 percent since the end of September to a four-year low of under $83 per barrel. The fall in oil prices could generate new opportunities for the fund to buy assets at cheaper prices, but could also eat into cushions that Apollo built into its earlier deals in the sector.

The timing of the fundraising is not driven by the oil price decline, the sources said, noting that it is part of a longer-term strategy. The firm’s first resources fund, the Apollo Natural Resources Partners, has now almost fully invested the $1.3 billion it raised in 2012.

More than two-thirds of the money that’s already been spent from its global, multi-sector fund, the $18.4 billion Apol-lo Fund VIII, has also gone into natural resources deals, the sources said. That fund, which finished fundraising in Janu-ary, has invested about 15 percent of its capital.

A spokesman for Apollo declined to comment.

Apollo’s interest in natural resources puts a spotlight on how private equity firms, with tens of billions of dollars of capital to invest, have been quietly fund-ing America’s shale boom and investing aggressively in energy plays around the

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world. Others such as The Blackstone Group LP and Warburg Pincus LLC have also been pouring funds into the sector through dedicated investment vehicles and general private equity funds.

Their interest comes as private equity firms find fewer opportunities for their traditional business of debt-fueled acqui-sitions of companies. Soaring stock mar-kets and renewed hunger for mergers and acquisitions among corporations over the past couple of years have made leveraged buyouts more expensive and crowded out private equity.

As a result, these firms have been strug-gling to put money to work and maintain the kind of returns that pension funds and other institutional investors in their funds got used to over the past decade.

The energy sector is offering alterna-tive investment opportunities and deal structures.

Apollo’s natural resources investment strategy typically involves backing sea-soned management teams to acquire and develop oil and gas assets, including unloved reserves being sold by energy companies.

These deals tend to be cheaper than lev-eraged buyouts. They are, though, often more complicated, which reduces competi-tion and allows the firm to build in cush-ions against oil price declines.

Over the past three years, even when oil was trading above $100 per barrel, Apollo did deals assuming much lower oil prices, the sources said. It has also hedged its exposure to lower oil prices in much of its existing portfolio, the sources added.

In August, Apollo’s co-founder and Chief Executive Leon Black told investors that energy deals are helping Apollo invest its Fund VIII at an average of 6 times a company’s annual earnings before inter-est, tax, depreciation and amortization, versus a private equity industry average of 9.5 times for all deals.

High ReturnsApollo Natural Resources Partners is

still a young fund by private equity stan-dards. But it reported a gross internal rate of return of 20 percent as of the end of June, beating a three-year average annual return of 16.6 percent for the S&P 500 Index. The fund’s returns since then have not yet been disclosed, and may have been hurt by the decline in energy prices and energy company stock prices in recent

weeks.In September, Athlon Energy Inc, an oil

and gas exploration and production com-pany, became one of Apollo’s most profit-able investments, as Canada’s Encana Corp agreed to acquire it for $5.9 billion, equiva-lent to 7.3 times Apollo’s investment.

Apollo helped put Athlon together from scratch in 2010 to acquire and develop long-lived oil and natural gas properties in the United States.

Not all energy deals have been a home run for Apollo.

Shares in EP Energy Corp, which an Apollo-led consortium acquired for $7.15 billion in 2012, trade at 25 percent below the price of their initial public offering in January.

Apollo has not yet sold any of its shares in EP Energy. The deal was a big leveraged buyout, and sources said the company’s high borrowings have contributed to the shares’ underperformance.

There are also limits to how much Apollo can do in energy. Investors expect generalist private equity funds to have exposure across a range of sectors. Apollo itself sees energy deals accounting for less than a third of the capital that Fund VIII will eventually deploy, one of the sources said.

Fund VIII has a six-year investment period, and has been seeking cheap deals in other sectors, too, such as financial services.

Earlier this month, for example, Apol-lo agreed to acquire Portuguese insur-ance company Tranquilidade, part of the troubled web of businesses of the Espirito Santo family.

Reporting by Greg Roumeliotis of Reuters news service.

Financial services specialist Aquiline seeks $1 blnBy Luisa Beltran

SNAPSHOT:Firm: Aquiline Capital PartnersFund: Aquiline Financial Services Fund III L.P.Target: $1 billionPlacement agent: Stanwich Advisors

Aquiline Capital Partners, the financial-ly focused private equity firm, is officially out in the market for its next fund.

New York-based Aquiline is seeking $1 billion for Fund III, three sources said. Stanwich Advisors is the placement agent for Fund III, an SEC filing dated Oct. 27 said.

The buyout shop doesn’t want to raise more than $1 billion and hopes to deploy the pool “prudently,” one limited partner said. Jeff Greenberg, the former chair-man and CEO of Marsh & McLennan Cos., founded Aquiline in 2005. (Greenberg also worked at AIG where his father, Maurice “Hank” Greenberg, was chairman and CEO.)

Aquiline invests in sectors such as insurance, banking, asset management and financial technology. The firm recent-ly put auto finance company First Investors Financial Services up for sale. Earlier this month, Aquiline agreed to buy a majority stake in Worley Claims Services. Aquiline, along with Genstar Capital Management, closed its buy of Genworth Wealth Man-agement last year.

Buyouts said in July that Aquiline would be seeking $1 billion with Fund III.

The firm’s last fund, Aquiline Financial Services Fund II LP, collected $742 million in 2011, Buyouts said. That fund was gen-erating a 20 percent IRR and a 1.34x total value multiple as of June 30, performance data from the Oregon Public Employees Retirement Fund said.

Aquiline’s first fund closed at $1.1 bil-lion in 2007, according to a statement from that time. Fund I is producing an 8.1 per-cent IRR and a 1.46x total value multiple, Oregon Public Employees Retirement Fund

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said.Aquiline declined comment. Stanwich

couldn’t be reached for comment.

Tinicum forms LP as part of portfolio company spin-off By Steve Gelsi

• Files Form D for $534 million deal• Tinicum Capital Partners II-2 LP formed in connection with spin-out• Firm declined to name portfolio company

Tinicum Inc has spun out a portfolio company from its $1.2 billion Tinicum Capital Partners II fund in a transaction that required a Form D filing with regula-tors, a spokesman for the firm told Buyouts.

An earlier story by Buyouts about a new private equity fund being raised by Tini-com was untrue and has been withdrawn.

Tinicum Capital Partners II-2 LP was formed in connection with the spin-out. The firm declined to comment on which portfolio company was involved in the transaction.

The Form D filing for Tinicum Capital Partners II-2 LP included a total offering amount of $533.8 million, which repre-sents the value of the securities of the portfolio company contributed by Tinicum Capital Partners II LP to Tinicum Capital Partners II-2, the spokesman said.

Tinicum Inc lists four private equity funds on its website, including the vintage 2012 Tinicum LP, which raised $1.5 billion and its currently investing, the firm said.

Established in 2004, Tinicum Capi-tal Partners II LP raised $1.2 billion and is fully invested, according to the firm’s website.

New York and San Francisco-based Tini-cum Inc traces its roots to the late Derald H. Ruttenberg, who once owned and ran auto parts firm Studebacker-Worthington (which had made the Studebaker automo-bile) and who pioneered the use of leverage to make acquisitions.

His son, Eric Ruttenberg, works as co-managing partner of Tinicum, along with

Terry O’Toole, co-managing partner.Tinicum lists 13 current portfolio com-

panies on its website, including three from 2014: Pontos Aqua Holdings LLC, a food and agriculture firm, Flat Rock Energy, an oil and gas company with holdings in the Utica and Marcellus shale of Ohio, and F&W Media Inc, a content and ecommerce company.

The website also lists 23 realized invest-ments dating back to 1999, including Accuride Corp, Chicago Bridge & Iron Co, Flowserve Corp, Nutrisystem Inc, and R360 Environmental Solutions.

Tinicum was founded by Derald Rutten-berg, who “established his family’s wealth through numerous investments in various industries,” according to the website. After being founded to manage the holdings of the Ruttenberg family, Tinicum began managing outside capital in 1998.

Tinicum typically targets an equity investment size of $25 million to $150 mil-lion but it will consider investments out-side that range. The firm invests in both controlling interests and minority stakes, often securing representation on the com-pany’s board. It pursues proprietary ideas to find investments and focuses on the strength of each business, “not on quick returns,” according to the website.

The Ruttenberg family played a role in the formation of investment firms Forst-mann Little & Co and Farallon Capital Man-agement, Buyouts reported in 2012.

The elder Ruttenberg, who died in 2004, provided financing for the Derald H. Ruttenberg Cancer Center at New York’s Mount Sinai Hospital.

Blackstone real estate fund is its first to offer quarterly liquidityBy Steve Gelsi

SNAPSHOT:Firm: Blackstone GroupFund: Blackstone Property Partners (open-ended fund)Target: $1 billion to $2 billion first close

The Blackstone Group is targeting a first close of up to $2 billion for Blackstone Property Partners, an open-ended fund that represents the first real estate vehicle for the firm to offer quarterly liquidity to investors, according to an investor docu-ment reviewed by Buyouts.

The fund, which appears to be aimed at institutional investors given its minimum investment of $10 million, marks a new strategy for Blackstone Group of invest-ing in more stable properties, compared to its traditional approach of focusing on discounted, opportunistic plays, according to a person familiar with the firm.

Blackstone Group is targeting a 9 per-cent to 11 percent IRR for the fund by investing in office, multi-family, industrial and retail assets in major markets in the United States and Canada. Most invest-ments are to be sourced through the Black-stone Real Estate platform. Fund leverage will be limited to 50 percent.

The diversified private equity firm was targeting a first close of $1 billion to $2 billion during October, according to the document, prepared for the Oklahoma Police Pension and Retirement System. As an open-ended fund, the pool will have no fixed target as it moves forward.

The base management fee is 100 basis points per year on each investor’s share of net asset value, plus 10 percent of profits after investors have received a 7 percent preferred return. Quarterly liquidity is available after an initial two-year lockup period. Investors committing in the first close will get a 25 percent management fee discount for the first two years of their investment, the document said.

A.J. Agarwal, senior managing director in Blackstone Group’s real estate arm, is leading the fund. A 22-year veteran of the firm, Agarwal worked on U.S. acquisitions for Blackstone Real Estate Partners, the firm’s opportunistic real estate fund. He was “closely involved” in a number of the real estate group’s investments, including ones in General Growth Properties, Brix-mor and Hilton, according to the invest-ment memo prepared for the Oklahoma Police Pension and Retirement System by Asset Consulting Group. Hilton has been described as the most profitable deal in the history of Blackstone Group.

A spokesman for Blackstone Group declined to comment.

At least one employment website is currently advertising for a controller for

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Blackstone Property Partners. Job respon-sibilities include fund accounting and managing a team of finance profession-als, according to a listing on the website, SimplyHired.com. The position remains unfilled, a person familiar with Blackstone Group said.

The Oklahoma Police Pension and Retirement System committed $30 mil-lion to the fund, according to supporting materials for its Sept. 17 meeting.

Novacap Industries IV reaches 70 pct of $425 mln target in first closeBy Kirk Falconer

SNAPSHOT:Firm: NovacapFund: Novacap Industries IV LPTarget: $425 mlnAmount raised: $300 mln

Canadian mid-market firm Novacap has not yet begun broad marketing of Novacap Industries IV LP. It has nonetheless already managed a first close that puts it within reach of its target.

Earlier in October, the firm secured $300 million in capital commitments, said Jacques Foisy, a managing partner at Novacap and head of Novacap Indus-tries, one of two sector-focused investment groups.

The result surpasses the $250 million target set for Fund IV’s initial close. It also represents nearly 71 percent of the $425 million targeted in total.

Foisy told sister publication peHUB Canada that the first close was anchored by re-ups from North American pension funds, financial corporations, insurance companies and other institutional inves-tors. These limited partners, many of which made larger commitments this time, accounted for 95 percent of the $300 million raised, he said.

Foisy said the focus going forward will

be on contacting new and existing LPs with the goal of wrapping up Novacap Industries IV by late 2014. He said the firm also has exits in the pipeline and is keen to be back in “deal hunting mode.”

The first close of Novacap Industries IV comes only a few months after the $375 million final close of Novacap TMT IV LP, the firm’s technology-focused fund. Com-bined fundraising has so far increased assets managed by the Longueuil, Québec-based Novacap—one of Canada’s oldest pri-vate equity firms—to $1.5 billion.

While consultations with existing LPs about Novacap Industries IV were initiated in the spring of 2014, Foisy said a pivotal event was the run-up to a $165 million investment led by the firm last month in Knowlton Development Corp (KDC), a Canadian manufacturer of personal care and beauty products.

Prior to the deal, KDC and Novacap had a 12-year partnership. Acquired by Nova-cap Industries II in 2002, the company grew rapidly—organically and through two add-on acquisitions—taking market share away from competitors. KDC as a result increased its annual revenues more than seven-fold to $480 million today, said Foisy.

Last year, KDC was profiled in a Con-ference Board of Canada report as a case example of successful PE ownership. The report said the company experienced a compound average annual rate of EBITDA growth of 15.1 percent between 2002 and 2012. It also found that revenue grew over the same period at a compound average annual rate of 17 percent.

Calling it “a jewel of the portfolio,” Foisy said Novacap was “looking for a home” for KDC in late 2013. However, while the company has drawn interest from strategic buyers, Novacap determined that it was not yet ready to relinquish the asset. That’s because Novacap views KDC as “a key consolidator of its industry” and as having still greater potential for expan-sion, Foisy said.

Novacap instead brought the idea of reinvesting in KDC to its LP base, sug-gesting they could continue “growing it together,” said Foisy. The result was the sale of the business by Fund II to the firm and its institutional co-investors. These co-investors at the same time signed up for Novacap Industries IV, making KDC the new partnership’s debut investment. It isn’t clear how ownership is split between

the co-investors and the fund.Foisy declined to share performance

data about KDC as a Fund II investment. Several Fund II LPs, including Canadian pension fund manager Caisse de dépôt et placement du Québec, as well as Fondac-tion CSN and the Fonds de solidarité des travailleurs du Québec FTQ, were among the co-investors in KDC and the backers of Novacap’s latest partnership.

KDC is emblematic of the dealmaking that Novacap has for a long time pursued. Relying primarily on deal networks to source opportunities, the firm typically aims to do control-stake acquisitions of consumer goods and manufacturing com-panies with revenues of between $30 mil-lion and $300 million.

Foisy said Novacap Industries IV will “show continuity” with Novacap Indus-tries III (2007) by following the same growth-oriented investment strategy, which emphasizes disciplined selection of and partnership with strong business management teams.

Fund III is now fully invested, having completed three transactions earlier this year. In March, the firm did two deals, buying Master Group, a distributor of heating, ventilation, air conditioning and refrigeration products; and buying GTI Group, a provider of specialty over-dimensional and heavy-haul transporta-tion, freight, container and warehousing services.

In June Novacap acquired Laces, a Mon-tréal-based distributor of home fashion products—mainly shower curtains, bath basics, window curtains and slipcovers. The transaction was Fund III’s last, bring-ing its total number of portfolio compa-nies to ten.

While Novacap’s market activity has always been North American in scope, the firm decided in 2012 to extend its presence in Ontario by opening a Toronto office. Marc Paiement, who was a partner between 1995 and 2001, recently rejoined Novacap to lead investment in the prov-ince. Additional hires are expected in coming months.

While Ontario has seen intensified competition among PE firms of late—with more well-capitalized local and U.S. investors contending for the best opportu-nities—Foisy said Novacap is confident it can get its fair share of deals.

Kirk Falconer is editor of sister website peHUB Canada.

FUND NEWS

Murray Devine

www.buyoutsnews.com28 | BUYOUTS | November 10, 2014

LEVERAGED LOANS

Fifth Street Asset Management pulls IPO, cites choppy marketsAmrutha Gayathri

• Had filed for IPO in September• Plan was to raise up to $208 million• Market conditions “not optimal”: CEO

Alternative asset manager Fifth Street Asset Management Inc withdrew its plan to go public, citing volatility for new issu-ers in equity markets, according to Reuters news service.

Fifth Street Asset Management filed with the U.S. Securities and Exchange Commission in September for an IPO that was expected to raise up to $208 million.

The offering of 8 million Class A com-mon stock was expected to be priced in a

range of $24-$26, valuing the company at about $1.27 billion at the top end.

“While we received demand from potential investors, market conditions are not optimal for an IPO at this time,” Chief Executive Leonard Tannenbaum said in a statement.

About 95 percent of Fifth Street Asset Management’s managed assets are in pub-licly traded business development compa-nies (BDCs) Fifth Street Finance Corp and Fifth Street Senior Floating Rate Corp.

They accounted for about 99 percent of the company’s revenue for the year ended December.

Shares of Ares Management LP, the alternative asset manager that went public in May, closed on Nov. 4 about 17 percent below their IPO price of $19.

Ares Management runs Ares Capital Corp and was the first U.S. private equity firm to go public in about two years.

Morgan Stanley, J.P. Morgan and Gold-man Sachs were among the lead under-writers for Fifth Street’s IPO.

Reporting by Amrutha Gayathri in Bangalore for Reuters news service.

Debt specialist Oaktree buys half of energy trader HETCOBy Jessica Resnick-Ault

• Sale launched more than 1.5 years ago• Latest PE firm to move into commodity trading• Hess has been selling assets since 2013

Alternative investment management group Oaktree Capital Management LP has purchased Hess Corp’s share of proprietary energy trader HETCO, and will inject $500 million to fund the New York-based outfit’s expansion into new commodity markets, according to Reuters news service.

The deal, the latest shareholder shake-up in the commodities trading industry, comes more than a year and a half after Hess launched the sale of Hess Energy Trading (HETCO), a small firm run by two former Goldman Sachs partners that trades physical oil, natural gas and other energy markets. Investors urged Hess Corp to divest the unit, saying it weighed on its balance sheet.

The main founders of HETCO, Stephen Hendel and Stephen Semlitz, will remain with the company after the acquisition, they said in a statement. No financial details were released. Hess Corp has held a 50 percent stake in HETCO. The transac-tion is expected to close in the first quar-ter of 2015.

“Oaktree`s investment in HETCO will allow us to build on our existing successful activities in the energy space and expand our business across various commodities markets,” Semlitz said in the statement. “In particular, access to additional invest-ment capital will provide us an incremen-tal capability to strategically expand our reach and portfolio.”

Oaktree becomes the latest private equity firm to jump into the commodity trading industry, which is undergoing a period of extraordinary flux as big global banks bow out of the sector.

The group will provide working capital to HETCO and has committed up to $500 million of additional capital for potential new investments in the commodity space, the statement said.

Snapshot View on Loan Pricing and Terms:Lincoln International

(Borrowers with less than $15mm EBITDA)Security Type Pricing Multiples

Asset Based Senior

L + 175 - 275 LIBOR Floor: none

n/a

Cash Flow Senior

L + 450 - 550 LIBOR Floor: 100

2.75x - 3.25x EBITDA

Unitranche L + 750 - 850 LIBOR Floor: 100

2nd Lien Loans Unlikely

Sub Debt Cash of 10.0% - 12.0% PIK of 1.0% - 2.0% All-in of 11.0% - 13.0%

Equity Target IRR: 20.0% - 25.0% Approximately 35% of Total Capitalization

4.0x - 5.0x EBITDA

Note: The values presented above are based on prevailing metrics observed by Lincoln International in recent months; however, leverage multiples and pricing are highly dependent on a borrower’s credit profile and may be higher or lower than those shown above for certain companies.

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 29

LEVERAGED LOANS

Hess has been shedding assets since 2013, when activist shareholders includ-ing Elliott Management forced a reorgani-zation of the board. Earlier this year, the company sold its network of East Coast gasoline stations and terminals that were not seen as key to its core mission of exploring and producing oil.

HETCO, one of the last pieces to be sold, was established in 1997, and has grown to become a regular, if niche, player in many of the world’s benchmark energy markets.

An estimated 100-plus HETCO traders in seven offices from New York to London to Singapore generally focus on profit-ing from price discrepancies and trading gaps in the physical market for crude oil, refined fuels and natural gas, using funda-mental analysis to spot arbitrage opportu-nities and big trades, according to industry executives who know the company and have traded with it for years, as previously reported by Reuters.

Yet like many of its peers, HETCO has also engaged at times in traditional investment banking client activity, such as managing hedging programs. One of its biggest customers was Algeria’s state-owned Sonatrach, according to its website.

Net realized gains on trading activities amounted to $191 million in 2013 and $60 million in 2012, according to Hess Corp’s annual filing.

Wall Street banks like Deutsche Bank have halted trading in physical commodi-ties, while JPMorgan has opted to sell its operations to Mercuria.

The exit of large banks cleared out a pool of capital that had previously been active in investing in the space, paving the way for Oaktree and other alternative investment vehicles to get involved.

Reporting by Jessica Resnick-Ault of Reuters news service.

All eyes on Scientific Games LBO bond: IFRBy Natalie Harrison and Mariana Santibanez

• Gaming company may launch three-part bond in November• Previous bridge loan offer got lukewarm reception• Deal may shed light on appetite for risk

Underwriters are facing another problem when backing leveraged buy-outs — and this time it’s not regulators but unpredictable debt markets, reports Thomson Reuters IFR magazine.

That means players will be closely watching the reception given to a $3 bil-lion-plus high-yield bond for Scientific Games to get clues on investors’ appetite for risk.

The technology-based gaming compa-ny was expected to launch its three-part bond following third-quarter results on November 3. Proceeds will partly finance the company’s $5.1 billion acquisition of Bally that was announced in August.

The deal has garnered attention because of its big size and high leverage, but also because the three underwrit-ers — JP Morgan, Bank of America Mer-rill Lynch and Deutsche Bank — met a lukewarm reception from investors when they tried to sell the bridge loans back-ing the acquisition a couple of weeks ago.

Bankers away from the deal are watch-ing the transaction closely to get a gauge on a market that has seen strong buyside demand for high-quality issuers such as Charter Communications, but less inter-est in tougher credits. Four high-yield bond deals were pulled in October.

“It’s a very bifurcated market right now, and this deal will tell us more about risk appetite in a market where high-quality deals are going well, but where riskier credits are getting a lot of push-back,” said one senior leveraged finance banker.

“It’s going to be a good data point for where highly leveraged buyout paper comes.”

Moody’s puts the deal’s leverage at over six times EBITDA, and S&P calcu-

lates it at closer to seven times.“Pricing will depend on the function of

what market conditions look like a week from now, and the other piece is that if earnings are favorable, that will create a positive catalyst,” said Steven Oh, global head of credit and fixed income at Pine-Bridge Investments.

The roughly $1 billion bond backing the buyout of Tibco by Vista, backed by JP Morgan and Jefferies, is another deal on bankers’ radar. Several say the EBITDA adjustments significantly underestimate real leverage.

“That deal is interesting for two rea-sons. It’s likely to be Triple C, but we’re also looking out to see how the regulators view it,” said the banker, referring to lev-eraged lending guidelines that banks have been warned to stick to when underwrit-ing deals.

More Flex Please While it’s not a huge surprise that

banks on the Scientif ic Games deal couldn’t sell the bridge loans, it under-scores how underwriters can quickly find themselves in a position where they stand to lose money when the markets turn against them.

And terms on new commitments will quickly reflect that risk. Cap rates, the maximum yield at which banks can price a bond, have moved closer to 200bp-250bp above where a deal is expected to clear — from below 200bp in the summer.

Any bonds not bought by investors at the cap must be bought by the under-writers, potentially eating into fees and resulting in losses if a big discount on the bonds is also offered.

“If banks underwrote deals a few months ago with a fixed amount of price flex, it is fairly safe to say those deals have less cushion in them today given wider levels in the market. Deals under-written now, however, reflect the current wider levels,” said the banker.

“So in effect, despite more volatility, current deals for banks may in fact be better than a few months ago.”

In the case of Scientific Games, the banks have been left holding the risk and are close to the caps.

One market source said the cap on Sci-entific’s $475 million secured bonds was 7.5 percent and between 9.5 percent and 10 percent on the much larger $2.7 bill-lion unsecured portion, expected to be

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www.buyoutsnews.com30 | BUYOUTS | November 10, 2014

LEVERAGED LOANS

split into two bonds.It’s the latter bonds that are the major

concern as the caps are lower than the 11.5 percent yield on Scientific Games’ 6.625 percent 2021 senior subordinated bonds that are trading at a cash price of 80. Just a couple of weeks ago, as the sell-off in the market intensified, that yield had risen as high as 13.5 percent.

Although the new senior unsecured

bonds are ranked higher in the capital structure, investors are sure to be mind-ful of the recent volatility.

Don’t AssumeAt least three bankers said, however,

that it was wrong to assume that a bond deal would not go well just because the bridge risk was not sold. Bankers also pointed to the fact that Scientific Games

had recently managed to place a separate $2 billion leveraged loan.

“Investors buy bridge risk for a lot of reasons, and one is for allocation on the bond. For a deal of this size, they might think that is less of a problem,” said another senior leveraged finance banker.

By Natalie Harrison and Mariana San-tibanez for IFR magazine, a Thomson Reuters publication

Ratings Wrap-Up (Oct. 20 to Nov. 4)The following table lists select ratings actions on the debt of an LBO-backed company by either Moody’s Investors Service or Standard & Poor’s.

Date Company: Sponsors: Rating Service

Highlight:

10/21/14 Shale-Inland Holdings, LLC

TowerBrook Capital Partners

Moody's Moody's Investors Service changed Shale-Inland Holdings, LLC's outlook from stable to negative and downgraded the rating on the company's senior secured notes from B3 to Caa1.

Moody's goes on to say: "The change in outlook and the downgrade of the senior secured notes reflects Shale-Inland's recent weak operating results and weakened credit profile, which has increased the relative loss potential on the notes."

10/23/14 Vertellus Specialties Inc.

Windpoint Partners S&P Standard & Poor's Ratings Services revised its rating outlook on Indianapolis-based Vertellus Specialties Inc. to stable from positive. S&P affirmed their 'B-' corporate credit rating on the company.

S&P gave the following reasoning for the downgrade: "The ratings on Vertellus reflect the company's 'highly leveraged' financial risk profile and 'weak' business risk profile. Given a choice of a 'b-' or 'b' anchor, we selected the 'b-' anchor because we expect the company's credit measures to remain at the weaker end of the range that we deem appropriate for a 'highly leveraged' financial risk profile, which makes it comparatively weaker than 'B' rated peers."

10/27/14 WASH Multifamily Laundry Systems LLC

CHS Capital S&P Standard & Poor's Ratings Services assigned its 'B-' issue rating on El Segundo, California-based WASH Multifamily Laundry Systems LLC's $50 million term loan due February 2019

The rating reflects the company's very weak credit metrics, narrow business focus, and small market share. WASH also has a significant debt burden that includes preferred stock and accrued dividends.

10/27/14 Abaco Energy Technologies LLC

Riverstone Holdings LLC S&P Standard & Poor's Ratings Services assigned its 'B-' corporate credit rating to Houston-based Abaco Energy Technologies LLC.

The ratings assessment reflects S&P's view of Abaco's "vulnerable" business risk and "highly leveraged" financial risk profiles, and "adequate" liquidity. Moreover, the rating points to the small size and scale of operations, limited product and geographic diversity, and exposure to volatile drilling levels of the exploration and production industry.

10/28/14 Regal Entertainment Group

Anschutz Investment Company; Epoch Investment Partners, Inc.; The Vanguard Group, Inc.; Eagle Asset Management, Inc.; Columbia Management Investment advisers, LLC

S&P S&P placed all its ratings on Knoxville, Tennessee-based Regal Entertainment Group and its operating subsidiary Regal Cinemas Corp. on CreditWatch with negative implications. Also, a 'B-' issue-level rating has been placed on the senior unsecured notes.

The placement on CreditWatch reflects the potential for higher leverage if the company gets sold.

10/29/14 Cannery Casino Resorts LLC

Oaktree Capital Management, L.P.

S&P Standard & Poor's lowered its corportate credit rating to a 'B-' from a 'B' for Las Vegas-based Cannery Casino Resorts LLC. The rating outlook is negative.

S&P justified its downgrade by saying this: “The downgrade reflects our revised forecast for 2014 EBITDA to decline in the mid-teens percentage incorporating recent gaming revenue data reported by the Pennsylvania Gaming Control Board and our expectation that cushions for both of Cannery's financial covenants diminished to less than 10% in the third quarter"

10/30/14 American Energy - Permian Basin LLC

First Reserve Corporation; Energy & Minerals Group

S&P A 'CCC+' issue-level rating has been issued, with a '6' recovery rating, to the $800 million exchangeable subordinated junior notes due 2022 proposed by AEPH.

The rating outlook for AEPB has also been revised from stable to negative due to increasing financial leverage in the midst of weakening oil prices.

10/30/14 NAVEX Acquisition LLC

Vista Equity Partners S&P S&P: "We are assigning a 'B-' corporate credit rating to NAVEX Acquisition LLC. In addition, we are assigning a 'B-' issue-level rating and '3' recovery rating to the first-lien term loan and revolving credit facility, and a 'CCC' issue-level rating and '6' recovery rating to the second-lien term loan."

S&P went on to explain: “”Our rating on NAVEX Global reflects its ‘weak’ business risk profile and ‘highly leveraged’ financial risk profile.”

11/3/14 Horsehead Holding Corp

Sun Capital Partners, Inc. S&P The rating outlook has been downgraded from stable to negative. The corporate credit and senior secured notes ratings both received a 'B-'.

The business risk profile for Horseheads has been deemed vulnerable due to the "highly cyclical steel industry and sensitivity to volatile commodity prices."

11/3/14 Milk Specialties Co.

Kainos Capital S&P Milk Specialties Co. has been placed on CreditWatch with negative implications and its credit rating got lowered to 'B-' from 'B'.

S&P justified the rating by saying, "The downgrade of Milk Specialties reflects its persistent operating underperformance, declining profitability, and deteriorating credit measures over the last 18 months, resulting in a diminished business risk profile and leverage rising to over 5x from less than 4x."

Source: Standard & Poor’s, Moody’s Investor Services and Buyouts

GE Capital

www.buyoutsnews.com32 | BUYOUTS | November 10, 2014

Aquiline puts car lender First Investors Financial on the block: sourcesBy Luisa Beltran

• Bought for $100 mln in 2012• Seeking 2.5x to 3x book value: source• Quick sale expected

After just a two-year hold, Aquiline Capital Partners is looking to sell auto finance company First Investors Financial Services, two sources said.

The sale process for First Investors is

believed to be at an advanced stage. “It’s going to be sold shortly in the next couple of weeks,” said one of the sources, noting that Aquiline is seeking bids of 2.5x to 3x book value.

Wells Fargo is advising on the sale, the two sources said.

New York-based Aquiline acquired First Investors in September 2012 in a deal val-ued at $100 million, according to a state-ment at the time. The Houston-based company, founded in 1988, originates car loans indirectly through automobile deal-ers in 43 states, according to its website.

In The NewsFirst Investors made news in August

after it was fined $2.75 million by the Con-sumer Financial Protection Bureau. “Tex-as-based First Investors Financial Services Group Inc., which lends primarily to sub-prime borrowers, failed to fix known flaws in a computer system that was providing

inaccurate information to credit reporting agencies,” CFPB said in a statement. “This potentially harmed tens of thousands of its customers.” First Investors agreed to pay the fine, but it did not admit any wrong-doing, according to a New York Times story at the time.

Aquiline invests in sectors such as insurance, banking, asset management and financial technology. The firm’s last fund collected $742 million in 2011, Buy-outs previously reported. The PE firm has discussed launching its third fund with investors and is expected to seek $1 billion for its third fund, Buyouts reported in July.

Aquiline Financial Services Fund II LP generated a 20 percent IRR and a 1.34x total value multiple as of June 30, according to the Oregon Public Employ-ees Retirement Fund, a limited partner in the fund.

Executives for Aquiline, First Investors and Wells Fargo declined to comment.

PORTFOLIO COMPANIES

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HERE’S JUST A SELECTION OF WHAT PRATT’S HAS TO OFFER:

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 33

Private equity job openingsGP Position Job description Salary Contact details

Aequitas Capital SAS Financial Analyst The hire will use a range of statistical, quantitative, and econometric analytical tools and mathematical models to design, develop and execute portfolio analytics.

Apply online via careerbuilder at: http://www.careerbuilder.com/jobseeker/jobs/jobdetails.aspx?sc_cmp1=js_jrp_jobclick&APath=2.21.0.0.0&job_did=JHN1G060VKLWJP1RR85&showNewJDP=yes&IPath=QHKM3P

Ares Management Vice President of Investment Operations

Job responsibilities include working with key partners in all business lines to assist with portfolio specific activities and issues.

Apply on company website: http://goo.gl/WwLXdC

Consolidated Investment Group

Director of private equity The successful candidate will will lead the division’s activities sourcing deals in target markets, drive investment research and valuations, lead negotiations and due diligence activities and structure financing and monitor investments through purchase.

Apply online via careerbuilder at: http://goo.gl/qJyq1D

EF Capital Management Investment Associate Requirements include solid quantitative and analytical skills, including the ability to create and analyze pro forma financial statement models.

Apply online via LinkedIn at: http://goo.gl/FnXkxc

Guggenheim Investments

Director, compliance officer The hire will work with other members of the compliance team and business units around the firm to provide oversight and advice on compliance matters affecting the institutional advisory business.

Apply online via LinkedIn at: http://goo.gl/xWjjEp

Macquarie Capital Vice president of energy and infrastructure

The ideal candidate should have experience structuring both greenfield and brownfield deals in the infrastructure and energy sectors.

Apply on company website: http://www.careers.macquarie.com/cw/en/listing/

Morgan Stanley Capital Partners

Vice President Job responsibilities include evaluating new investment opportunities, leading transaction execution and developing capital structure and valuation views.

Apply on company website https://ms.taleo.net/careersection/2/jobdetail.ftl?job=3035872.

Oaktree Capital Project Manager, Investment Operations

Responsibilities include collaborating with the senior management and key stakeholders to define project scope, objectives, assumptions, dependencies, value proposition/ rationale, and impacted organizational functions and systems. Position is in Los Angeles.

Apply on company website at: http://goo.gl/uWljo6

OMERS Private Equity Associate Job responsibilities include evaluating new investment opportunities, leading transaction execution and developing capital structure and valuation views.

Apply online via LInkedIn

R&R Global Partners Director of marketingDirector of marketingDirector of marketingDirector of marketing

The position has primary working relationships with the CEO, senior management team, staff gyms and various marketing/communications/P.R. service providers. generation of new investment ideas, in conducting due diligence for new investments, and in the management of current portfolio positions.

Apply online via LinkedIn at: http://goo.gl/dN4Ww2

Rosewood Private Investments

Analyst The hire will be responsible for supporting RPI’s associates and directors in various aspects of the private equity investment cycle, including marketing, deal sourcing, evaluation of new opportunities, and some portfolio management.

Apply online via LinkedIn at:http://goo.gl/XKRDUw

Salt Creek Capital President Candidates must have proven capabilities for full P&L responsibility and 10+ years of management experience.

Apply online via LinkedIn at: http://goo.gl/NF6Jpu

CAREERS

www.buyoutsnews.com34 | BUYOUTS | November 10, 2014

Adams Street Partners Fund management associate The role requires an understanding of financial statements and buy-side analysis, research and communication skills, a strong work ethic, and the ability to self-manage and work well in a team environment.

Responsibilities include maintaining and enhancing Adams Street’s portfolio construction tools associated with forecasting, investment allocations, monitoring portfolio diversification and capacity scenarios for all Adams Street funds and separate accounts.

Email resumes and inquiries to Carolyn Flanagan, human resources at clanagan@adamsstreetpartners.com.

California Public Employees Retirement System

Investment officer Job responsibilities include working with investment office subject matter experts to assist in implementing operating risk mitigation solutions; oversee the tracking and implementation of the solutions.

$3,249.00 - $6,171.00 Monthly$38,988.00 - $74,052.00 Annually

Apply online at: https://www.governmentjobs.com/jobs/998771/investment-officer-i/agency/calpers/apply

California State Teachers' Retirement System

Portfolio manager Candidates should have five years of broad and extensive investment management experience for a major financial institution or firm or government agency, including experience in leading or coordinating a large portfolio.

Monthly Salary: Range A : $ 9000.00 - $20500.00

CALSTRS P.O. BOX 15275, MS 31 SACRAMENTO, CA 95851-0275

or see CalSTRS website for further details https://jobs.ca.gov/Bulletin/Bulletin/Index?examCD=2STAA

Canada Pension Plan Investment Board

Senior Associate, Fundamental Investing - Hong Kong office

The hire will work within the company’s global corporate securities group and will be responsible for conducting equity research on ideas in Japan as well as the Asian region. A minimum of 3 years investment management industry experience covering Japanese equities is required.

Apply on company website at: http://www.cppib.com/en/careers/professionals/job-opportunities.html

CIM Group vice president of consultant relations

Job responsibilities include creating a deep working relationship with each consultant, with the goal of getting the consultants to understand CIM’s investment offerings and to endorse CIM as an investment partner for their clients.

Apply online via monster at: http://goo.gl/bkuCT1

Hamilton Lane Vice president, mezzanine The hire will be primarily responsible for evaluating mezzanine debt and credit-related investments in New York-based companies.

Apply online via company's website

HarbourVest Partners Private equity accountant The hire will be responsible for all aspects of financial accounting and client level reporting.

http://goo.gl/3B23Rr

NetSuite Business development—private equity/ transactions rep

The hire must Identify, track and act upon on all M&A trigger events across different verticals. This would include buy outs, spin offs, divestitures and carve outs.

Apply online via LinkedIn at: http://goo.gl/0PI3rx

Neuberger Berman Private equity senior fund accountant

This role will assist the fund controller in all aspects of operations for various private equity funds across the Neuberger Berman platform.

Apply online via monster at: http://goo.gl/4t1VFX

StepStone Vice president of private equity business development

The successful candidate will be ultimately responsible for the development and management of all new and existing relationships with European institutional investors.

Apply online athttp://www.jobs.sc.gov Interested applicants should send a cover letter and resume to careers@stepstoneglobal.com and reference the position Vice President of Business Development: London in the subject line.

William Blair Investment banking analyst- leveraged finance

The hire will conduct financial analysis, financial modeling, structuring, and capital structure analysis for various issuers of corporate debt and private equity with general supervision.

Apply on careerbuilder at: http://goo.gl/EeUy4F

Source: Job sites, corporate websites, research by Buyouts

Private equity job openingsLP/advisors Position Job description Salary Contact details

CAREERS

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 35

PSA Healthcare is up for sale, seeks bids of at least $200 mlnBy Luisa Beltran

• J.H. Whitney was in exclusive talks to buy PSA Healthcare• Not clear if those talks are ongoing • BMO Capital Markets is advising on the deal

Portfolio Logic, the Washington D.C. investment firm from Jeffrey Zients, has put PSA Healthcare up for sale, five sources said.

BMO Capital Markets is advising, the people said. PSA, of Norcross, Ga., pro-vides pediatric home care services for medically fragile children, according to the firm’s website. The company also offers in-home options for adults with medically fragile conditions. PSA employs more than 4,100 caregivers.

The company produces $20 million in EBITDA and is seeking double digit bids, two of the sources, who are bankers, said. Private equity firms have dominated the auction, according to three of the sources.

The status of the auction is unclear. J.H. Whitney & Co. is in exclusive talks to buy PSA, four of the sources said. How-ever, those discussions have broken down, two of the people, a banker and a private equity source, said, while others say that is wrong. Epic Health Services, which also provides pediatric skilled nursing, placed a bid for PSA but lost, sources said. Epic is a portfolio company of Webster Capital.

Portfolio Logic acquired PSA in August 2007. D3 Family Funds, which had been PSA’s largest stakeholder, became a minority investor with the sale, a state-ment said. At the time of the sale to Port-folio Logic, Zients was managing partner of the investment firm. President Barack Obama picked Zients in October 2013 to salvage the Obamacare website. Zients is currently Director of the National Economic Council and Assistant to the President for Economic Policy, his White House bio said. Because of his position with the Obama administration, Zients placed Portfolio Logic assets in a blind trust, one banker said.

Executives for PSA declined comment.

Lighting and sensor provider Excelitas up for saleBy Greg Roumeliotis and Mike Stone

SNAPSHOT:Target: Excelitas Technologies CorpPrice: At least $2 blnSponsor: Veritas Capital Fund Management (seller)Financial advisers: Goldman Sachs Group and Rothschild

Excelitas Technologies Corp, a provider of lighting and sensor components to the health and defense sectors, is exploring a sale it hopes will value it at least $2 billion, including debt, said people familiar with the matter.

Excelitas’s owner, private equity firm Veritas Capital Fund Management LLC, is preparing to launch an auction for the company with the help of investment banks Goldman Sachs Group Inc and Roth-schild, the people said on Wednesday, Oct. 29.

Excelitas has annual earnings before interest, tax, depreciation and amortiza-tion of around $160 million, the people added.

The sources asked not to be identified because the sale process is not public. Veri-tas Capital, Goldman Sachs and Rothschild declined to comment, while an Excelitas spokeswoman did not respond to a request for comment.

Based in Waltham, Massachusetts, Excelitas makes products such as light emitting diodes (LEDs) and flash lamps for applications ranging from medical light-ing and analytical instrumentation to aero-space and defense equipment.

Veritas Capital created Excelitas by acquiring the former illumination and detection solutions business of scientific instruments manufacturer PerkinElmer Inc for about $500 million in 2010.

Excelitas went on to acquire four more companies, including Kaiser Systems Inc, a manufacturer of high-voltage power sys-tems, and Qioptiq, a maker of specialized optical components such as lenses and optical modules.

Reporting by Greg Roumeliotis and Mike Stone of Reuters news service in New York.

Sale of yearbook maker Herff Jones parent for $1.5 bln nearBy Soyoung Kim, Olivia Oran andGreg Roumeliotis

SNAPSHOT:Target: Herff JonesPrice: $1.5 bln (est.)Seller: Varsity BrandsBuyer: Charlesbank Capital-led consortiumFinancial adviser: Jefferies LLC (seller)

The parent company of yearbook and class ring maker Herff Jones is close to selling itself to a private equity consor-tium led by Charlesbank Capital Partners for about $1.5 billion, people familiar with the matter told Reuters news service.

Herff Jones is also known for making the Super Bowl XLI rings for the India-napolis Colts.

Boston-based Charlesbank has prevailed over other buyout firms in the auction for Varsity Brands Inc, which owns Herff Jones as well as sporting apparel company BSN Sports and cheer leading uniform maker Varsity Spirit, the sources said.

Charlesbank is teamed up with Euro-pean investment firm Partners Group AG in its bid, the sources added.

The sources asked not to be named because the matter is not public. Partners Group declined to comment while Varsity Brands and Charlesbank did not respond to requests for comment.

Reuters reported in August that India-napolis-based Varsity Brands hired invest-ment bank Jefferies LLC to assist with a potential sale.

Herff Jones, which bought Varsity Brands in 2011, acquired BSN Sports in 2013 for $460 million and rebranded the entire company under the Varsity Brands banner in June.

Founded in 1920 by Harry J. Herff and Randall H. Jones, the firm manufactures class rings, yearbooks, caps and gowns, and graduation diplomas. It also makes awards, including the Naismith award for college basketball athletes and champion-ship rings. The company became 100 per-

DEALS

www.buyoutsnews.com36 | BUYOUTS | November 10, 2014

cent employee-owned in 1995.A buyout of Varsity Brands would mark

a relatively large deal for Charlesbank, which has more than $3 billion in assets and typically makes investments of $50 million to $150 million in companies with valuations of up to $750 million.

Since 1991, the firm has invested over $3.3 billion in 70 companies, in consumer, education and healthcare sectors, accord-ing to its website.

Reporting by Soyoung Kim in Seoul and Oliv-ia Oran and Greg Roumeliotis in New York for Reuters news service.

Contract sterilization company Sterigenics up for saleBy Greg Roumeliotis

SNAPSHOT:Target: Sterigenics InternationalPrice: As much as $1.5 blnSponsor (seller): GTCR LLCAdvisers: Goldman Sachs Group Inc, Jefferies LLC

Sterigenics International LLC, a pro-vider of contract sterilization services to the medical device and food industries, is exploring a sale that could value it at as much as $1.5 billion, including debt, peo-ple familiar with the matter told Reuters news service.

Sterigenics’s owner, Chicago-based GTCR LLC, has asked investment banks Goldman Sachs Group Inc and Jefferies LLC to run a sale process for the company, three people said.

The move comes just two months after Sterigenics acquired Nordion, a provider radioactive isotopes for the global health science market, for $826 million. The deal was largely driven by Sterigenics’s desire to secure the supply of a cobalt isotope that is used in the sterilization of medical devices and tools.

Following that acquisition, Sterigenics has annual earnings before interest, tax, depreciation and amortization of more than $130 million, one of the people said.

The sources asked not to be identi-

fied because the sale process is not pub-lic. GTCR, Goldman Sachs and Jefferies declined to comment, while Sterigenics did not respond to a request for comment.

Based in Deerfield, Illinois, Sterigenics operates out of 43 facilities in 11 countries across the Americas, Europe and Asia. GTCR acquired Sterigenics in 2011 for $675 million from another private equity firm, Silverfleet Capital.

News of the sale process for Sterigenics comes a week after U.S. medical technol-ogy company Steris Corp offered to buy British sterilization services provider Syn-ergy Health Plc for about $1.9 billion in cash and stock, in a deal that would shift its domicile to Britain and cut its tax bill.

Moody’s Investors Service Inc said in October that Sterigenics will face increas-ing competitive pressure over the medium to long term as a result of Steris’ acquisi-tion of Synergy Health.

This adds to the challenges that Steri-genics faces in assimilating Nordion, which is vulnerable to supply-chain dis-ruptions, according to Moody’s.

Reporting by Greg Roumeliotis of Reuters news service.

Advent, Avista near deal for UCB’s Kremers UrbanBy Greg Roumeliotis and Olivia Oran

SNAPSHOT:Target: Kremers Urban Pharmaceuticals Inc.Price: close to $2 billionSeller: UCB SAPotential buyer: Consortium including Advent International Corp and Avista Capital Partners

A consortium of buyout firms that includes Advent International Corp and Avista Capital Partners is in advanced talks to acquire UCB SA’s U.S. generic drugs unit Kremers Urban Pharmaceuti-cals Inc, people familiar with the matter told Reuters news service.

Advent and Avista have prevailed in an auction for Kremers Urban, which attract-ed interest from other private equity firms as well as specialty drugmaker Akorn Inc, the people said in late October.

Advent’s and Avista’s team is now in the final stages of negotiating the acqui-sition of Kremers Urban for close to $2 billion, the people said. The negotiations could still end without a deal, the people cautioned.

The sources asked not to be identified because the talks are confidential. Advent, Avista and UCB declined to comment, while Akorn did not respond to requests for comment.

A sale of Kremers Urban would come as more private equity firms consider acquiring the mature drug portfolios of pharmaceutical conglomerates such as GlaxoSmithKline Plc in a bid to avoid expensive leveraged buyouts of companies.

Based in Princeton, New Jersey, Kre-mers Urban is a maker of generic drugs with high barriers to market entry. Its product for the treatment of attention deficit disorder was approved by the U.S. Food and Drug Administration last year.

Kremers Urban was acquired by Schwarz Pharma Manufacturing in the mid 1990s, before Schwarz was acquired by UCB in 2006.

Reuters first reported in August that UCB was working with investment bank Lazard Ltd on the sale of the business.

Based in Brussels, UCB focuses on drugs for the treatment of conditions in the immune system and the central nervous system. It generated revenue of 3.4 billion euros ($4.3 billion) in 2013, and has a mar-ket value of 12.8 billion euros.

Reporting by Olivia Oran and Greg Roumeli-otis of Reuters news service in New York.

DEALFLOW

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www.buyoutsnews.com November 10, 2014 | BUYOUTS | 37

Advent sells Christ jewelery stores to 3i for 400 mln eurosBy Arno Schuetze and Alexander Huebner

SNAPSHOT:Target: Christ jewelery storesPrice: 400 mln euros ($507 mln)Seller: Advent InternationalBuyer: 3i

Buyout group Advent International has sold a unit of its German books-to-cosmetics retailer Douglas to rival pri-vate equity firm 3i, making headway in a revamp ahead of a planned exit from the investment, according to Reuters news service.

Advent and the Kreke family, which owns 20 percent of the group, sold their Christ jewelery stores, which have annual revenue of around 400 million euros ($507 million) and employ about 2,400 staff in 220 shops, to 3i, the buyout groups said on Monday, Oct. 27.

3i is investing 214 million euros in equity, while the deal values the Christ enterprise at 400 million euros includ-ing debt, two people familiar with the transaction said.

Since being taken private by Advent last year, Douglas, which also runs stores selling perfumes and clothes, has decided to focus on the beauty part of the busi-ness, buying up French perfume chain Nocibe and selling its Hussel branded confectionery stores.

Douglas has also launched a sale of its Thalia book stores division and its fash-ion retailer Appelrath Cueppers.

Once the restructuring is done, Advent plans to sell Douglas or float it on the Frankfurt stock exchange as early as the first half of 2015.

Buyout groups Ardian, Pamplona, Apollo Global Management as well as a European jewellery retailer had also handed in final offers for Christ, the sources said.

Reporting by Arno Schuetze and Alexander Hübner of Reuters news service.

CPPIB-backed energy company set to raise C$810 million in IPOBy John Tilak, Euan Rocha andNia Williams

SNAPSHOT:Target: Seven Generations Energy LtdPrice: IPO would value company at C$5 blnSponsors: Canada Pension Plan Investment Board, ARC Financial, KERN PartnersUnderwriters: Co-leads Credit Suisse and Peters & Co

Seven Generations Energy Ltd is poised to raise C$810 million ($724.31 million) via an initial public offering that priced at the lower end of a previously anticipated range, according to regulatory documents.

The independent petroleum company, which is selling some 45 million shares, priced the share offering at C$18, com-pared with an earlier projected range of C$17 to C$21. The offering is set to value the company at over C$5 billion.

The stock, which began trading on the Toronto Stock Exchange on Oct. 30 on a “when-issued” basis, surged more than 16 percent, indicating robust investor appetite for energy stocks despite the recent selloff in the price of oil.

“We have strong confidence that it’s a fairly explosive growth story,” said Paul Taylor, chief investment officer at BMO Asset Management, which owns shares of Seven Generations. “It has a lot of the posi-tive attributes that we look for, in terms of a growing production profile, strong man-agement team and good assets.”

Calgary-based Seven Generations focus-es on a liquids-rich natural gas property in Northwest Alberta, with almost all of it in the highly sought-after Montney region.

Natural gas liquids are hydrocarbons used as vehicle fuel blends and inputs at petrochemical plant. Liquids-rich natural gas fields such as the Marcellus and Utica shale plays in the United States tend to be more lucrative than “dry” gas fields, and there has been a rush to drill in these areas.

The company’s major shareholders

include the Canada Pension Plan Invest-ment Board and Calgary-based private equity firms ARC Financial and KERN Partners.

Some large initial investors in the com-pany including ARC and KERN that were considering selling down a portion of their stake via a concurrent secondary offering appear to have chosen not to do so at this time. ARC and KERN could not immedi-ately be reached for comment.

CPPIB is likely to remain the biggest shareholder in Seven Generations with a 14.8 percent stake, after taking into account the new equity being issued and the over-allotment options. On the same basis, ARC and KERN would retain stakes of about 11.6 percent and 8.2 percent, respectively.

The offering is expected to raise C$931.5 million if the over-allotment option is fully tapped by RBC Capital Mar-kets, Credit Suisse and Peters & Co, who are co-lead underwriters on the offering.

On a fully diluted basis, if the over-allotment option is maxed out, the pric-ing of the offering values the company at C$5.1 billion. After taking into account the jump in the share price on Oct. 30, the company would be worth C$6 billion.

The stock, which was set to officially begin trading on or about Nov. 5, was the second most heavily traded scrip on the Toronto Stock Exchange on Oct. 30.

“It was attractively priced to generate some interest, and obviously there is inter-est,” said Taylor, adding that the IPO was oversubscribed.

Reporting by John Tilak and Euan Rocha in Toronto and Nia Williams in Calgary for Reuters news service.

EXITS

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www.buyoutsnews.com38 | BUYOUTS | November 10, 2014

EXITS

TPG hires Lazard to sell Australian energy retailer Alinta for about $3.5 blnBy Byron Kaye

SNAPSHOT:Target: Alinta EnergyPrice: $3.5 blnSeller: TPG Capital Management LPAdviser: Lazard Group LLC

TPG Capital Management LP has hired investment bank Lazard Group LLC to sell Australian gas and electricity retailer Alin-ta Energy in a deal worth about A$4 bil-lion ($3.54 billion), three sources close to the transaction told Reuters news service.

The sale process is expected to com-mence in early 2015, the sources told Reuters on Wednesday, Oct. 29.

In 2011, the U.S. private equity giant took Alinta private in a A$2.1 billion debt-for-equity swap. In recent months, TPG has been reported to be considering its exit options.

TPG has not decided whether to sell Alinta via a private sale or a share market listing, said two of the sources, declining to be identified due to the sensitivity of the matter.

Energy firms are featuring strongly in Australia’s biggest year of M&A activity since 2011, with Cheung Kong Infrastruc-ture Holdings Ltd’s A$2.37 billion pur-chase of gas pipeline company Envestra Ltd and AGL Energy Ltd’s A$1.5 billion acquisition of two state-owned power sta-tions among the largest of the year.

Private equity exits are also driving up Australian M&A activity. TPG’s half-owned hospital company Healthscope Ltd raised A$2.26 billion in the country’s biggest share market listing of the year

to date.In a statement, an Alinta spokeswom-

an confirmed the Lazard appointment and said the company’s owner is “explor-ing future ownership options for the company”.

“This process was always intended as part Alinta Energy’s private equity owner-ship structure,” she added.

TPG declined to comment.The sale of Alinta, which sells gas to

700,000 customers in the state of Western Australia and electricity in South Austra-lia and Victoria states, as well as owning eight power stations and a gas pipeline, comes as Australian governments plan their own sales of energy infrastructure.

From 2015, the government of New South Wales state plans to sell a half stake in its electricity distribution network for about A$20 billion and the government of Queensland state plans to raise A$33 billion selling pipelines, ports and power generators.

Reporting by Byron Kaye of Reuters news ser-vice.

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www.buyoutsnews.com November 10, 2014 | BUYOUTS | 39

EXITS

Talk about the fundraising environment at the time for Fund III?

We closed the fund in April 2008. We were fortunate to have had the fund close before the financial world came to a screeching halt. We wanted to raise $500 million and were oversubscribed, but stuck with our target. This was not a venture capital fund but a small-mid cap tech/private equity fund investing any-thing from $30 million to $50 million in more advanced businesses in Europe and North America. These are geographies that Investcorp has been in for the past 35 years. In our case, our business model is not based on one or two home runs where we make 20x. Our performance both in this and prior funds is based on a very consistent delivery across all of our portfolio companies.

Given Investcorp’s offices are in New York, London, Bahrain, Riyadh and Abu Dhabi, were LPs skeptical of focusing on a U.S.-centric business such as technology?

There are very few cross-Atlantic mid-market technology private equity funds. Some LPs were scratching their heads over which bucket to put us in. Around the mid-2000 period, there were also questions around technology companies making money in Europe. We had a lot of skeptical looks around the potential performance of the technology sector in Europe. One of our first exits from the fund was from a European company and I’m happy to say that we proved the skep-tics wrong.

Any interesting moves you made after the Lehman Brothers bankruptcy?

As the financial crisis took hold, we took a very macro view on the environ-ment and on consumer spending. One area we identified was a potential increase in consumer debt defaults on credit cards, car payments and other items. We bought one of the leading providers of credit risk man-agement solutions in the United Kingdom that catered to the recovery of consumer debt called TDX Group, which was started by a couple of former Capital One execu-tives. We invested in TDX in December of 2008 for an enterprise value of about $75 million and we sold it earlier this year to Equifax for about $250 million, making a 3x return for our investors.

What was the first deal you did after you raised the fund?

One of the first deals out of Fund III was Ireland-based Fleetmatics, a software-as-a-service provider that helps track the loca-tion of vehicles. We acquired Fleetmatics in July 2008 and within a year we also acquired its largest competitor in North America, Sage Quest. In 2012, we took the company public on the NYSE. Today, we are fully exited from the company, which has about a $1.2 billion market cap. We like cross-Atlantic plays. That’s where we shine.

What were some other deals from Investcorp Technology Partners III that drove performance?

We’ve made a partial exit on the Skrill group. After Paypal, Skrill is the sec-

ond largest online payments system and digital wallet provider in Europe. Skrill grew EBITDA from about $4.6 million to $63 million during Investcorp’s period of ownership. In August 2013, we agreed to sell a majority stake in the company to CVC Capital Partners for a total enterprise value of about $750 million.

How did this fund shape the evolution of the firm?

We’re a relatively cautious firm when it comes to venturing into new areas. As a firm, we’re one of the largest investors in everything we do. The success of Fund III has made us comfortable to write larg-er equity checks for tech businesses. Last year, we acquired FishNet Security, the largest security software and value-added reseller in the U.S. They help companies address growing cyber-threats. Watch this industry.

Talking Top Quartile with Hazem Ben-Gacem of InvestcorpBy Steve Gelsi

The vintage 2008 Investcorp Technology Partners III LP rang up an IRR of 20 percent as of June 30, ahead of the top-quartile threshold of 19.4 percent and the median of 12.8 percent for that vintage year, according to performance data from a source and an analysis of private equity funds in the Sept. 1 issue of Buyouts. Hazem Ben-Gacem, head of corporate investment for both Europe and technology for Investcorp, spoke by phone with Buyouts.

Hazem Ben-Gacem

0

5

10

15

20

Investcorp Technology Partners III

Top quartile threshold for year

Median IRR for vintage year

IRR

29.519.4

12.8

Vintage 2008 Investcorp Technology Partners III LP

www.buyoutsnews.com40 | BUYOUTS | November 10, 2014

Demand for up-and-coming small and middle-market fund sponsors has spiked this year, as several marquee limited partners push for more exposure to emerging managers.

COVER STORYDemand for new fund managers creates wave of oversubscribed fundsBy Sam Sutton

www.buyoutsnews.com

COVER STORYNovember 10, 2014 | BUYOUTS | 41

C alifornia State Teacher’s Retire-ment System plans to commit to more small and middle-mar-ket funds marketed by manag-ers with strong track records,

Director of Private Equity Margot Wirth told Buyouts in July. The focus on “breakout groups” is CalSTRS’s response to its $21.4 billion portfolio’s heavy exposure to under-performing mega-funds, many of which were raised in the years leading up to the financial crisis.

“Those vintages are not going to end up terrible,” Wirth said. “We just had a very high exposure to those types of funds.”

California Public Employees’ Retire-ment System increased its allocation to small and emerging managers, commit-ting up to $200 million to a fund-of-funds vehicle managed by GCM Grosvenor in October.

“CalPERS is firmly committed to emerg-ing manager strategies,” Chief Investment Officer Ted Eliopoulos said in a statement.

State of Wisconsin Investment Board appears to be pursuing a similar strategy.

“Our house view is more bullish on small/mid buyouts and venture capital/growth equity in the U.S.,” according to an investment update presented at its Aug. 13 meeting. The renewed emphasis on small and middle-market funds will require Wisconsin to reduce its exposure to mega-funds, the report said.

Demand for first-time funds has led some investors to dedicate specific alloca-tions to emerging managers, or to make a point of highlighting those strategies in their investment policies. For a list of some of the more significant limited partners in the emerging manager space, take a look at the table on p. 42.

Allocating to small and emerging man-agers carries several benefits for investors. The lower and middle markets, where many emerging managers operate, offer a larger selection of potential assets at rela-tively low prices. A recent RCP Advisors white paper found that the average EBIT-DA purchase price multiples in the lower middle market from 2002-2014 was 6.8x.

Meanwhile, research shows that inves-tors don’t necessarily have to sacrifice performance when backing newer groups. Sponsors around the world on their debut buyout, growth equity or turnaround fund generate a median IRR of 10.1 percent and top-quartile IRR of 18.1 percent, according to Buyouts research conducted in late 2013;

that compares to a 9.7 percent median and 17.9 percent top-quartile mark for all funds. Investors can also often access these funds at a discount, since newer firms tend to have weaker negotiation positions on fund terms and conditions.

Rising DemandWith demand on the rise, U.S. small

and middle market emerging manag-ers—defined here as firms with less than $1 billion AUM and no more than three funds—have raised more than $18.6 bil-lion year to date, according to Buyouts research. Although several market sources emphasize the difficulties managers face in raising their first or second fund, over-all strong demand has allowed several to hold oversubscribed closes in recent months. Many others seem poised to hold final closes soon thanks to the backing of major institutional investors.

Many of these management teams assembled pre-fund track records at other f irms: Consonance Capital Partners’s founders worked together at JPMorgan Partners, and LFM Capital features two TVV Capital principals. Others, such as Gauge Capital and Shore Capital Partners, are led by groups where the founding part-ners worked at different firms. • Consonance Capital Partners, which

counts several former members of JPMor-gan Partners’s healthcare team among its founders, closed its oversubscribed private equity fund on $500 million in July. The healthcare-focused fund is associated with Consonance Capital Management, a public equity specialist firm with $600 million of assets.• Dallas-based private equity firm Gauge

Capital closed its debut fund on a self-imposed $250 million hard cap in October, well over its $175 million target. CIC Part-ners co-founder Drew Johnson launched Gauge Capital with former Symphony Technology Group advisor Tom McKelvey in 2013.• Manufacturing and industrial servic-

es specialist LFM Capital recently closed its second fund on a $110 million hard cap after just five months of marketing, eliciting strong demand from university endowments, Co-Founder and Executive Managing Director Steve Cook told Buyouts in October. The firm plans to acquire busi-nesses with $15 million to $75 enterprise valuations.• The Raine Group is said to be “in the

final innings” of its second fundraise, hav-ing raised at least $592.3 million as of Sep-tember, according to one LP adviser. Joe Ravitch and Jeff Sine partnered with tal-ent agency WME Entertainment to found Raine Group in 2009. The firm has stakes in several high profile companies, includ-ing Vice, an alternative media group, and Important Studios, a production company led by the creators of the popular cartoon South Park.• Gerald Cardinale previously managed

$6 billion of assets as the co-head of Gold-man Sachs Americas’ private equity funds. A debut fund being raised through his new venture, RedBird Capital Partners, blew through its initial $400 million target. A recent U.S. Securities and Exchange Com-mission filing indicates that the firm has raised more than $602 million to date, a total that includes $500 million from a single investor. The firm has yet to hold a final close.• The Teachers’ Retirement System of

Louisiana committed up to $40 million to Turnbridge Capital Partners’s debut fund in August. The Houston and Dallas-based firm grossed a 53.9 percent internal rate of return and 2.3x investment multiple as of March 31 on its pre-fund investments, according to one Hamilton Lane report. Turnbridge Capital closed on its $400 mil-lion hard cap in September.• Shore Capital Partners, a Chicago-

based lower-middle-market healthcare ser-vices specialist, closed its oversubscribed first fund on $112.5 million in June. One LP told Buyouts that the firm developed a track record of exiting its pre-fund portfo-lio companies quickly, typically in two to three years. ❖

With demand on the rise, U.S. small and middle market emerging managers—defined here as firms with less than $1 billion AUM and no more than three funds—have raised more than $18.6 billion year to date.

www.buyoutsnews.com

COVER STORY42 | BUYOUTS | November 10, 2014

LPs ramp up their emerging manager programsLimited partner Size of program Description Contacts

California Public Employees’ Retirement System

As of January 31, the emerging manager PE program was $7.1 bln across 171 managers and 224 funds

In October, CalPERS hired GCM Grosvenor to manage a $200 mln fund of funds for emerging managers. The $301.4 bln retirement system’s PE portfolio includes funds managed by Grove Street Advisors and EMAlternatives Investments.

Lincoln Plaza North400 Q StreetSacramento, CA 95811 www.calpers.ca.gov

California State Teachers’ Retirement System

The Proactive PE Program was valued at $1.9 bln as of April

The Private Equity Proactive Portfolio targets small, niche and emerging managers. The program is managed by Invesco, Muller & Monroe Asset Management and BAML Capital Access Funds Management.

CalSTRS Headquarters 100 Waterfront Pl, West Sacramento, CA 95605 800 228 5453

Chicago Teachers’ Pension Fund

$105 mln in commitments Illinois law requires pensions to consider investments in emerging managers. Muller & Monroe, ICV Partners, Hispania Capital Partners and Pharos Capital Group qualified as emerging managers in CTPF’s fund.

203 N LaSalle Suite 2600Chicago, Illinois 60601-1231 (312) 604-1400”

Connecticut Retirement Plans and Trust Funds

$155 mln Connecticut Horizon Fund invests in minority or women-owned firms or businesses. The goal is for those funds to represent 2.5 to 5 percent of the retirement system’s total assets. JPMorgan Private Equity Group and Muller & Monroe manage the Horizon Fund.

M&M: Andre Rice, President180 North Stetson Avenue, Suite 1320Chicago, IL 60601(312) 782-7771 JPM: Dimiter T. Mace270 Park Avenue, 25th FloorNew York, NY 10017(212) 648-2288”

FLAG Capital Management FLAG has received $6.5 bln in capital commitments since its inception

Although it doesn’t specifically pursue an emerging manager mandate, FLAG specializes in accessing middle and lower middle market firms that manage sub-$1 bln funds. The firm tends to focus on firms with niche expertise or focus.

1266 East Main Street5th Floor Stamford, CT 06902 203 352 0440

GCM Grosvenor $47 bln AUM across its entire platform

GCM Grosvenor is an alternative asset manager. The firm hosts a conference for small and emerging managers and manages a $200 mln fund of funds for CalPERS dedicated to the strategy.

767 Fifth Avenue14th FloorNew York, NY 10153Phone: (646) 362-3700

Hauser Private Equity Hauser closed its second private equity investment fund on $80 mln in 2013

Hauser invests in funds between $150 million and $750 million in size. The firm is an LP in Shore Capital’s debut, and its portfolio features several first or second time fund managers.

8260 Northcreek Drive, Suite 200Cincinnati, Ohio 45236513-936-7372

Illinois Municipal Retirement Fund

$34.8 bln portfolio, including $1.4 billion of alternatives

The $34.8 billion Illinois Municipal Retirement Fund has a 5 to 10 percent target range for emerging managers within its private equity portfolio, defined as minority, female and disabled person-owned funds. As of February 2013, 5.6 percent of IMRF’s private equity porfolio was managed by emerging managers.

2211 York Road Ste 400 Oak Brook IL 60523-2337 1-800-275-4673”

Illinois State Universities Retirement System

Total Fund - $17.2 billion. Private equity - $1 billion

In June 2013, Illinois State Universities Retirement System approved a $75 million commitment to JP Morgan Asset Management for investments with general partners that are at least 51 pct owned by minorities, women and persons with a disability.

State Universities Retirement System of Illinois1901 Fox DriveChampaign, Illinois 61820 217-378-8800

New York State Common Retirement Fund

Total investments - $176.8 billion. Private equity - $14.4 billion

The $176.8 billion state pension defines emerging managers as having less than $750 million AUM and no more than three prior funds. Muller & Monroe runs the emerging manager portfolio.

110 State Street Albany, NY 12236518-474-4044

Mass PRIM Total fund - $54.4 billion. Private equity - $6 billion

The Massachussets Pension Reserves Investment Management Board actively sources emerging managers, including minority and women-owned firms.

84 State Street, Suite 250Boston, MA 02109617-946-8401

Muller & Monroe Asset Management

N/A Muller & Monroe specializes in new and emerging private equity managers. The firm manages capital for CalSTRS, Chicago Teachers’ Pension Fund, and Connecticut

180 North Stetson AvenueSuite 1320Chicago, Illinois 60601 312.782.7771

Teachers Retirement System of Illinois

Total portfolio - $43.6 billion. Private equity - $4.6 billion

The Teachers’ Retirement System of the State of Illinois dedicated $500 million to an emerging managers program that encompasses private equity, real estate, equities and fixed income.

2815 West Washington Springfield, Illinois 62702-3397 (800) 877-7896

Source: Buyouts research

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 43

INSIDE THE DEALLooking to raise money from SWFs? Make it easier for them By Isaac Grossman, partner, Morrison Cohen LLP

Sponsors often find foreign govern-ments, including the sovereign wealth funds they oversee, an easy-going source of capital.

However, a foreign government is not a typical foreign investor and significant participation by foreign governments in a private equity fund has led to some unex-pected tax issues.

These tax issues have recently become prevalent as more and more investments are made by private equity funds in port-folio companies that are pass-through entities, such as partnerships or limited liability companies.

Sellers of such companies retain-ing a portion of their ownership in the acquired companies have already enjoyed pass-through tax treatment and prefer to continue to take advantage of such treat-ment. In addition, U.S. taxable investors in private equity funds, including sponsors themselves, have become more cognizant of the tax efficiency of pass-through enti-ties and prefer to take advantage of pass-through treatment when they can.

As a result, while most sponsors provide protection from UBTI (“unrelated business taxable income”) to their tax-exempt inves-tors and from ECI (effectively connected income) to their offshore investors, spon-sors frequently split their ownership in pass-through portfolio companies between corporate (i.e., “blocked”) and pass-through (“unblocked”) vehicles. The split provides protection from UBTI and ECI for sensitive investors and pass-through tax efficiency for non-sensitive investors. Let’s look at a few common situations you may find your-self in.

Case # 1: A foreign government is one of a few sensitive investors:

A private equity fund is investing in a portfolio company that is a pass-through entity (say, a partnership). For the UBTI and ECI reasons described above, a portion of the investment will be blocked (held through a domestic corporation) and a por-tion will be unblocked. Due to the mix of investors who wish to be blocked from ECI and UBTI, the foreign government ends up with 50 percent or more of the ownership

of the corporate blocker.

Case # 2: A foreign government is a significant fund Investor:

A private equity fund is investing in a corporate portfolio company and the for-eign government ends up with 50 percent or more of the ownership of the portfolio company because (a) the private equity fund is a captive fund (b) significant inves-tors opt out of the particular investment or (c) the foreign government utilizes its co-invest opportunities more than other investors.

Case # 3: A foreign government is in a pledge fund or similar arrangement:

A sponsor is offering an opportunity for an investment in a corporate portfolio company but has no firm commitments. The foreign government ends up with 50 percent or more of the ownership of the portfolio company due the uncertain mix of investors.

Tax RiskThe common theme of these cases is a

foreign government controlling a domestic corporation with business activities. Own-ership in a domestic corporation would not violate the UBTI and ECI protections offered by the sponsor to the tax-exempt and generic offshore investors but still presents an issue for the foreign govern-ment under Internal Revenue Code Sec-tion 892.

As an offshore investor, foreign gov-ernments are not subject to U.S. tax on the sale of stock in domestic corporations (other than U.S. real property holding corporations), even absent the protection offered by Code Section 892. In addition, as noted above, as an offshore investor in most private equity funds, foreign gov-ernments are typically already protected from ECI. The benefit of Code Section 892 is the protection from U.S. taxes on divi-dends and certain interest derived from portfolio investments made by the fund. These items are otherwise taxable for for-eign investors but may be tax free for the foreign governments if Code Section 892 applies.

Code Section 892 generally exempts for-eign governments from U.S. tax on income received from U.S. investments excluding income derived from controlled commer-cial entities. The term “controlled commer-cial entities” includes entities engaged in commercial activity that are owned 50 percent or more by a foreign government or under the effective control of the for-eign government. Under the circumstanc-es described in cases #1-3 above, interest and dividends received by the foreign government from the controlled portfolio companies are excluded from Code Section 892 and may be subject to U.S. tax.

There is a potential structural solu-tion to the problem (particularly in case #1 above). Under proposed regulations, a controlled entity will not be considered engaged in a commercial activity if it owns nothing but a (a) limited partnership interest or (b) an LLC interest that has no right to participate in the management and conduct of the LLC’s business. Thus, when structuring a pass-through invest-ment made by a blocker corporation for sensitive investors, using a limited partner-ship form for the pass-through entity held by the blocker corporation would be advis-able. Alternatively, if an investment must be in LLC form, providing the controlled blocker with a non-managing interest that has full economic rights but only limited management and voting rights would also be prudent. ❖

Isaac Grossman

www.buyoutsnews.com44 | BUYOUTS | November 10, 2014

B ut in their first interview since taking up day-to-day responsibil-ity for the firm in May, Stephen Toy, 42, and Greg Stoeckle, 50, both senior managing directors

and co-leaders of the firm, said two recent deals for Bank of Cyprus and a roll-up called Permian Basin Materials LLC fit the themes woven into the DNA of WL Ross & Co. The firm follows a well-researched macro-eco-nomic thesis, pays well under 10x EBITDA, embraces complexity and taps not just its checkbook but the firm’s intellectual capital.

The investments come as Wilbur L Ross Jr, 76—the founder of WL Ross & Co in 2000 with $440 million in capital after making his name as a distress and turn-around banker at Rothschild Inc in the 1980s and 1990s—turns over more respon-sibility to Stoeckle and Toy. It is the latest step in the evolution of WL Ross & Co since it was acquired by Invesco back in 2006.

Stoeckle chairs the management com-mittee and focuses on business operations, investor relations and product develop-ment. Earlier this year, he came over to WL Ross & Co from its parent Invesco, where he worked as president and man-aging director of Invesco Senior Secured Management Inc, building the leveraged finance business to $30 billion in assets under management from less than $1 bil-lion when he joined Invesco in 1999.

Toy chairs the firm’s investment com-mittee and focuses on its portfolio. He’s a founding member of WL Ross & Co., hav-ing started in 1996 as an analyst at Roths-child under Ross. “It’s a collaborative effort as day-to-day heads, with Wilbur Ross as our chairman,” Stoeckle said of himself

and Toy. Ross is “still very much involved but recognizes that we need to take the steps to institutionalize the success factors we’ve had over the course of our history. We’re addressing the ‘key man’ issues that some have raised around Wilbur. We think we’ve done that successfully.”

Stoeckle said WL Ross & Co continues to position itself as a value-oriented pri-vate equity firm familiar with distressed debt and turnaround deals in transporta-tion, metals and mining, financial services, energy and building products sectors.

“We have a 17-year history of doing private equity style transactions in a fund format,” Stoeckle said. “The platform has evolved where distressed and turnaround is a core component of that value orient-ed strategy, but there are other ways to express a value orientation, like a contrar-ian buyout, or it could be a complex carve-out or special situation.”

For his part, Ross told Buyouts that both Toy and Stoeckle were already known names among investors prior to their cur-rent roles.

“The three of us are jointly responsible (for the firm) but this new structure gives me the time to focus on what I like to do—the big strategic moves,” said Ross, adding that he has no plans to retire. He said he remains active in his personal life as well, including winning a recent tennis tourna-ment at the Everglades Club in Palm Beach. “I’m in very good health,” he said. “It’s not that I’m going to an old people’s home or anything like that.”

Ross said he’s been focusing on the firm’s first special purpose acquisition cor-poration called WL Ross Holding Corp as

GP PROFILEWL Ross & Co aims to pay well under 10x EBITDABy Steve Gelsi

WL Ross & Co LLCHeadquarters: New York City

Year founded: 2000

AUM: About $8 Bln

Employees: 48

Key personnel: Wilbur L Ross Jr, 76, chairman and chief strategy officer; Stephen Toy, 42, and Greg Stoeckle, 50, both senior managing directors and co-leaders of the firm

Owner: Unit of Invesco Ltd, Atlanta-based manager, AUM $790 billion, including $96 billion of alternatives, as of Sept 30

Investment style: Value-oriented private equity, including distressed debt and turnaround investments

Key deals: Bank of Ireland, ISG International Steel Group, Navigator Holdings Ltd

Current investment themes: Energy, financial services, heavy building materials, metals & mining and transportation.

Competitors: Apollo Global Management, Centerbridge Partners, KPS Capital Partners, Oaktree Capital Management

LPs: CalPERS, Hamilton Lane, Houston Police Officer’s Pension System, New Jersey State Investment Council, Siguler Guff & Co, the State of Wisconsin Investment Board and Alfred I. DuPont Testamentary Trust

With interest rates low, equity prices near all-time highs, and deal-making frothy across many sectors, distressed debt and turnaround specialist WL Ross & Co has a host of challenges plying its trade.

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 45

GP PROFILE

a blank check company that raised more than $500 million in June to acquire another company. He’s also focused on researching macro trends to form the foundation for future deals.

Bank of CyprusIn one of its latest deals, WL Ross &

Co moved to lead a consortium to invest about $500 million in Bank of Cyprus.

Fitting the firm’s bent toward bargain prices, WL Ross & Co paid 24 euro cents per share, less than a quarter of the price of one euro per share paid in a 2013 bail-in transaction by creditors to write off a portion of their debt to help shore up the bank. The investment closed on Sept. 18 in the form of a private placement restricted to major institutional investors.

The Bank of Cyprus should benefit from a modest rebound in the region and a recovery in the European banking sec-tor, according to the firm, which also sees the bank benefiting down the road from potential energy development of offshore natural gas fields near Cyprus.

“Banking institutions tend to be a levered proxy against the macroeconom-ic activity of a region,” Toy said. “It’s a referendum of our thoughts around what a specific country is going to do to turn around the general economy. We felt investing in a material or a significant bank in that economy is a way to deliver returns against that view.”

In an early sign that WL Ross may have made the right bet, the Bank of Cyprus recently passed a European Central Bank stress test with about $125 million more capital than it needed to do so, Ross said. He formally congratulated the bank on

Oct. 26 and said its move to pre-emptively raise about $1.25 billion of equity capital this year was correct.

In the next milestone for the Bank of Cyprus, Ross is supporting a slate of 11 directors to replace the bank’s board at a shareholder meeting on Nov 20. Among them, Josef Ackermann, the former chief executive officer of Deutsche Bank AG, has been proposed as non-executive chairman.

The deal followed the firm’s success investing in the Bank of Ireland at the height of the currency crisis in 2011. That deal has paid a return of about 3x.

Cement and SandAlong with banking, energy ranks

among the major investment themes at WL Ross & Co.

To be sure, valuations of oil-producing operations and acreage in the United States shale basins have been rising as private equity firms pump billions into the sector. But Stoeckle, Toy and Ross managed to build Permian Basin Materi-als LLC into a mid-market portfolio com-pany benefiting from the energy boom at a lower price.

WL Ross & Co started out by finding three separate companies in the infra-structure-hungry Permian Basin region of western Texas and eastern New Mex-ico. In a deal that closed late last year, each of the three was valued at a dis-count because of its small size: Crockett County Mining Ltd, Highland Concrete Co and Wallach Concrete Inc. More recently, Permian Basin Materials added a fourth company, Damron Sand & Gravel, in a deal that closed on Oct. 31.

WL Ross has now crafted a regional producer of sand, gravel, limestone with mines and ready-concrete plants in an area that “will experience dynamic growth,” Toy said in a statement marking the transaction.

Fitting WL Ross & Co’s affinity for complex deals, the transaction included a challenging negotiation with the sellers in which WL Ross insisted it would only buy each of the companies if it got all three at once, Ross said. ”Putting the three togeth-er gave us a critical mass,” he said.

Toy said the Bank of Cyprus and Perm-ian Basin deals ref lect WL Ross & Co’s interest in a wide variety of acquisitions that allow the firm to deploy its intellec-tual capital and financial capital to create value and turn businesses around or grow them.

“We want to have the available capital that’s flexible enough to do mid-market deals and we also want the flexibility to move up to pursue larger transactions like we did with Bank of Ireland or the Bank of Cyprus,” Toy said. “That ability to play in the full spectrum, having each type of investment be meaningful in terms of its ability to move the needle on returns, is an important part of the strategy in how we invest money and (how) we seek to deliver returns for our investors.”

New FundWL Ross & Co reportedly plans to raise

up to $2 billion for WLR Recovery Fund VI, the follow-up to its 2011 predecessor. Citing regulatory restrictions, executives at the firm declined to talk about fund-raising. But they did say that they’ve been meeting with their LPs to talk about their new leadership roles.

The firm has netted about $1.8 billion of monetizations thus far in 2014, com-pared to less than $500 million in new investments. The firm has also set up potential exits through a series of initial public offerings, including those of Talmer Bancorp Inc and Navigator Holding Ltd.

Overall, LPs appear to be warming toward distressed investing after sev-eral years of rocky but steady economic expansion.

“Interest in distressed debt and turn-around funds is increasing as investors are becoming more worried that we are near-ing the top of a cycle,” said Kelly DePonte, a placement agent with Probitas Partners in San Francisco. ❖

WL Ross & Co DealsDirect Investments Date of Last Investment Still in portfolio

Eurobank Ergasias SA 2014 Yes

Navigator Holdings Ltd 2013 Yes

Amalgamated Bank 2012 Yes

NBNK Investments Plc 2012 Yes

Deutsche Bank Berkshire Mortgage 2012 No

Talmer Bancorp 2012 Yes

Bank of Ireland 2011 No

Virgin Money Holdings (UK) Plc 2011 Yes

Diamond S Management 2011 Yes

International Automotive Components Group N. America 2011 Yes

Source: Thomson One

www.buyoutsnews.com46 | BUYOUTS | November 10, 2014

Funds expected back to market in 2015Sponsor Probable name of

expected fundFund focus Estimated

target range ($m)

Vintage year of prior fund

Size of prior fund ($m)

Insights

AG BD LLC AG Core Plus Realty Fund IV

Value-add 2010 1,014 AG Core Plus Realty Fund III, L.P. was almost 60 percent drawn down according to figures from Public School Employees’ Retirement System as of September 30, 2013.

Alcion Ventures Alcion Real Estate Tax-Exempt Parallel Fund III

US real estate opportunity

2011 495 Alcion Real Estate Tax-Exempt Parallel Fund II, LP was almost 80 percent drawn down according to figures from University of Texas Investment Management Co as of February 2014.

American Industrial Partners

American Industrial Partners Capital Fund VI

Domestic Midmarket Buyout

2011 700 American Industrial Partners Capital Fund V was over 50 percent drawn down according to figures from New Jersey Division of Investment as of February 2014.

AnaCap Financial Partners

Anacap Credit Opportunities III

Turnaround/distressed

2012 563 Anacap Credit Opportunities II was 80 percent drawn down according to figures from New Jersey Division of Investment as of February 2014.

Angeleno Group Angeleno Investors IV

Energy 2009 Approx 200

Angeleno Investors III was almost 50 percent drawn down according to figures from Los Angeles City Employees’ Retirement System, as of December 31, 2013.

Apollo Global Management

AGRE U.S. Real Estate Fund II

US real estate opportunity

2011 785 AGRE U.S. Real Estate Fund was almost 70 percent drawn down according to figures from University of Texas Investment Management Co as of February 2014.

Arclight Capital Partners

Arclight Energy Partners Fund VI

North American energy

4000 2011 3,300 Arclight Energy Partners Fund V was over 50 percent drawn down according to figures from Colorado PERA as of December 31, 2013.

Arsenal Capital Partners

Arsenal Capital Partners IV

Buyouts 2012 875 Arsenal Capital Partners III was over 50 percent drawn down according to figures from Oklahoma Police Pension & Retirement System, as of March 2014.

Artiman Ventures Artiman Ventures Special Opportunities Fund II

Later stage 2011 133 Artiman Ventures Special Opportunities Fund was over 70 percent drawn down according to figures from University of Texas Investment Management Co, as of February 2014.

Artiman Ventures Artiman Ventures IV Early stage 2010 201 Artiman Ventures III was almost 60 percent drawn down according to University of Texas Investment Management Co as of February 2014.

Audax Audax Mezzanine Fund IV

Mezzanine 1000 2011 Audax Mezzanine Fund III was almost 50 percent drawn down according to figures from Colorado PERA as of December 31, 2013.

Avante Mezzanine Partners

Avante Mezzanine Partners II

Mezzanine 2011 218 Avante Mezzanine Partners SBIC, L.P. was over 50 percent drawn down according to figures from GCM Grosvenor DEM, L.P. as of the end of 2013.

Avenue Capital Group

Avenue Europe Special Situations Fund III

Distressed/Turnaround

2011 2,786 Avenue Europe Special Situations Fund II was almost 70 percent drawn down, according to New York State Common Retirement Fund as of March, 2013.

Avenue Capital Group

Avenue Special Situations Fund VII

Distressed/Turnaround

2010 2,000 Avenue Special Situations Fund VI was fully drawn down according to Colorado PERA as of December 31 2013.

Avista Capital Partners

Avista Capital Partners IV

Private equity 2012 2,000 Avista Capital Partners III was almost 60 percent drawn down according to figures from Colorado PERA, as of December 31, 2013.

Birch Hill Equity Partners

Birch Hill Equity Partners V

Acquisitions/Buyouts

2009 925 Birch Hill Equity Partners IV was over 50 percent drawn down according to CalPERS as of December 2013.

Black Diamond Capital Management LLC

BDCM Opportunity Fund IV

Distressed/Turnaround

2011 800 BDCM Opportunity Fund III was over 70 percent drawn down according to figures from Oregon as of December 31, 2013.

Blackstone Group LP

Blackstone Capital Partners VII LP

Private equity 2011 16,000 Blackstone Capital Partners VI LP began investing in January 2011 and is about 66 percent deployed, according to the two LPs

Blackstone Group LP

Blackstone Tactical Opportunities Fund II

Separate Accounts

2012 7,000

Centerbridge Partners LP

Centerbridge Special Credit Partners IV

Turnaround/Distressed Debt

2012 1,947 Centerbridge Special Credit Partners III was over 50 percent drawn down according to figures from California Teachers’ Retirement System, as of September 30, 2013.

Cerberus Capital Management

Cerberus Institutional Partners, L.P., Series Six

Private debt 2012 2,610 Previous fund Cerberus Institutional Partners, L.P., Series Five was over 50 percent drawn down according to Public School Employees’ Retirement System as of September 2013.

FEATUREBy Angela Sormani and Paul Centopani

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 47

Funds expected back to market in 2015Sponsor Probable name of

expected fundFund focus Estimated

target range ($m)

Vintage year of prior fund

Size of prior fund ($m)

Insights

Chart Capital Partners

Chart Capital Partners III, L.P.

Acquisitions/Buyouts

2008 41 Chart Capital Partners II was fully drawn down according to figures from Capital Link Fund I,II LP, as of December 31, 2012.

Charterhouse Capital Partners

Charterhouse Capital Partners X

Acquisitions/Buyouts

2009 5,313 Charterhouse Capital Partners IX was over fifty percent drawn down according to Texas County & District Retirement System, as of December 31, 2013.

Commerce Street Capital

Commerce Street Financial Partners II

Generalist 2008 22 Commerce Street Financial Partners was fully drawn down according to figures from GCM Grosvenor DEM as of December 31, 2013.

Cortec Group Cortec Group Fund VI Buyouts 2011 620 Cortec Group Fund V was over 50 percent drawn down according to figures University of Texas Investment Management Co as of February, 2014.

Csfb Private Equity Advisers

CS Strategic Partners VI

Secondary funds 2011 2,900 CS Strategic Partners V was over 50 percent drawn down according to figures from Colorado PERA as of December 31, 2013.

Delta Point Capital DeltaPoint Capital V Buyouts 2009 100 DeltaPoint Capital IV was over 70 percent drawn down according to New York State Common Retirement Fund as of March 2013.

Drum Capital Drum Capital SSP IV Distressed debt 2009 According to data from Houston Firefighters’ Relief & Retirement Fund as of December 2013 Drum Capital SSP III was over 50 percent drawn down.

Energy Trust Partners

Energy Trust Partners V

Energy 2012 173 Energy Trust Partners IV was over 60 percent drawn down according to figures from Houston Firefighters’ Relief & Retirement Fund as of 31 March, 2014.

Global Energy Capital

Global Energy Capital 2015

Global energy opportunity

2010 123 Global Energy Capital 2010 was over 50 percent drawn down according to figures from University of Texas Investment Management Co as of February, 2014.

Green Courte Real Estate Partners

Green Courte Real Estate Partners IV

2011 406 Green Courte Real Estate Partners III was almost 50 percent drawn down according to figures from UTIMCO.

Gridiron Capital Gridiron Capital Fund III

Buyouts 2011 425 Gridiron Capital Fund II was over 50 percent drawn down according to figures from Santa Barbara County Employees’ Retirement System, as of December 31, 2013.

Hamilton Lane Hamilton Lane Venture Capital Fund II

Fund of funds 2011 Approx 50 Hamilton Lane Venture Capital Fund was over 50 percent drawn down according to figures from Santa Barbara County Employees’ Retirement System, as of year end.

IA Ventures IA Venture Strategies Fund II

Venture capital 2011 105 IA Venture Strategies Fund II was over 40 percent drawn down according to figures from University of Texas Investment Management Co as of February 2014.

JF Lehman JF Lehman IV Acquisitions/Buyouts

2011 576 JF Lehman III was almost 50 percent drawn down according to figures from Connecticut State Employees Retirement System, as of December 31, 2013.

Kerogen Energy Fund

Kerogen Energy Fund II

Energy 1500 2012 1,500 Kerogen Energy Fund was almost 90 percent drawn down according to figures from University of Texas Investment Management Co, as of February, 2014.

Khosla Ventures Khosla Ventures Seed III

Seed stage 2012 20 Khosla Ventures Seed B was over 50 percent drawn down according to figures from Texas County & District Retirement System, as of December 31, 2013.

KKR KKR Special Situations Fund II

Special situations 2013 2,000 KKR Special Situations Fund was almost 80 percent drawn down according to figures from Maine Public Employees Retirement System, as of December 31, 2013.

KSL Capital Partners

KSL Capital Partners IV

Acquisitions/Buyouts

2011 2,000 KSL Capital Partners III was almost 50 percent drawn down according to figures from CPP Investment Board, as of December 31, 2013.

Lightyear Capital Lightyear Capital IV Acquisitions/Buyouts

2011 954 Lightyear Capital III was over 50 percent drawn down according to figures from New Mexico EDU, as of December 31, 2013.

Lincolnshire Equity Lincolnshire Equity Fund V

Acquisitions/Buyouts

2008 835 Lincolnshire Equity Fund IV, L.P. was almost 70 percent drawn down according to figures from New York City Police Pension Fund, as of year end.

Linden LLC Linden Capital Partners III

Mid-Market Healthcare

2010 500

MidOcean Partners MidOcean Partners IV Buyouts 2006 1,000

FEATURE

www.buyoutsnews.com48 | BUYOUTS | November 10, 2014

Funds expected back to market in 2015Sponsor Probable name of

expected fundFund focus Estimated

target range ($m)

Vintage year of prior fund

Size of prior fund ($m)

Insights

PAX Pacific Alliance Special Situations Fund II

Asia 2011 Pacific Alliance Special Situations Fund was over 70 percent drawn down according to figures from EMAlternatives Investments, as of December 31, 2013.

Pegasus Capital Advisors

Pegasus Partners VI Acquisitions/Buyouts

2012 750 Pegasus Partners V was over 70 percent drawn down according to figures from New York City Police Pension Fund, as of December 31, 2013.

Peninsula Capital Partners LLC

Peninsula Fund VI Mezzanine 2010 389 Peninsula Fund V was almost 60 percent drawn down according to figures from Indiana Public Retirement System as of year end.

Silver Point Capital Silver Point C&I Opportunity Fund IV

Distressed debt 2012 Silver Point C&I Opportunity Fund III was over 50 percent drawn down according to figures from Texas County & District Retirement System, as of December 31, 2013.

Southern Cross Capital Management SA

Southern Cross Latin America Private Equity Fund V

Corporate Finance/Buyout - Mid

2010 1,680 Southern Cross Latin America Private Equity Fund IV, L.P was over 50 percent drawn down according to figures from Washington State Investment Board, as of December 31, 2013.

Sterling Group Sterling Group Partners IV

Buyouts 820 2010 820 Sterling Group Partners III was almost 70 percent drawn down according to figures from CPP Investment Board as of December 31, 2013

Summit Partners Summit Subordinated Debt Fund V

Private equity 2009 840 Summit Subordinated Debt Fund IV was almost 80 percent drawn down according to figures from Texas County & District Retirement System, as of December 31, 2013.

TA Associates TA Subordinated Debt Fund IV, L.P.

Mezzanine 2010 520 TA Subordinated Debt Fund III was almost 70 percent drawn down according to figures from Employees’ Retirement System of the State of Hawaii as of the end of 2013.

TA Associates TA XII Growth equity Unknown as yet

2010 4,000 The previous fund TA XI was over 60 percent drawn down, according to Employees’ Retirement System of the State of Hawaii.

Tautona Partners TauTona Partners II Early stage 2010 50 TauTona Partners, L.P. was fully drawn down according to figures from CPP Investment Board as of December 31, 2013.

Tenex Capital Partners

Tenex Capital Partners II

Acquisitions/Buyouts

2011 452 Tenex Capital Partners, L.P. was almost 60 percent drawn down according to figures from New Mexico EDU as of December 31, 2013.

Trident Capital Trident Capital Fund VIII

Growth equity 2010 Approx 200

Trident Capital Fund-VII was over 80 percent drawn down according to figures from Employees’ Retirement System of the State of Hawaii, as of December 31, 2013.

Vinci Capital Partners

Vinci Capital Partners III

Buyouts 2011 1,400 Vinci Capital Partners II was over 50 percent drawn down according to figures from EMAlternatives Investments, as of December 31, 2013.

WL Ross & Co LLC WLR Recovery Fund VI

Turnaround/distressed debt

2011 2,200 WLR Recovery Fund V was over 60 percent drawn down according to figures from Oregon, as of December 31, 2013.

Source: Buyouts Performance Database; Thomson One

FEATURE

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MARKET INTELLIGENCEwww.buyoutsnews.com50 | BUYOUTS | November 10, 2014

The following charts reflect transactions involving U.S.-based financial sponsors. The categories include seeking buyers, announced deals, closed transactions. The source for the data is Thomson One, a product of Thomson Reuters Markets. Please contact Paul Centopani at paul.centopani@thomsonreuters.com with questions or comments.

DEAL FLOWSeeking Buyers–U.S. Targets (October 20, 2014 - October 31, 2014)CONSUMER PRODUCTS AND SERVICES

Date Announced

Target Name Target City Target State Target Full Business Description Target Advisors Synopsis

10/22/14 Country Stone Holdings Inc

Milan Illinois Country Stone Holdings Inc, headquartered in Milan, Illinois, offers lawn and garden products including concrete, soil, mulch and decorative stone.

US - In October 2014, Country Stone Holdings Inc, a Milan- based seller of lawn and garden products, announced that it was seeking a buyer for the company, via auction. Quikrete Holdings Inc was named as a potential acquiror.

ENERGY AND POWER

Date Announced

Target Name Target City Target State Target Full Business Description Target Advisors Synopsis

10/27/14 BHP Billiton Ltd-Fayetteville

Arkansas The Fayetteville Shale assets of BHP Billiton Ltd are located in Arkansas, US.

US - In October 2014, BHP Billiton Ltd, a Melbourne- based copper and iron mining company, announced that it was seeking a buyer for its Fayetteville Shale assets.

HEALTHCARE

Date Announced

Target Name Target City Target State Target Full Business Description Target Advisors Synopsis

10/29/14 Sears Methodist-Village

Abilene Texas The Mesa Springs Retirement Village of Sears Methodist Retirement System Inc is located in Abilene, Texas.

US - In October 2014, bankrupt Sears Methodist Retirement System Inc, an Abilene-based provider of senior independent living, assisted living, and health services, announced that it was seeking a buyer for its Mesa Springs Retirement Village asset, via an auction. Rio Mesa Health Holdings LLC was named bidder.

INDUSTRIALS

Date Announced

Target Name Target City Target State Target Full Business Description Target Advisors Synopsis

10/29/14 Excelitas Technologies Corp

Waltham Massachusetts Excelitas Technologies Corp, located in Waltham, Massachusetts, manufactures and distributes optoelectronic products. It offers emitters, energetic safety systems, thermopile array modules, light emitting diodes, laser diodes, linear cameras and imagers, and photonic detectors. It was founded in 2010.

US - In October 2014, Excelitas Technologies Corp, a Waltham-based provider of lighting and sensor components to the health and defense sectors was rumored to be seeking a buyer the company. Terms were not disclosed but, according to people familiar with the transaction, the deal was valued at an estimated USD 2 bil.

MEDIA AND ENTERTAINMENT

Date Announced

Target Name Target City Target State Target Full Business Description Target Advisors Synopsis

10/22/14 Full House Resorts Inc

Las Vegas Nevada Full House Resorts Inc, headquartered in Las Vegas, Nevada, owns and operates casinos located in Nevada, Michigan, and Delaware. The company was founded in 1987.

Macquarie Capital Partners LLC

US - In October 2014, Full House Resorts Inc, a Las Vegas-based owner and operator of casinos, announced that it was seeking a buyer for the company.

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 51

MARKET INTELLIGENCE

Date Announced

Target Name Target City Target State Target Full Business Description Target Advisors Synopsis

10/27/14 Regal Entertainment Group

Knoxville Tennessee Regal Entertainment Group, located in Knoxville, Tennessee, owns and operates multi-screen theaters primarily in mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets in the United States. It operates its theatre circuit under the Regal Cinemas, United Artists, and Edwards brands. The company was founded in 2002.

US - In October 2014, Regal Entertainment Group, a Knoxville-based Knoxville owns and operates multi- screen theaters, announced that it was seeking a buyer for the company.

RETAIL

Date Announced

Target Name Target City Target State Target Full Business Description Target Advisors Synopsis

10/21/14 ALCO Stores Inc Coppell Texas ALCO Stores Inc, located in Coppell, Texas, owns and operates retail discount stores. It operates under the ALCO stores brand which is located in 23 states across Central United States. It also operates a 350,000 square-foot retail distribution facility in Abilene, Kansas. It offers apparel, automotive, candy, snack, foods, crafts, domestics, electronics, video, audio, gifts, hardware, health and beauty aids, housewares, lawn and garden, pet supplies, seasonal items, shoes and hosiery, sporting good, stationery and toys. The company was founded in 1901.

US - In October 2014, Alco Stores Inc, a Coppell-based owner and operator of discount stores, announced that it was seeking a buyer for the company, via auction. Tiger Capital Group LLC, SB Capital Group LLC and Great American Group WF LLC were named as potential acquirors.

RECENT DEALSAnnounced, Pending LBOs By U.S. Sponsors (October 20, 2014 - October 31, 2014)ENERGY AND POWER

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/24/14 Express Energy Services Operating LP

Pvd drilling services

Apollo Global Management LLC

Apollo Global Management LLC

US - Apollo Global Management LLC agreed to acquire Express Energy Services Operating LP (Express Energy), a Houston- based provider of oil and gas drilling support services, in a secondary buyout transaction. Terms were not disclosed. Previously, A management-led investor group, comprised of Wachovia Capital Partners and Macquarie Capital Group Ltd acquired Express Energy, in a leveraged buyout transaction.

10/27/14 Hess Energy Trading Co LLC

Energy trading company

Oaktree Capital Management LP

Oaktree Capital Group LLC US - Oaktree Capital Management LP, a unit of Oaktree Capital Group LLC, planned to acquire an undisclosed majority interest in Hess Energy Trading Co LLC (HETCO), a New York-based energy trading company, from Hess Corp (Hess), in a leveraged buyout transaction. Terms were not disclosed. Originally, in March 2013, Hess announced that it was seeking a buyer for its HETCO unit.

FINANCIALS

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/29/14 Philadelphia Financial Group Inc

Insurance Agencies and Brokerages

PFG Acquisition Corp

Blackstone Group LP 165.000 US - PFG Acquisition Corp, a unit of Blackstone Group LP, definitively agreed to acquire the entire share capital of Philadelphia Financial Group Inc, a Philadelphia-based provider of specialty insurance services, from Tiptree Financial Partners LP, for an estimated USD 165 mil. The consideration was to consist of an estimated USD 155 mil in cash and up to USD 10 mil in profit-related payments.

www.buyoutsnews.com52 | BUYOUTS | November 10, 2014

MARKET INTELLIGENCE

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/29/14 Hypo SEE Holding AG

Bank (non-US) Advent International Corp

Advent International Corp AUSTRIA - Advent International Corp, of the US, agreed to acquire Hypo SEE Holding AG, a Klagenfurt- based provider of banking services, from Hypo Alpe- Adria-Bank International AG (Hypo Alpe-Adria), in a leveraged buyout transaction. The terms of the deal were not dislclosed. Originally, In November 2012, Hypo Alpe- Adria announced that it was seeking a buyer for its south European business. Ivan Zilic was named a potential bidder.

HIGH TECHNOLOGY

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/23/14 Digital River Inc Provide e-commerce services

Investor Group Investor Group 574.658 US - An investor group, including Siris Capital Group LLC, definitively agreed to acquire the entire share capital of Digital River Inc, a Minnetonka-based provider of e-commerce services, for USD 26 in cash per share or a total value of USD 831.567 mil.

INDUSTRIALS

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/23/14 Proserv Group Inc

Mnfr test control systems

Riverstone Global Energy & Power Fund V LP

Riverstone Holdings LLC UK - Riverstone Global Energy and Power Fund V LP of the US, a unit of Riverstone Holdings LLC agreed to acquire the entire share capital of Proserv Group Inc (Proserv), an Aberdeen-based manufacturer of test control systems in a leveraged buyout transactions. Terms were not disclosed.

10/29/14 Precision Wire Components LLC

Mnfr medical guidewires

Creganna-Tactx Medical

Altaris Capital Partners LLC US - Creganna-Tactx Medical of Ireland definitively agreed to acquire Precision Wire Components LLC, a Tualatin-based manufacturer of precision medical guidewires and supporting components, from Riverside Co. Terms were not disclosed.

MATERIALS

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Kuraray Europe GmbH-European PVB Film Business

Plastics Material and Resin Manufacturing

GVC SA GVC Holdings Inc 15.310 GERMANY - GVC SA of Luxembourg, a unit of GVC Holdings Inc, agreed to the European PVB film business of Kuraray Europe GmbH, a Hattersheim am Main-based mananufacturer of polyvinyl alcohol and polyvinyl butyral, for an estimated EUR 12 mil (USD 15.31 mil) in cash, in a leveraged buyout transaction.

MEDIA AND ENTERTAINMENT

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Creative Artists Agency Inc

Provide talent agency services

TPG Capital LP TPG Capital LP US - TPG Capital LP agreed to raise its interest to an undisclosed majority interest from 35%, by acquiring an undisclosed minority stake, in Creative Artists Agency Inc, a Los Angeles-based provider of talent agency services, in a leveraged buyout transaction. Terms were not disclosed.

TELECOMMUNICATIONS

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/21/14 Tusmobil doo Wired Telecom-munications Carriers

Kohlberg Kravis Roberts & Co LP

KKR & Co LP SLOVENIA - Kohlberg Kravis Roberts & Co LP of the US, a unit of KKR & Co LP agreed to acquire Tusmobil doo, a Ljubljana-based provider of mobile telecommunications services, from Tus Holding doo, in a leveraged buyout transaction.

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 53

MARKET INTELLIGENCE

Closed LBOs By U.S. Sponsors (October 20, 2014 - October 31, 2014)CONSUMER PRODUCTS AND SERVICES

Date Effective/Unconditional

Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/29/14 Epidemico Inc Administrative Management and General Management Consulting Services

Booz Allen Hamilton Holding Corp

The Carlyle Group LP US - Booz Allen Hamilton Holding Corp, a unit of acquired The Carlyle Group LP, acquired Epidemico Inc, a Boston-based provider of analytics services.

10/29/14 Old Time Pottery Inc

Ret home goods,furnishings

Comvest Partners Comvest Partners US - Comvest Partners acquired Old Time Pottery Inc, a Murfreesboro-based retailer of home goods and furnishings, in a leveraged buyout transaction. Terms were not disclosed.

10/29/14 Celerion Inc Pvd clinical research svcs

MTS Health Investors LLC

MTS Health Investors LLC US - MTS Health Investors LLC acquired an undisclosed majority interest in Celerion Inc, a Lincoln-based provider of clinical research services, in a leveraged recapitalization transaction. Terms were not disclosed.

CONSUMER STAPLES

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/22/14 Hollander Sleep Products LLC

Mnfr,whl pillows,bed,bed pads

Sentinel Capital Partners LLC

Sentinel Capital Partners LLC

US - Sentinel Capital Partners LLC acquired Hollander Sleep Products LLC, a Boca Raton-based manufacturer and wholesaler of pillows, beds and bed pads, from Hollander Home Fashions Corp, a unit of HGGC LLC, in a leveraged buyout transaction. Terms were not disclosed.

10/23/14 Harrys of London Ltd

Luxury Footwear Palladin Consumer Retail Partners LLC

Palladin Consumer Ret Partners

UK- Palladin Consumer Retail Partners LLC of the US acquired an undisclosed majority interest in Harrys of London Ltd, a London-based shoemaker & accessory company, in a leveraged buyout transaction.

10/27/14 CB Fleet Co Mnfr health,beauty products

Gryphon Investors Inc

Gryphon Investors Inc US - Gryphon Investors Inc acquired an undisclosed majority interest in CB Fleet Co, a Lynchburg-based manufacturer of health and beauty products, in a leveraged buyout transaction. Terms of the transaction were not disclosed.

10/29/14 Teasdale Foods Inc

Fruit and Vegetable Canning

Snow Phipps Group LLC

Snow Phipps Group LLC US - Snow Phipps Group LLC acquired Teasdale Foods Inc, an Atwater-based producer of and wholesales canned hominy and beans goods, from Palladium Equity Partners LLC, in a leveraged buyout transaction.

ENERGY AND POWER

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 S&N Communications Inc

Pvd outside plant services

S&N Communications Inc

Sun Capital Partners Inc US - S&N Communications Inc (S&N), a unit of Sun Capital Partners Inc, acquired SCE Inc, a Chantilly-based provider of infrastructure deployment and professional services. Concurrently, S&N acquired Tower 16 Inc.

10/22/14 Flex Leasing Power and Service

Other Heavy Electrical Equipment

Recapture Solutions LLC

Intervale Capital LLC US - Recapture Solutions LLC, a unit of Intervale Capital LLC, acquired Flex Leasing Power & Service, a Greenwood Village-based provider of leasing services for natural gas powered micro-turbines.

www.buyoutsnews.com54 | BUYOUTS | November 10, 2014

MARKET INTELLIGENCE

FINANCIALS

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Alliance Assurance Inc

Insurance Brokers Hub International Atlantic Ltd

Hellman & Friedman LLC CANADA - Hub International Atlantic Ltd, a unit of Hellman & Friedman LLC's Hub International Ltd subsidiary, acquired Alliance Assurance Inc, a Grand Falls-based provider of insurance services. Terms were not disclosed.

10/21/14 Accounts Receivable Management Inc

Other Corporate Financial Services

Northland Group Inc

Mason Wells Inc US - Northland Group Inc acquired Accounts Receivable Management Inc, a Thorofare- based provider of receivable management solutions.

10/21/14 Omnisure Group LLC

Pvd payment processing svcs

Fortress Investment Group LLC

Fortress Investment Group LLC

US - Fortress Investment Group LLC, through an undisclosed affiliate, acquired an undisclosed majority interest in Omnisure Group LLC, a Chicago-based provider of payment planning services, from Lincoln Park Capital Fund LLC, in a leveraged buyout transaction.

10/23/14 Turner & Hamrick LLC

Other Multiline Insurance & Brokers

AssuredPartners Inc

GTCR LLC US - AssuredPartners Inc, a unit of GTCR LLC, acquired Turner & Hamrick LLC, a Troy- based insurance agency, in a leverage buyout transaction.

10/23/14 Bankia SA-Loan Portfolio

Consumer Lending

Investor Group Investor Group 68.353 SPAIN - An investor group, comprised of Sankaty Advisors LLC and Starwood Capital Group Global LLC of the US, acquired the loan portfolio of Valencia-based Bankia SA, a unit of Banco Financiero y de Ahorros SA, for EUR 54.04 mil (USD 68.353 mil), based on the industry standard Capitalization Rate (or Leverage Rate) of 7%.

10/24/14 Risk Transfer Inc Insurance Agencies and Brokerages

Insurance Distribution Investing Group LLC

The Capacity Group Inc US - Insurance Distribution Investing Group LLC, a joint venture between The Capacity Group Inc and Dowling Capital Management LLC, acquired a 50% interest in Risk Transfer Inc, an Orlando-based provider of insurance brokerage and consulting services.

HEALTHCARE

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/21/14 Resonetics LLC Other Advanced Medical Equipment & Technology

Sverica International LLC

Sverica International LLC US - Sverica International LLC acquired Resonetics LLC, a Nashua-based provider of laser micromachining solutions services, from Corporate Fuel Partners LP (Corporate Fuel), in a secondary buyout recapitalization transaction. Previously, Corporate Fuel acquired Resonetics LLC in a leveraged buyout transaction.

10/27/14 Collagen Matrix Inc

Surgical and Medical Instrument Manufacturing

Metalmark Capital Holdings LLC

Citigroup Inc US - Metalmark Capital Holdings LLC, a unit of Citigroup Inc, acquired an undisclosed majority interest in Collagen Matrix Inc, an Oakland-based manufacturer and wholesaler of collagen- based medical and dental equipments, in a leveraged buyout transaction. Terms were not disclosed.

HIGH TECHNOLOGY

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Worldwide Payment Systems SA

Other Professional Information Services

Onyx Payments HIG Capital LLC SPAIN - Onyx Payments of the US, a unit of HIG Capital LLC, acquired Worldwide Payment Services SA, a Sevilla-based provider of data and payment processing services. Terms were not disclosed.

10/21/14 Access Information Management

Pvd info management svcs

Berkshire Partners LLC

Berkshire Partners LLC US - Berkshire Partners LLC acquired an undisclosed majority interest in Access Information Management, a Livermore-based provider of information management services, from Summit Partners LP, in a leveraged buyout transaction. Terms were not disclosed.

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 55

MARKET INTELLIGENCE

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/22/14 Ingenious Med Inc

Develop prepackaged software

North Bridge Growth Equity

North Bridge Growth Equity

US - North Bridge Growth Equity acquired an undisclosed majority interest in Ingenious Med Inc, an Atlanta-based developer and provider of cloud-based, patient encounter platform, in a leveraged buyout transaction. Terms were not disclosed.

10/24/14 ZEMAX Development Corp

Dvlp optical system software

Arlington Capital Partners LP

Arlington Capital Partners LP

US - Arlington Capital Partners LP acquired ZEMAX Development Corp, a Redmond- based developer of optical system design software, from Radiant Zemax LLC, in a leveraged buyout transaction. Terms were not disclosed.

INDUSTRIALS

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/21/14 Titan Fastener Products Inc

Warehousing Lindstrom Metric LLC

Harbour Group Ltd US - Lindstrom Metric LLC, a unit of Harbour Group Ltd, acquired Titan Fastener Products Inc, a Brunswick- based wholesales packaged fastener products. Terms were not disclosed.

10/22/14 AccuMED Innovative Technologies Inc

Provide engineering services

AccuMED Innovative Technologies Inc SPV

AccuMED Innovative Tech SPV

US - AccuMED Innovative Technologies Inc SPV, a special acquisition vehicle formed by MVC Private Equity Fund LP, a unit of MVC Capital Inc, and Yukon Partners Management LLC, acquired an undisclosed majority interest in AccuMED Innovative Technologies Inc, a Buffalo-based provider of engineering services, in a leveraged buyout transaction. Terms were not disclosed.

10/23/14 Vehicle Safety Manufacturing LLC

Lighting Equipment

Rostra Precision Controls Inc

Superior Capital Partners LLC

US - Rostra Precision Controls Inc, a unit of Superior Capital Partners LLC's Aftermarket Controls Holdings Corp subsidiary, acquired Vehicle Safety Manufacturing LLC, a Newark- based manufacturer of turn- signal switches and lighting products. Terms of the deal were not disclosed.

10/23/14 Peterson Industries Inc

Flooring & Interior Tile Manufacturers

Aldora Glass Holdings

Superior Capital Partners LLC

US - Aldora Glass Holdings, a unit of Superior Capital Partners, acquired Peterson Industries Inc, a Miami-based manufacturer of framed and frameless shower doors, mirror doors, closet doors and glass enclosures. Terms of the deal were not disclosed.

10/29/14 Terratest Tecnicas Especiales SA

Provide engineering services

Platinum Equity LLC

Platinum Equity LLC SPAIN - Platinum Equity LLC of the US acquired an undisclosed majority interest in Terratest Tecnicas Especiales SA, a Madrid-based ground engineering company, in a leveraged buyout transaction. Terms were not disclosed.

MATERIALS

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Optimum Plastics Inc

Plastics Bloomer Plastics Inc

Huron Capital Partners LLC US - Bloomer Plastics Inc, a unit of Huron Capital Partners LLC, acquired Optimum Plastics Inc, a Delaware-based manufacturer of coextruded blown films.

10/20/14 Cool Polymers Inc

Synthetic Rubber Manufacturing

Celanese Corp Blackstone Group LP US - Celanese Corp, a unit of Blackstone Group LP, acquired Cool Polymers Inc, a North Kingstown-based manufacturer of conductive plastics. Terms of the deal were not disclosed.

10/21/14 OWA Inc Other Pressed and Blown Glass and Glassware Manufacturing

Investor Group Investor Group US - An investor group, comprised of Gladstone Investment Corp and Doug Lauer, acquired OWA Inc, a Spokane-based manufacturer and wholesaler of blown glass Christmas ornaments.

www.buyoutsnews.com56 | BUYOUTS | November 10, 2014

MARKET INTELLIGENCE

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/22/14 Pro Mach Inc Manufacture packaging products

AEA Investors LP AEA Investors LP US - AEA Investors LP (AEA), through undisclosed affiliates, acquired Pro Mach Inc (Pro Mach), a Loveland- based manufacturer of packaging products, in a secondary buyout transaction. Terms were not disclosed. Previously, in May 2014, The Resolute Fund II LP (Resolute Fund), a unit of The Jordan Co LP, was rumored to be seeking a buyer for its Pro Mach unit. AEA was named to be a potential bidder. Originally, Resolute Fund acquired Pro Mach in a leveraged buyout transaction.

10/24/14 Addipel LLC Other Specialty Chemicals

Maroon Inc CI Capital Partners LLC US - Maroon Group LLC, a unit of CI Capital Partners LLC, acquired Addipel LLC, an Avon Lake-based manufacturer of custom blends.

10/30/14 Aliplast Belgium SA/NV

Mnfr aluminum window,door sys

Advent International SARL

Advent International Corp BELGIUM - Advent International Corp of the US acquired Aliplast Belgium SA/ NV, a Lokeren-based manufacturer of aluminium window and door systems, from Sagard SAS, Ergon Capital Partners SA and management, in a leveraged buyout transaction.

MEDIA AND ENTERTAINMENT

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/23/14 Kennedy Cablevision Inc

Pvd cable TV services

Hargray Communications Group

Quadrangle Group LLC US - Hargray Communications Group, a unit of Quadrangle Group LLC, acquired Kennedy Cablevision Inc, a Reidsville- based provider of cable television services, from Pineland Telephone Coop Inc. Terms were not disclosed.

10/30/14 OpenTV Corp-Advanced Advertising Business Unit

Advertising Material Distribution Services

Imagine Communications Inc

The Gores Group LLC US - Imagine Communications Inc, a unit of The Gores Group LLC, acquired the advanced advertising business unit of OpenTV Corp, a San Francisco-based provider of software solutions services, from Kudelski SA.

REAL ESTATE

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 American Realty Capital Properties Inc-Multi-Tenant Shopping Center Portfolio

Lessors Of Nonresidential Buildings (Except Miniwarehouses)

BRE DDR Retail Holdings III LLC

Blackstone Group LP 1,982.800 US - BRE DDR Retail Holdings III LLC (BRE DDR), a joint venture between Blackstone Real Estate Partners VII LP (Blackstone), a wholly-owned unit of Blackstone Group LP, and DDR Corp, acquired the multi-tenant shopping center portfolio of American Realty Capital Properties Inc (ARC), a New York-based real estate investment trust, for a sweetened USD 1.983 bil in cash, including the assumption of USD 461 mil in liabilities. Originally, BRE DDR offered USD 1.514 bil in cash, including the assumption of USD 461 mil in liabilities and Blackstone signed a Letter of Intent {LoI} to acquire the multi- tenant shopping center portfolio of ARC.

10/24/14 Canal Center, Alexandria, Virginia

Lessors Of Nonresidential Buildings (Except Miniwarehouses)

Investor Group Investor Group 176.000 US - An investor group, including American Real Estate Partners Management LLC and Investcorp Bank BSC, acquired Canal Center, an Alexandria-based owner and operator of an office building, for USD 176 mil.

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 57

MARKET INTELLIGENCE

RETAIL

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Sleep Train Inc Retail mattresses Mattress Firm Holding Corp

JW Childs Associates LP 440.000 US - Mattress Firm Holding Corp (Mattress) acquired the entire share capital of Sleep Train Inc (Sleep), a Rocklin- based retailer of mattresses, for an estimated USD 440 mil. The consideration was to consist of an estimated USD 425 mil and the assumption of USD 15 mil in liabilities. Originally, in January 2014, Mattress was rumored to be planning to acquire Sleep.

10/21/14 Summit Catering Ltd

Banquet Halls & Catering

Royal Camp Services Ltd

Hammond Kennedy Whitney & Co

CANADA - Royal Camp Services Ltd, a unit of Hammond Kennedy Whitney & Co Inc, acquired Summit Catering Ltd, a Smithers-based provider of catering and camp services. Terms were not disclosed.

10/27/14 Starbucks Coffee Japan Ltd

Own, op coffee stores

Solar Japan Holdings Godo Kaisha

Starbucks Corp 408.306 JAPAN - A SPAV, Solar Japan Holdings Godo Kaisha, formed by SCI Ventures LS of Spain, an ultimate parent of Starbucks Corp, acquired the remaining 21.05% stake, or 30. 303 mil ordinary shares, in Starbucks Coffee Japan Ltd (Starbucks Coffee Japan), a Shibuya, Tokyo-based owner and operator of coffee stores, for a total value of JPY 44. 526 bil (USD 408.307 mil) in a tender offer transaction. Starbucks Coffee Japan delisted from Tokyo Stock Exchange. The transaction launched upon the completion of acquiring a 39.475% stake in Starbucks Coffee Japan.

10/27/14 Starbucks Coffee Japan Ltd

Own, op coffee stores

Solar Japan Holdings Godo Kaisha

Starbucks Corp 314.742 JAPAN - A SPAV, Solar Japan Holdings Godo Kaisha, formed by SCI Ventures LS of Spain, an ultimate parent of Starbucks Corp of United raised its interest to 78.95% from 39.475% by acquire a 39. 475% stake, or 57 mil ordinary shares in Starbucks Coffee Japan Ltd (Starbucks Coffee Japan), a Shibuya, Tokyo-based owner and operator of coffee stores, for JPY 965 (USD 8.866) in cash per share, or a total value of JPY 55.005 bil (USD 505.386 mil). Solar Japan Holdings Godo Kaisha received an irrevocable undertaking of a 39.475% stake, or 57 mil Starbucks Coffee Japan ordinary shares, from Sazaby League Ltd, a unit of AHA. Subsequently, Solar Japan Holdings Godo Kaisha planned to acquire the remaining 21. 05 % stake, or 87.221 mil ordinary shares and 1,728 options convertible into 0. 173 mil newly issued ordinary shares, which it did not already own, in Starbucks Coffee Japan. Upon completion, Starbucks Coffee Japan was to be listed from Tokyo Stock Exchange.

TELECOMMUNICATIONS

Rank Date Target Name Target Short Business Description

Acquiror Full Name

Acquiror Ultimate Parent Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Tower 16 Inc Telecommunica-tions Network Infrastructure

S&N Communications Inc

Sun Capital Partners Inc US - S&N Communications Inc (S&N), a unit of Sun Capital Partners Inc, acquired Tower 16 Inc, a Joppa-based provider of infrastructure construction management services. Concurrently, S&N acquired SCE Inc.

www.buyoutsnews.com58 | BUYOUTS | November 10, 2014

MARKET INTELLIGENCE

RECENT TRANSACTIONSNon-Control Deals, U.S. Sponsors (October 20, 2014 - October 31, 2014)CONSUMER PRODUCTS AND SERVICES

Rank Date Target Name Target Short Business Description

Target Advisors

Acquiror Full Name Acquiror Ultimate Parent

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Kalyan Jewellers India Pvt Ltd

Jewelry (Except Costume) Manufacturing

Axis Capital Ltd

Warburg Pincus LLC Warburg Pincus LLC

196.020 INDIA - Warburg Pincus LLC (Warburg Pincus) of the US acquired a 10% stake in Kalyan Jewellers India Pvt Ltd (Kalyan Jewellers), a Thrichur-based manufacturer and retailer of jewelry, for INR 12 bil (USD 196.02 mil), in a privately negotiated transaction. Originally, in August 2014, Warburg Pincus was rumored to be planning to acquire a 10% stake in Kalyan Jewellers.

10/23/14 NUBA Expediciones SL

Travel Agencies Springwater Capital LLC

Springwater Capital LLC

SPAIN - Springwater Capital LLC of Switzerland, a unit of Springwater Capital LLC, acquired a 40% stake in NUBA Expediciones SL, a Madrid- based travel agency, in a privately negotiated transaction.

10/29/14 Laurus Labs Ltd Provide research services

Warburg Pincus LLC Warburg Pincus LLC

89.760 INDIA - Warburg Pincus LLC of the US acquired a 32.29% stake in Laurus Babs Ltd, a Hyderabad-based provider of clinical research services, for an estimated INR 5.5 bil (USD 93.368 mil) in a privately negotiated transaction.

FINANCIALS

Rank Date Target Name Target Short Business Description

Target Advisors

Acquiror Full Name Acquiror Ultimate Parent

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 Caja de Seguros Reunidos Cia de Seguros y Reaseguros SA{CASER}

Insurance company

Apollo Global Management LLC

Apollo Global Management LLC

SPAIN - Apollo Global Management LLC of the US planned to acquire a 30% stake in Caja de Seguros Reunidos Cia de Seguros y Reaseguros SA {CASER}, a Madrid-based insurance company, in a privately negotiated transaction.

HEALTHCARE

Rank Date Target Name Target Short Business Description

Target Advisors

Acquiror Full Name Acquiror Ultimate Parent

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/22/14 Bavarian Nordic A/S

Manufacture vaccines

Johnson & Johnson Development Corp

Johnson & Johnson

42.627 DENMARK - Johnson & Johnson Development Corp of the US, a unit of Johnson & Johnson, acquired a 4.853% stake, or 1. 332 mil newly issued ordinary share, in Bavarian Nordic AS, a Kvistgaard-based manufacturer of vaccines, for DKK 188.44 (USD 32.002) in cash per share, or for a total value of DKK 250.999 mil (USD 42.627 mil) in cash, in a privately negotiated transaction.

HIGH TECHNOLOGY

Rank Date Target Name Target Short Business Description

Target Advisors

Acquiror Full Name Acquiror Ultimate Parent

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/28/14 Tinder Inc Software Reproducing

Benchmark Capital Benchmark Capital US - Benchmark Capital acquired an undisclosed minority stake in Tinder Inc, a Dallas-based developer of mobile dating application software and a unit of IAC/ InterActiveCorp, in a privately negotiated transaction.

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 59

MARKET INTELLIGENCE

EXITSU.S. Sponsor Sales Via M&A (October 20, 2014 - October 31, 2014)CONSUMER PRODUCTS AND SERVICES

Date Effective Target Name Target Ultimate Parent

Acquiror Full Name

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/22/14 Hollander Sleep Products LLC

HGGC LLC Sentinel Capital Partners LLC

US - Sentinel Capital Partners LLC acquired Hollander Sleep Products LLC, a Boca Raton-based manufacturer and wholesaler of pillows, beds and bed pads, from Hollander Home Fashions Corp, a unit of HGGC LLC, in a leveraged buyout transaction. Terms were not disclosed.

10/29/14 Teasdale Foods Inc

Palladium Equity Partners LLC

Snow Phipps Group LLC

US - Snow Phipps Group LLC acquired Teasdale Foods Inc, an Atwater-based producer of and wholesales canned hominy and beans goods, from Palladium Equity Partners LLC, in a leveraged buyout transaction.

Rank Date Target Name Target Short Business Description

Target Advisors

Acquiror Full Name Acquiror Ultimate Parent

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/28/14 MXC Solutions India Pvt Ltd

Internet Service Providers

Highdell Investment Ltd

Warburg Pincus LLC

21.251 INDIA - Highdell Investment Ltd of Mauritius, a unit of Warburg Pincus LLC, acquired a 23% stake in MXC Solutions India Pvt Ltd, a Mumbai-based provider of ecommerce services, for INR 1.3 bil (USD 21.251 mil), in a privately negotiated transaction.

MEDIA AND ENTERTAINMENT

Rank Date Target Name Target Short Business Description

Target Advisors

Acquiror Full Name Acquiror Ultimate Parent

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/21/14 RentPath Inc Periodical Publishers

Moelis & CoBank of America Merrill Lynch

Providence Equity Partners LLC

Providence Equity Partners LLC

US - Providence Equity Partners LLC (Providence) agreed to acquire an undisclosed minority stake in RentPath Inc (RentPath), a Norcross-based publishing company, from TPG Capital LP (TPG). Originally, in May 2014, TPG was rumored to be seeking a buyer for its RentPath unit. Providence was named as rumored potential bidder.

RETAIL

Rank Date Target Name Target Short Business Description

Target Advisors

Acquiror Full Name Acquiror Ultimate Parent

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 TelePizza SA Own,operate restaurants

Morgan Stanley

Investor Group Investor Group SPAIN - An investor group, comprised of KKR & Co LP of the US and other undisclosed funds, acquired a 49% stake in TelePizza SA, a Madrid- based owner and operator of restaurants, from Foodco Patries Spain SL, a unit of Permira Advisers LLP, in a privately negotiated transaction.

10/22/14 Tokopedia PT Pvd e-commerce retail svcs

Investor Group Investor Group 100.000 INDONESIA - An investor group comprised of Softbank Internet & Media Inc, a unit of Softbank Corp, and Sequoia Capital Operations LLC, definitively agreed to acquire an undisclosed minority interest in Tokopedia PT, a Jakarta-based provider of e-commerce retail services, for an estimated IDR 1204.819 bil (USD 100 mil) , in a privately negotiated transaction.

10/27/14 Stonewall Kitchen

All Other Specialty Food Stores

Centre Partners Centre Partners US - Centre Partners acquired an undisclosed minority stake in Stonewall Kitchen, a York- based retailer and wholesaler of specialty foods, in a privately negotiated transaction. Terms of the deal were not disclosed.

www.buyoutsnews.com60 | BUYOUTS | November 10, 2014

MARKET INTELLIGENCE

ENERGY AND POWER

Date Effective Target Name Target Ultimate Parent

Acquiror Full Name

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/20/14 S&N Communications Inc

Sun Capital Partners Inc

S&N Commu-nications Inc

US - S&N Communications Inc (S&N), a unit of Sun Capital Partners Inc, acquired SCE Inc, a Chantilly-based provider of infrastructure deployment and professional services. Concurrently, S&N acquired Tower 16 Inc.

10/24/14 Vantage Pipeline Canada ULC

Riverstone Holdings LLC

Pembina Pipeline Corp

617.983 CANADA - Pembina Pipeline Corp (Pembina) acquired the entire share capital of Vantage Pipeline Canada ULC, a Calgary-based owner and operator of high-vapor- pressure pipeline, from Riverstone Holdings LLC. The transaction included Vantage Pipeline US LP. Concurrently, Pembina acquired the entire share capital of Mistral Midstream Inc. The transactions have a combined value of CAD 675.332 mil (USD 617.984 mil). The consideration consisted of CAD 395 mil (USD 361.457) in cash and the issuance of 5.61 mil common shares, valued at CAD 280.332 (USD 256.527 mil). The shares were valued based on Pembina's closing stock price of CAD 49.97 (USD 45. 971) on 29 August 2014, the last full trading day prior to the announcement.

HEALTHCARE

Date Effective Target Name Target Ultimate Parent

Acquiror Full Name

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/23/14 CCHN Group Holdings Inc

Welsh Carson Anderson & Stowe

Providence Service Corp

400.000 US - Providence Service Corp (Providence) acquired the entire share capital of CCHN Group Holdings Inc, a Scottsdale-based provider of medical assessment services, from Welsh Carson Anderson & Stowe Co, for USD 400 mil. The consideration was to consist of USD 360 mil in cash and the issuance of 0. 947 mil common shares, valued at USD 40 mil. The shares were valued based on Providence's closing stock price USD 42.25 on 17 September 2014, the last full trading day prior to the announcement.

MATERIALS

Date Effective Target Name Target Ultimate Parent

Acquiror Full Name

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/21/14 Furniture Brands International Inc- Thomasville Plant

KPS Capital Partners LP

Y&Y Hardwood Lumber Inc

.365 US - Y&Y Hardwood Lumber Inc acquired the Thomasville plant of bankrupt Furniture Brands International Inc, a St. Louis-based manufacturer and wholesaler of furniture, for USD 0.365 mil.

10/22/14 Pro Mach Inc The Jordan Co LP AEA Investors LP

US - AEA Investors LP (AEA), through undisclosed affiliates, acquired Pro Mach Inc (Pro Mach), a Loveland- based manufacturer of packaging products, in a secondary buyout transaction. Terms were not disclosed. Previously, in May 2014, The Resolute Fund II LP (Resolute Fund), a unit of The Jordan Co LP, was rumored to be seeking a buyer for its Pro Mach unit. AEA was named to be a potential bidder. Originally, Resolute Fund acquired Pro Mach in a leveraged buyout transaction.

10/24/14 Momentive Performance Materials Inc

Apollo Global Management LLC

Creditors US - Momentive Performance Materials Inc (MPM), a Albany- based manufacturer of silicones and products derived from quartz, a unit of Apollo global management LLCs Apollo Management LP subsidiary, completed its debt restructuring transaction with Creditors (CRs). CRs received new common stock and cash in exchange of outstanding debt. On completion, CRs held an undisclosed interest in the restructured MPM. The book value of the existing debt that was exchanged under the terms of the offer was USD 4. 160 bil.

MEDIA AND ENTERTAINMENT

Date Effective Target Name Target Ultimate Parent

Acquiror Full Name

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/21/14 Cineworld Group PLC

Blackstone Group LP

Global City Holdings NV

10.701 UK - Global City Holdings NV of the Netherlands, a subsidiary of Israel Theatres Ltd's IT International Theatres Ltd unit acquired a 29.047 stake or 76,626,344 ordinary shares in Cineworld Group PLC, a London-based provider of movie theater services, from Cine UK Ltd, for GBP 6.65 mil (USD 10.701 mil)D AMOUNT) in cash, in a privately negotiated transaction.

10/21/14 HelloWorld Inc Catterton Partners Corp

Life360 Inc US - Life360 Inc acquired HelloWorld Inc, a Pleasant Ridge-based provider of online interactive promotion services, from Catterton Partners Corp. Terms were not disclosed.

10/28/14 Marketing Advocate LLC

Teakwood Capital LP

Zift Solutions Inc

US - Zift Solutions Inc acquired Marketing Advocate LLC, a Centerville-based provider of marketing platform and automated solutions to technology companies, from Teakwood Capital LP. Terms of the deal were not disclosed.

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 61

MARKET INTELLIGENCE

IPOsU.S. Sponsor Sales Via IPOs (October 20, 2014 - October 31, 2014)

IPO Date Company Name Company Industry IPO Size ($Mil)

Post Offer Value ($ Mil)

IPO Price

IPO Shares (Mil)

Company Ticker

Firm(s) Invested in Company

10/21/14 Anchor BanCorp Wisconsin Inc

Commercial Banking 10.0 242.0 26.000 9.3 ABCW Bridge Equities III, Capital Z Partners III, Castle Creek Capital Partners V and EJF Capital LLC

10/30/2014 Boot Barn Holdings Inc

Non-High-Technology 80.0 398.9 16.000 5.0 BOOT Freeman Spogli & Co LLCMarwit Capital CorpCapitalSouth Partners LLCFifth Street Capital LLC

REAL ESTATE

Date Effective Target Name Target Ultimate Parent

Acquiror Full Name

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/22/14 Valad Property Group-Certain Assets

Blackstone Group LP

Investor Group 120.998 AUSTRALIA - An investor group comprised of Prudential Property Investment Managers Ltd, a unit of M&G Investment Management Ltd, and PropertyLink Holdings Ltd, acquired certain assets, from Valad Property Group, a Melbourne-based real estate investment firm, for AUD 138 mil (USD 120.998 mil).

RETAILS

Date Effective Target Name Target Ultimate Parent

Acquiror Full Name

Ranking Value inc. Net Debt of Target ($Mil)

Synopsis

10/21/14 New York Sand & Stone LLC

Madison Dearborn Partners LLC

Eastern Concrete Materials Inc

US - Eastern Concrete Materials Inc, a unit of US Concrete Inc, acquired New York Sand & Stone LLC, a Brooklyn-based wholesaler and retailer of dredged san and other products used for road and building construction.

www.buyoutsnews.com62 | BUYOUTS | November 10, 2014

INSIGHT: U.S. sponsor-led LBO activity in South Atlantic region of the United StatesThe following tables reflect closed deals by U.S. buyout firms in the South Atlantic region of the U.S. The report covers: Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia. The source for the data is Thomson One, a product of Thomson Reuters. Please contact David Toll of david.toll@thomsonreuters.com with questions or comments.

Consumer Products and Services Industrials High Technology Healthcare Materials Media and Entertainment Financials Retail Consumer Staples Energy and Power Real Estate Telecommunications

114 141

214 258

188

115

187 194

258 220

184

887

1,123

1,456

1,675

1,265

772

1,095 1,244

1,606 1,503

1,409

50

100

150

200

250

300

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sout

h A

tlant

ic

Glo

bal

South Atlantic Global

13.8 11.8 16.7 51.0 13.6 5.5 20.7 30.3 17.3 21.8 15.0

124.5 181.2

318.2

602.7

160.8

37.9 94.2 125.4 115.6 160.0 111.5

0

10

20

30

40

50

60

0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 So

uth

Atla

ntic

Glo

bal

South Atlantic Global

Number of Deals, 2004 - 2014

Deal Volume, 2004 - 2014 (US$B)

LBO Deals In The Energy And Power Sector (2004 - 2014)

There were 14,035 transactions worldwide by U.S.-based financial sponsors with a total disclosed valuation of about $2.0 trillion from Jan. 1, 2004 through Oct. 31 2014. From this tally, 2073 transactions took place in South Atlantic region and those with reported finan-cial details combined for about $217.5 billion.

The consumer products and services category accounted for the most transactions that were sponsored by U.S.-based firms in South Atlantic region. The sector represented 340 of the 2071 deals, or 16.9 percent market share.

Sector Number of Deals PercentConsumer Products and Services 340 16.9%Industrials 320 15.9%High Technology 316 15.7%Healthcare 186 9.2%Materials 171 8.5%Media and Entertainment 160 7.9%Financials 157 7.8%Retail 135 6.7%Consumer Staples 102 5.1%Energy and Power 81 4.0%Real Estate 53 2.6%Telecommunications 49 2.4%Government and Agencies 1 0.0%

www.buyoutsnews.com November 10, 2014 | BUYOUTS | 63

INSIGHT: U.S. sponsor-led LBO activity in South Atlantic region of the United StatesTen Largest LBO Deals By U.S.-Based Sponsors In the South Atlantic Region of the U.S. (2004 to 2014)Date Target Name (State) Value ($Mil) Business Description Acquirer (s)

06/29/11 Centro Properties Group US 9,400.000 Other Real Estate Blackstone Group LP

08/30/07 Home Depot Supply 8,500.000 Home Improvement Retailing HD Supply SPV, a SPV created by Bain Capital Partners LLC, Carlyle Group LLC, and Clayton Dubilier & Rice Inc

07/03/07 US Foodservice Inc 7,100.000 Food and Beverage US Foodservice SPV, a SPV created by Clayton Dubilier & Rice Inc and Kohlberg Kravis Roberts & Co

09/30/13 Apache Corp-Shelf Assets 5,250.000 Oil & Gas Riverstone Holdings LLC

02/01/13 El du Pont de Nemours & Co-Performance Coatings Unit

4,900.000 Chemicals The Carlyle Group LP

07/13/06 CarrAmerica Realty Corp 4,797.235 REITs Blackstone Group LP

02/03/05 LNR Property Corp 3,959.933 Residential Cerberus Capital Management LP

10/15/10 Burger King Holdings Inc 3,940.575 Food & Beverage Retailing 3G Capital

10/08/10 Extended Stay America Inc 3,925.000 Hotels and Lodging Extended Stay America Inc SPV, a special purpose acquisition vehicle formed by Centerbridge Partners LP, Blackstone Group LP, and Paulson & Co Inc

07/20/07 Laureate Education Inc 3,704.229 Educational Services A management-led investor group including Kohlberg Kravis Roberts & Co, Citigroup Private Equity,Bregal Investments, Caisse de Depot & Placement du Quebec, Sterling Capital Corp and Southern Cross Capital

Ten Largest M&A Exits By U.S.-Based LBO Sponsors In the South Atlantic Region of the U.S. (2004 to 2014)Date Target Name Value ($mil) Industry Acquirer

06/12/07 Blackstone Group's Extended Stay America Inc 8,000.000 Hotels and Casinos Lightstone Group LLC

07/16/14 Hellman & Friedman's Sheridan Healthcare Inc 2,368.014 Health Services AmSurg Corp

10/01/12 Fortress Investment Group's RailAmerica Inc 1,976.099 Transportation and Shipping (except air) Genesee & Wyoming Inc

03/11/14 JLL Partners's Patheon Inc 1,964.378 Drugs DSM Pharmaceutical Products

05/31/07 Welsh Carson Anderson & Stowe's AmeriPath Inc 1,928.207 Health Services Quest Diagnostics Inc

06/08/11 Apollo Global Management's Hughes Communications Inc 1,881.053 Telecommunications Broadband Acquisition Corp

08/04/08 Platinum Equity's PNA Group Inc 1,693.303 Wholesale Trade-Durable Goods Reliance Steel & Aluminum Co

12/18/13 Leanard Green & Partners's Brickman Group Ltd 1,600.000 Agriculture, Forestry, and Fishing KKR & Co LP

08/01/07 Welsh Carson Anderson & Stowe's US Investigations Services Inc 1,500.000 Business Services Providence Equity Partners LLC

07/31/07 Blackstone Group's Global Tower Partners 1,425.000 Telecommunications Investor Group

10 of the Largest IPOs By Companies Backed by U.S.-Based LBO Financial Sponsors In the South Atlantic Region of the U.S. (2004 to 2014)IPO Date Company Name Company

TickerFirm(s) Invested in Company Industry IPO Size

($Mil)Post Offer * Value ($ Mil) **

Total Return Since IPO **

12/12/2013 Hilton Worldwide Inc HLT Blackstone Group LP Hotels and Resorts 2352.8 19692.3 26.2%

11/13/2013 Extended Stay America, Inc. STAY Blackstone Group LPCenterbridge Partners LPLightstone Group LLC

Hotels and Resorts 565.0 4093.8

01/18/2013 NCL Corporation, Ltd. NCLH Apollo Management LPTPG Capital Management LP

Travel Agencies and Services 447.1 3876.0 105.3%

06/27/2013 HD Supply Holdings, Inc. HDS Carlyle Group LPClayton Dubilier & Rice LLCTrilantic Capital Management LPBain Capital IncPliant CorpMerrill Lynch Venture Capital Inc

Distribution of Building Products & Systems

957.4 3451.5 60.2%

10/25/2013 CommScope Inc CTV Carlyle Group LP Communications Processors/Network Management

576.9 2833.1 43.6%

01/28/2011 BankUnited Inc BKU Blackstone Group LPCarlyle Group LPWL Ross & Co LLCCenterbridge Partners LP

Banking 783.0 2618.2 10.7%

04/19/2013 Seaworld Parks & Entertainment Inc SEAS Blackstone Group LP Amusement & Recreational Facilities 702.0 2503.9 -28.7%

10/01/2009 Talecris Biotherapeutics Holdings Corporation

TLCR Ampersand Capital PartnersCerberus Capital Management LP

Other Therapeutic Proteins (incl. hormones & TPA)

950.0 2275.9

11/17/2010 Booz Allen Hamilton Holding Corporation BAH Carlyle Group LPApollo Management LP

Consulting Services 238.0 2050.6 55.0%

09/25/2014 Travelport LLC TVPT Blackstone Group LPTechnology Crossover Ventures LPOne Equity Partners LLC

Travel Agencies and Services 480.0 1921.7 -9.8%

* The post offer value represents the value of all shares outstanding (primary shares, management shares, etc.) at the offer date.** Percentage change between the IPO price and the market share close on Oct. 31 2014.Source: Thomson One, a product of Thomson Reuters

ON THE MOVEwww.buyoutsnews.com64 | BUYOUTS | November 10, 2014

PRIVATE EQUITY FIRMS

Baceline Inves tment s has hired Mar ty Turco as director of business development. Turco is a former NHL player who served as a goaltender at a number of teams that included the Dal-las Stars.

Nathan Elliott has joined Balance Point Capital Partners as a VP. Most recently, Elliott worked at Jefferies Finance where he was a VP responsible for the due diligence and underwriting of syndicated loan and bridge financings mainly for sponsor-led LBO transactions. Westport, Conn.-based Balance Point provides capital to lower middle market companies.

Balderton Capital has hired Nicolas Debock as a principal. Previously, Debo-ck worked at French venture firm XAnge.

Castanea Par tners has hired Tim Burke as a partner. Prior to Castanea, Burke was co-founder and partner of Glenbrook Consumer Partners, a San Francisco-based fund. Prior to Glen-brook, Burke was a partner with Rose-wood Capital.

Lightyear Capital has hired Martin Sullivan as an operating partner. Sul-livan is the former president and CEO of AIG.

MVC Capital has hired four debt investment professionals from Fifth Third Bancorp’s Mezzanine Finance Group. The team includes David Williams, Harrison Mullin, David Gardner and Scott Foote. The new members will join The Tokarz Group Advisers, the external managers of business development company MVC and be based in Cincinnati, Ohio.

Norwest Venture Partners announced that it has hired Sean Jacobsohn as prin-cipal. Jacobsohn was previously a venture partner at Emergence Capital Partners, which he joined in 2012. At Norwest, he will continue to focus on early and late-stage enterprise companies, includ-ing SaaS, healthcare IT, mobile business applications, and B2B marketplaces.

Paine & Par tners has hired Rob -ert Berendes as an operating director. Berendes is currently a venture partner at Flagship Ventures.

Palamon Capital Par tners sa id it named Ali (Alexandre) Rahmatollahi as Associate Partner and Christian Beck as a member of the firm’s board of advisors. Rahmatollahi joins Palamon from Mor-gan Stanley where he was most recently an Executive Director with responsibility for Financial Sponsor coverage. Beck has been CEO of several growth businesses including Banqsoft ASA, Sakhalin Petro-leum and Small Shops Gruppen, a War-burg Pincus portfolio company.

Omaha, Nebraska-based pr ivate investment fund Prairie Ventures has hired Craig Tuttle as president. Tuttle is the former president of Duke Scientific, which he sold to Fisher Healthcare (now ThermoFisher).

TSG Consumer Partners has appoint-ed Paula Sutter as CEO of TSG Fashion. Previously, Sutter was president of Diane von Furstenberg.

PORTFOLIO COMPANIES

Aqua Terra Water Management said that current board member Mark Harris has been hired to serve as CEO of Aqua Terra. Aqua Terra, a merchant operator of salt water disposal facilities, is backed by Bregal Partners.

Cryptzone, which is backed by Medi-na Capital, said that Andy Jones has joined the company as chief financial officer. Jones was previously the CFO at Integrity Interactive. Boston-based Cryptzone provides data security, iden-tity and access management services.

Duff & Phelps, which is backed by The Carlyle Group, said it has added three managing directors. Richard Newby and Shiv Mahalingham have joined the Lon-don office and Christopher Newman has joined the Silicon Valley office. The MDs are joining Duff & Phelps cross-border pricing team.

Santa Barbara, Calif.-based Invoca, a provider of enterprise inbound call marketing solutions, has hired Cynthia Stephens as chief financial officer. Previ-ously, Stephens worked at Harvest Power where she served as senior vice president and CFO. Invoca is backed by Salesforce Ventures, Accel Partners, Upfront Ven-tures and Rincon Venture Partners.

NYLON Media, which is backed by Diversis Capital, has named Paul Greenberg as CEO. The appointment is effective immediately. Greenberg is the former CEO of CollegeHumor. Based in New York City, NYLON Media is a maga-zine publisher and digital media firm.

ProNAi Therapeutics, a developer of nucleic acid therapeutics, has expanded its senior management team with five additions. Joining the firm are Dr. Angie You as chief business and strategy offi-cer and head of commercial; Wendy Chapman as senior vice president of clinical operations; Chandra Lovejoy as senior vice president of global regulatory affairs and quality; Emma McCann as vice president of program management; and James Smith as vice president of cor-porate affairs. ProNAi’s backers include Vivo Capital, Frazier Healthcare Ven-tures, OrbiMed Advisors, Adams Street Partners, RA Capital Management, Cax-ton Alternative Management, Hopen Life Science Ventures, Sectoral Asset Man-agement and Janus Capital Management.

Raze Therapeutics has hired Dr. Mikel Moyer as vice president of molecular dis-covery. The appointment becomes effec-tive November 1. Based in Cambridge, Mass., Raze Therapeutics is a biotech firm focused on developing new cancer drugs. Its backers include Atlas Venture, MPM Capital, MS Ventures, Par tners Innovation Fund, Astellas Venture Man-agement and Novartis.

Teak wood Capital has hired Bob Mosteller as managing director of finance and chief financial officer. Pre-viously, Mosteller worked at Silver Creek Ventures where he served as CFO.

TrialScope has hired Richard Aguinal-do as chief financial officer. Previously, Aguinaldo worked at Activu Corp. where he served as CFO. Based in Jersey City,

ON THE MOVEwww.buyoutsnews.com November 10, 2014 | BUYOUTS | 65

NJ, TrialScope is a provider of clinical trial solutions. It is backed by Edison Ventures, Dublin Capital Partners and NewSpring Capital.

WideOrbit has named Brian Burdick as executive vice president. Burdick is a former chief technology officer at AdECN. Headquartered in San Francisco, WideOrbit is a provider of advertising management solutions for media com-panies. WideOrbit’s backers include May-field Field, Khosla Ventures, Greycroft Partners and Hearst Ventures.

Healthcare communication tech firm Voalte has hired Suzanne Shifflet as chief financial officer. Previously, Shifflet worked at an unidentified contract reha-bilitation company where she served as COO and CFO. Voalte is backed by Bed-ford Funding.

SERVICE PROVIDERS

Dallas-based financial services firm Esposito Securities has added Thomas Zipser to its investment banking team. Prior to joining Esposito, Zipser worked at G.C. Andersen Partners where he served as vice president to its merchant banking department.

Hastings, a global infrastructure manager headquartered in Australia, has made three hires. The firm has added Antonio Botija and Daniel Lee to its glob-al investments team in London and New York, respectively. Also, Anne-Noelle Le Gal has joined the firm’s global asset management team in London. Previously, Botija worked at Infracapital Partners, the infrastructure equity investment arm of M&G Investments while Lee was an investment banking analyst in the Goldman Sachs public sector and infra-structure group. And prior to Hastings, Le Gal worked at Core Capital.

Global law firm Kirkland & Ellis has hired private equity and M & A attorney Douglas Ryder as a corporate partner in its New York office. Prior to joining Kirkland & Ellis, Ryder worked at Weil Gotshal & Manges.

Placement agent MVision has named

Michelle Paisley and Dennis Kwan as managing directors for its Hong Kong office. Previously, Paisley worked at Mac-quarie Bank where she most recently served as division director in Asian equi-ties while Kwan is a former principal at Sumitomo Mitsui Trust Limited – Hong Kong.

National Philanthropic Trus t has appointed Suzanne Yoon, a managing director for Versa Capital Management, to its board of trustees. Also joining the board are Paul Schreiber of Shearman & Sterling and Rosalyn McPherson, CEO of the Urban League of Philadelphia.

One, Inc., an insurance software pro-vider, has appointed Dr. Ta-lin Hsu as board chairman. Dr. Hsu is the founder and chairman of private equity firm H&Q Asia Pacific, which recently led One, Inc.’s $16.7 million Series A fund-ing round.

Praesidian Capital Europe has hired Serkan Dede and Sarah Pierce as invest-ment directors. Previously, Dede worked at Lloyds Bank where he served as asso-ciate director in acquisition f inance while Pierce worked at Royal Bank of Scotland’s UK structured finance team, recently serving as a director in their origination and execution team for the lower mid-market.

Prologue C apital, an alternat ive investment adviser, has added Robert Stever to its investor relations team. Previously, Stever worked at Man Group/FRM where he was a trading strategies and structured credit analyst.

State Street Corp. has hired Jane Kirkland as senior vice president for its investment servicing business. Previous-ly, Kirkland was a partner at McKinsey and Company where she served as direc-tor of knowledge management.

LIMITED PARTNERS

Susanne Forsingdal, who has led U.S. fund investing for Danish fund-of-funds ATP Private Equity Partners for the past five years, is leaving the firm. Forsing-

dal, a partner, is joining Allianz Capital Partners, where she will be doing essen-tially the same job she had at ATP PEP, focusing on fund commitments and co-investments, according to a source famil-iar with the matter.

PROMOTIONSBoston-based Harken Capital Securi-

ties, a private equity placement and sec-ondary advisory firm, has promoted Nick Hatch and Scott Holley to managing director. Hatch, who heads the firm’s sec-ondary advisory practice, joined Harken in 2012. And, Holley, who has worked with Harken co-founders Don Nelson and Fred Malloy since 2010, has helped build the firm’s primary fund placement busi-ness for emerging managers.

New Enterprise Associates announced that Jon Sakoda has been promoted to general partner. Sakoda, who works out of the firm’s Menlo Park, California-based office, joined the firm in 2006 and has served as co-manager of NEA’s seed investment program. He focuses on software-as-a-service, infrastructure software, and big data, while serving as a director on Blue Jeans Network, Data-Visor, Desire2Learn, Hearsay Social and Opower, among others.

Robert Theis co-managed the transi-tion of the venture capital group from Bank of America to form Scale Venture Partners. His role was characterized incorrectly in the Oct. 27 edition of Buy-outs in a page 7 article.

Tinicum filed a Form D for Tinicum Capital Partners II-2 LP in connection with the spin-out of an unnamed port-folio company. A page 17 article in the Oct. 27 edition about a new private equi-ty fund being raised by Tinicum Inc was untrue and has been withdrawn from the Buyouts website.

Warburg Pincus sold Valeant Pharma-ceuticals for $8.7 billion last year. A page 36 article in the Oct. 27 edition gave an incorrect figure.

Corrections:

BUYOUTS BEATwww.buyoutsnews.com66 | BUYOUTS | November 10, 2014

Bidders score gains on MAC clause, a key deal term

Sponsors and strategic acquirers may be battling one another for good companies and corporate divisions, driving up prices as never before. But they haven’t lost their moxie when it comes to negotiating a key element of purchase agree-ments with targets.

That is the upshot of the lat-est survey of material adverse change (MAC) clauses by law firm Nixon Peabody, which studied agreed-to M&A trans-actions from mid-2013 to mid-2014. For the uninitiated, a primary purpose of the MAC clause is to provide a so-called “MAC out”—an escape hatch for

a bidder that spells out events or conditions that would let it walk away from a deal penal-ty-free or try to renegotiate a price. The MAC out is tempered by pro-target “MAC exceptions” that spell out events prevent-ing the bidder from escaping through the MAC out. Below are four ways the MAC claus-es have become more bidder-friendly in recent years:• Nearly a third (31 percent)

of transactions studied give the bidder a MAC out for material changes in the bidder’s “ability to close the deal.” That is up from 12 percent in the 2012-2013 survey and from 17 per-cent in the 2011-2012 survey.• Nearly nine in 10 (88 percent)

purchase agreements in the latest survey include “dispro-portionately affect” language ensuring the bidder maintains a MAC out in specified excep-tions, such as a recession, in which the target suffers more than its rivals. That is up from less than half in the surveys conducted four and five years ago.• More than half (56 percent)

of transactions studied incor-porate in the MAC clause the pro-bidder concept of circum-stances that “would reason-ably be expected to” lead to a MAC out event. That is up from fewer than a third of transac-tions studied three years ago and just 13 percent four years ago.• This year’s survey found a

pro-bidder shift in exceptions

to the MAC clause. For exam-ple, it registered ”pronounced” declines in the prevalence of four pro-target exceptions to the MAC clause, including one for employee turnover, which fell to 19 percent of purchase agreements studied from 40 percent.

The 13th annual survey report covered 235 transactions valued at more than $100 mil-lion each that took place from June 1, 2013, to May 31 this year. Data came from public filings with the U.S. Securities and Exchange Commission. The period studied was marked by corporations tapping into record cash balances to do a number of mammoth deals, including Actavis’s $25 billion acquisition of Forest Laboratories.

By David Toll

1How do you view investment opportunities in Asia given some

rockiness in markets tied to worries about growth?

This may be the optimal time to invest in Asia, espe-cially in small and mid-sized private equity funds. Overall, valuations in Asia are quite attractive, especially compared to what you see in the devel-oped world. With a slowdown in fundraising in Asia, it could make the region more attrac-tive from a supply and demand perspective. Private equity has

historically been a better place to capture value, because the stock market doesn’t always ref lect the rate of economic development in Asia. Despite the headline news and rocki-ness in the public market, on the ground there is still very solid, fast growth, especially around the consumer-related sector, which has been driven by the growing middle class and rising disposable income. There are a few sectors where we get excited about, including consumer discretionary, health-care, information technology and agriculture. Private equity is a superb vehicle to invest in these areas because there are so many more options available.

2How should investors think about Asia, in terms of geog-

raphies offering the best returns?Asia exposure has always

been a critical component of a global portfolio. There is still growth potential in China and in Southeast Asia. That’s where we’ve been focused. We are bringing in two more team members to focus on China and Southeast Asia. China is a most attractive emerging

market because it accounts for about 50 percent of the total private equity investment activ-ity in Asia. Moreover, China is very cheap right now. The pub-lic market currently trades at 10x P/E multiples despite solid economic fundamentals. Con-cerns over shadow banking, the real estate bubble, indus-trial overcapacity—we think they’re already priced into the market. Private equity is much less exposed to these.

3What kind of activity are you seeing around co-investments?

Large investors are looking to participate and get direct access to investment opportuni-ties in the Asian market. We’re doing a number of things to address that. FLAG has really tried to strengthen its co-investment activities. I’ve had a long history of direct investing experience, including as head of alternative investments, CIO Asia, at JP Morgan Chase Bank prior to joining FLAG in April. We try to avoid the pas-sive co-investment approach with its risk of adverse selec-tion. We have strengthened the team with more co-investment resources. That’s changed our deal f low and increased it significantly.

4How do you tackle issues around the extra layer of fees

in funds of funds?We do understand this is

a concern for some investors. However, if you tie this into the value that funds of funds offer, plus regional and sector diversi-fication, as well as GP coverage, it’s more appealing. For a large base of limited partners, a fund of funds offers a more efficient and effective approach when compared to building a single team to cover Asia. We also don’t charge additional fees for co-investments. By offering up to 25 percent of a commit-ment for co-investments, we are significantly reducing the funds-of-funds fees and the carry drag on a blended basis. We’re offering our investors an optimal solution.

5Any risks that you’re keeping an eye on in Asia right now?

I don’t think there’s one singular event that stands out. There is always risk for market disruption such as geopolitical risks in the region. That might derail economic development for a short period of time, or we may see a market correc-tion in the developed market that might spill over into Asia.

Edited by Steve Gelsi

FIVE QUESTIONS WITH

MYRON ZHU Partner, FLAG Capital Management

BACK TO SCHOOL

www.buyoutsnews.com

BUYOUTS BEATNovember 10, 2014 | BUYOUTS | 67

Sharing tips for attracting limited partners to secondary funds, Deutsche Bank’s Carlo Pirzio-Biroli recommends keep-ing “demonstrable discipline” in investment strategy regard-less of fund size and short-term economic indicators.

This approach worked for Pirzio-Biroli, global head of DB Private Equity and co-head of DB PE Secondary Funds, in the recent close of Deutsche Asset & Wealth Management unit’s Secondary Opportunities Fund III LP at its hard cap of $1.7 bil-lion. The firm raised far more than the $614 million it raised for the predecessor Secondary Opportunities Fund II, which wrapped up in 2012.

Fund III attracted 30 major LPs and more than 300 private

investors altogether including family offices. That was up from 20 investors in Fund I and slightly more in Fund II. Strong performance numbers for the firm’s past funds and the grow-ing popularity of secondaries as an asset class also stoked LP interest, he said.

“Our investment approach is not changing,” he said. “In order to pursue our value strategy of selecting smaller and sometimes more sizable transactions, we need to be able to play in the $1 million to $500 million transaction range. You need to have a fund large enough to be credible at the upper end but small enough to capture the smaller end of the market.”

The larger fund size of Fund III also reflected growth in the overall secondaries market, he said.

“The market is bigger, with more sellers and more types of transactions,” he said. “You need to play on a global basis. You need a fund of at least $1 billion.”

Pirzio-Biroli also urged sec-ondary investors and LPs in secondary funds to avoid the temptation to rely too heavily on fresh macroeconomic indica-tors for investment moves.

“Our view is that private equity and the secondary mar-ket are not a macroeconomic play,” he said. “Timing the market is very difficult. Most people don’t know how to do it. Instead, stay consistent, stay disciplined and invest across various cycles by cherry-pick-ing assets.”

Phone: +44-207-54-55424E-Mail: carlo.pirzio -biroli@db.com

CARLO PIRZIO-BIROLIGlobal Head of DB Private Equity

NEED TO MEET

IPO REGISTRATIONS BY SELECT PRIVATE EQUITY-BACKED COMPANIES 2014 YTDFiling Date Name Industry Exchange

Where IssueWill Be Listed

Current Amt Filed - sum of all Mkts ($M)

Investors Bookrunner(s)

10/16/14 The Habit Restaurants Inc Retail UNKNO 86.250 KarpReilly LLC Piper Jaffray CosRobert W Baird & Co IncWells Fargo Securities LLC

10/06/14 INC Research Holdings Inc Consumer Products and Services

NASDQ 150.000 Avista Goldman Sachs & CoCredit Suisse Securities (USA) LLC

09/22/14 PES Logistics Partners LP Energy and Power NYSE 250.000 Carlyle Group Bank of America Merrill LynchCredit Suisse Securities (USA) LLC

09/12/14 Freshpet Inc Consumer Products and Services

NASDQ 135.417 MidOcean Partners LP Goldman Sachs & CoCredit Suisse

09/08/14 PRA Health Sciences Inc Consumer Products and Services

NASDQ 375.000 KKR Jefferies LLCCitigroup Global Markets IncKKR Capital Markets LLCUBS Securities IncCredit Suisse Securities (USA) LLCWells Fargo Securities LLC

09/04/14 Upland Software Inc High Technology NASDQ 50.000 Austin Ventures William Blair & CoRaymond James & Associates Inc

09/03/14 Neff Corp Consumer Products and Services

NYSE 100.000 Odyssey Investment Partners, LLC Morgan Stanley & CoJefferies & Co Inc

08/29/14 STORE Capital Corp Real Estate NYSE 500.000 Oaktree Capital Management LLC Goldman Sachs & CoCredit SuisseMorgan Stanley & Co

08/22/14 Metaldyne Performance Group Inc

Industrials NYSE 150.000 American Securities LLC Merrill Lynch Pierce Fenner & SmithGoldman Sachs & CoDeutsche Bank Securities IncBarclays PLCCredit Suisse Securities (USA) LLCRBC Capital Markets

08/20/14 Axalta Coating Systems Ltd Materials NYSE 877.500 Carlyle Group Citigroup Global Markets IncGoldman Sachs & CoDeutsche Bank Securities IncJP Morgan & Co Inc

07/30/14 TransFirst Inc Financials 100.000 American Capital, Apollo Management, GTCR Golder Rauner, Welsh Carson Anderson & Stowe

Bank of America Merrill LynchGoldman Sachs & CoJP Morgan & Co IncDeutsche Bank Securities Inc

07/28/14 Virgin America Inc Industrials NASDQ 115.000 Black Canyon Capital LLC BarclaysDeutsche Bank Securities Inc

Source: Thomson One

FROM THE EDITOR

DAVID TOLL

68 | BUYOUTS | November 10, 2014 www.buyoutsnews.com

ACG preps for another run at Dodd-Frank with new definition of middle-market funds

A new definition of middle-market funds established by the Association for Corporate Growth sets the stage for a more targeted lobbying effort to try to ease regulation seen as overly restrictive, such as a provision of Dodd-Frank preventing banks from committing money to most buyout funds. But by leaving some big firms behind, the effort poses the risk of giving the industry a less unified voice in Washington, D.C.

Under the definition developed by ACG’s public policy committee and approved by its execu-tive committee this summer, funds would have to meet the following requirements to be considered middle-market (unless they are already small business investment companies, in which case they would automatically qualify):

• Invest at least 80 percent of their capital in the debt or equity securities of private compa-nies (at time of investment) that have either total enterprise values of $400 million or less or that generated annual revenue of $400 million or less in their most recent fiscal year;

• Have accredited investors account for at least 90 percent of their investor base;• Offer no liquidity rights to investors outside of “extraordinary situations”;• Limit their long-term, fund-level leverage to less than 15 percent of fund contributions

and uncalled commitments; and• Qualify as private funds under sections 3(c)1 or 3(c)7 of the Investment Company Act of

1940.Defining middle-market funds should strengthen ACG’s hand when talking to legislators

about making changes to the Dodd-Frank financial reform act signed into law in 2010, said Richard Jaffe, co-head of the private equity practice group at Duane Morris LLP, ACG vice chair-man and until about a month ago co-chair of ACG’s public policy committee. Jaffe noted that the definition is similar in several respects to the definition that the SEC applied to venture capital funds for the purposes of enacting Dodd-Frank.

Designed to reduce economic risk and prevent another financial crisis, Dodd-Frank has ele-ments widely regarded by buyout firms as overly burdensome. These include the requirement that most sponsors register as investment advisers under the 1940 Act. Twice the House of Representatives has passed a bill that would eliminate the registration requirement. But few see the bill as having enough support from Democrats in the near term to become law.

Jaffe believes that legislators would be more receptive to reversing the prohibition on insured depository institutions, bank holding companies and related entities from committing capital to most buyout funds—part of the so-called Volcker Rule scheduled to go into effect on July 21, 2015. The key, he said, is taking a more tailored approach that emphasizes the importance of channeling capital to middle-market companies.

ACG has to separate middle-market funds from mega-funds, said Jaffe, pointing to the exam-ple of venture capital firms, which successfully painted themselves as job creators on Capitol Hill, winning a carve-out from the registration requirement in the original Dodd-Frank legis-lation. Mega-firms are large asset managers that are already regulated, Jaffe said. But middle-market firms, he said, don’t pose a systemic risk to the economy, and Dodd-Frank regulations have imposed an unnecessary cost without benefit. He added: “We think mid-market funds are really contributing to (the) growth of the economy and don’t have the same kind of issues.”

ACG’s public policy committee, according to Jaffe, considered a definition of middle-market fund based on fund size, but it found that even very large funds, through consolidation strate-gies, might invest mostly in middle-market companies. In fact, at least 90 percent of recent U.S. sponsored deals, by number, fall under $400 million in enterprise value, according to data from PitchBook.

The strategy of approaching Congress or the SEC on behalf of a newly defined class of middle-market funds isn’t without risk. Legislators and regulators could push back and suggest an even more narrow definition of middle-market funds. The effort also threatens to alienate mega-firms whose deep pockets and lobbying savvy could help mid-market shops in other battles to come.

Pam Hendrickson, chief operating officer at lower-mid-market shop The Riverside Company and the immediate past chair of ACG’s global board, said ACG has no desire to create classes of “good” sponsors and “bad” sponsors. She pointed out that even ostensibly large firms such as TPG Capital could have funds that meet the definition of middle-market fund. But in the end, she said, ACG has an obligation to its membership of middle-market executives, private equity professionals, investment bankers and other service providers.

“We need to stay aligned (with big sponsors) on the issues that (we have) in common, but the middle-market firms can also get behind those issues that are really challenging for them,” Hendrickson said.