Sun Capital Partners, the Florida based mega private equity firm was featured in a lengthy article in the October issue of Bloomberg magazine.  The article traces Sun’s roots back to 1995 when founders Marc Leder and Rodger Krouse set-up shop as an unfunded investment firm.  Experiencing many of the issues facing any new firm, (i.e. lack of awareness and funding), it took the pair 20 months before making their first acquisition.

However, Sun quickly developed a formula that worked; acquiring - fixing - flipping smaller troubled companies, and now claim 200 such transactions under their belt.  So how does a firm get to such lofty numbers?

In looking at Sun’s 2007 transaction report, the firm had 12 disposals and made an astonishing 39 acquisitions (27 new platform companies and 12 add-ons).

The Firm’s 2008 numbers haven’t hinted at what would be an expected slowdown.  Sun’s mid-year report lists 5 disposals and 16 acquisitions (8 platform, 8 add-on). It remains to be seen how things play out given the current merger climate.

If there’s such a thing as a private equity bellwether, Sun Capital would be it.

See below a chart showing the number of private equity firms formed each year since 1980 (at least according to our records).  Not all private equity firms readily disclose when their group was established, so the numbers below are not representative of all firms.  However, the sample is large enough to show trends, most notably the stark drop in firms formed in 2008.

Given reduced company valuations in today’s market, it’ll be interesting to see what new players emerge looking to take advantage in 2009.

As the NY Times points out, KKR just launched a slick re-design of its internet site featuring significantly more information than what was provided before.  As KKR readies for a possible IPO, one of the biggest differences is the clear breakdown of KKR’s business into three segments; private equity, fixed income, and strategic initiatives (infrastrucutre, mezzanine, other).  Another notable improvement is the inclusion of professional information with detailed bios.

You can see the design evolution below . . .

11/2003

02/2005

01/2007

10/2008

The most difficult aspect of starting a new private equity firm is 1) finding good deals (although this is hard for every firm), and if you happen to be an unfunded new firm, 2) figuring out how to pay.  When you have to raise both equity and debt to close deals, #2 can be especially draining when changing terms and investor control quickly reduces the sponsor’s ownership in prospective transactions.

However, if you can find deals like OpenGate Capital’s recent acquisition of TV Guide Magazine from Macrovision, things don’t look so daunting. Terms of the deal weren’t initially disclosed but in a SEC filing, (and as AdAge points out), OpenGate acquired TV Guide for $1 (one dollar) down, and will get a $9.5 million loan from Macrovision to help with the purchase.

OpenGate Capital it should be noted, is an unfunded investment firm formed in 2005.

The TV Guide property unit is running at a significant loss, so there’s certainly some work needed if OpenGate hopes for a return on its initial outlay, but this is certainly the type of opportunity many new (and old) firms would love to tackle.

In reviewing private equity firm websites, most firms that do provide portfolio information tend to follow a fairly predictable pattern. Typical portfolio areas generally show a list of companies along with logos, website urls and brief descriptions for each business. Nothing wrong with the norm, but when you come across a site demonstrating a little extra creativity, it certainly shows.

A great example can be found at energy investor Lime Rock Partners’ website. Lime Rock’s portfolio area breaks out current versus exited portfolio companies with tabs. However, the best part of the portfolio page is a world map showing each company’s location. Additional filters allow users to display portfolio companies by specific sector and/or location. Selecting a portfolio company brings up additional info in the format shown below.

The world of private equity isn’t as private as it once was. These days, most firms have websites that spell out investment criteria, portfolio holdings and perhaps a snapshot of total funds raised or capital available for investment. However, this isn’t always the case.  If you check out TPG Capital’s website, you’ll see what I mean - no mention of capital available, investments held, or professionals with whom to contact. Not sure what the strategic value is in having a site that doesn’t provide much info, but that’s the beauty of private equity.

In any case, when comparing a website such as TPG’s to that of a similar mega-sized firm such as Apax Partners’, it’s quickly apparent the stark differences in strategy firms have as it relates to releasing info. Not only does Apax provide professional info and a search function to quickly locate, they even group certain employees by sector specialty.

Apax also provides an informative listing (quite rare) of every fund raised since inception (see below). Now if we could just tie all this to a firm’s overall performance, we might have something.

The Harvard Business Review just published an article written by Michael C. Mankins, David Harding, and Rolf-Magnus Weddigen at Bain & Company titled “How the Best Divest”. The team at Bain analyzed over 7,000 divestitures and found companies regularly pruning non-core assets, “the best divestors”, delivered a much higher return to shareholders than “average” companies. The piece uses industrial congolmerate Textron (41 divestitures since 2001) and forest products company Weyerhauser as two recent successful examples. The article then goes into what makes a good divestor, such as knowing when to unload, picking teams to handle engagements, process of separation, etc.

While the article was more or less directed at company CEOs and the sell side, an interesting follow-up would be to analyze the buy-side and breakdown the 7,000 transactions in terms of sales to strategics versus financials/private equity.

Ronco, everyone’s favorite direct marketer of consumer products including the Showtime Rotisserie Oven, Six Star Knives, Pocket Fisherman, Pasta Maker, Veg-o-Matic, Great Looking Hair, and Food Dehyrator was featured in the NY Times business section today as the company prepares a comeback. A group of investors purchased Ronco from founder Ron Popeil for $56 million in 2005, however by 2007, mismanagement (among other problems it seems) quickly drove the company (which dates to 1964) into bankruptcy.

What’s lacking from the Times piece is any mention of Ronco’s new owners, that being LA based private equity firm Marlin Equity Partners. Marlin purchased Ronco’s assets for $6.5 million, and now, one year later it looks like a revival strategy is in place.

Ronco’s recovery plan will focus on updated infomercials as well as selling goods through retail stores. The modernized infomercial spots apparently feature old footage of Popeil mixed with new hosts and products.

See below an excellent report providing insight into the global private equity marketplace. Published by the World Economic Forum and titled Globalization of Alternative Investments - The Global Economic Impact of Private Equity 2008 the report analyzed over 21,000 private equity transactions between 1970 and 2007.

Interesting investment activity related findings include;

- 42% of private equity transactions are exited within 5 years (most firms from our coverage within PEdatabase tend to mention a target investment horizon of 3 - 5 years)

- US and Western European private equity activity represent all but 12% of the global total

- Continual shift from investments in just mature/traditional industries such as machinery and retail toward increased buyout activity in high-growth/tech related industries (makes sense given growth of specialist/crossover firms such as Silver Lake, Technology Crossover Ventures, and Summit Partners)

- Most common avenue for exit is sale to a strategic buyer (39% of total)

The report also analyzes private equity ownership in regards to “employment”, “governance”, and “long-run investment” commitments.