It’s been reported that Bain Capital is inching closer to buying Reed Elsevier’s Business Information unit (RBI) for around $1 billion.  That’s over a $1 billion less than some of the initial bids Reed received for RBI earlier this year when the sales process began.  In February, both strategics and other private equity firms took interest before general nervousness over the economy and a lofty purchase price scared off suitors.

However, despite all the distractions, RBI actually improved both top and bottom line numbers in the first half of ‘08, seeing revenue of £484 (US$726) million in Q1 and Q2  of ‘08 vs £445 (US$668) million in ‘07, and operating profits of £62 (US$93) million in ‘08 vs £55 (US$83) million in ‘07.  While things have certainly changed since the summer, RBI’s overall performance (and a rising dollar) must’ve been a positive sign for Bain.

Either way, a successful close would mark a favorable sign for private equity (at least on the buyside) and m&a in general, as new deals start reflecting reasonable valuations and terms.

Update: Now it sounds like Reed’s getting cold feet.

The WSJ is reporting that The Carlyle Group is shuttering its Menlo Park office and cutting back on its global workforce by laying off 10% of its 1,000 employees.  The annoucement states that the cuts are a reflection of reduced m&a activity but more specifically, reduced activity in terms of large going private transactions which have all but disappeared.

The Carlyle Group is certainly one of the larger firms out there in terms of assets under management with the latest tally at $91.5 billion spread across four different disciplines.  However, with a total of 1,000 employees operating out of 33 global offices (eight in the US alone), it’s no wonder they all can’t be busy.  Similar sized Blackstone also has approximately 1,000 employees, however roughly 200 of these work outside of direct investing, and in their financial advisory group.

What’s interesting is that despite the cuts, Carlye’s career page is still up.

Last week TechCrunch announced the rumored sale of European price comparison shopping site Kelkoo for less than 100 million euros to investment group Jamplant Ltd.  The sale was notable given Yahoo unloaded the site for 375 million euros less than what it paid for it in 2004.  But who exactly is Jamplant?

Most media bytes on the transaction describe Jamplant as a private equity firm.  However this suggests some transaction history and possibly other portfolio companies.  The only available info on Jamplant is that the Group consists of several angel investors interested in the price comparison shopping space (talk about narrow), so who know’s what the full story is. Either way, have to credit Jamplant for executing a deal in these turbulent times.  Just wonder if their name will emerge attached to another.

Bloomberg is reporting that Cerberus Capital would be willing to forgo any profits from a future sale of troubled portfolio company Chrysler should the federal government pull the trigger and bailout the auto industry.

Given Chrysler’s private-owner status, CEO Bob Nardelli is hoping the offer elminates questions of unfair gains for Cerberus should government assistance give the company time to turn things around.

If a bailout does go through, this will mark a full circle for Chrysler, which would enjoy its second bailout in the last thirty years.  This time around however, it will need to rebound under private equity ownership which will be a true test for Nardelli.

Even if Robert is able to perform a successful turnaround, no doubt he won’t be looking at the upper end of his orginal compensation package.  The new best-case scenario for Cerberus is a free lesson in the US auto business.

Vacation rental listing provider HomeAway, Inc. just announced it has raised an additional $250 million in minority financing as the company continues to look for growth and consolidate the online vacation listing industry.  Since its formation in 2005 with an initial $49 million raise, (and subsequent $160 million round in 2006), HomeAway has gone on a buying spree, snapping up 11 vacation listing sites including VacationRentals.com and biggie VRBO.com.  HomeAway now claims more than 300,000 lisitings worldwide.

What’s interesting is that The WSJ makes out the investment as if it’s some sort of gamble on a new start-up, describing how new investors are essentially “betting $250 million that consumers will still use Web sites like HomeAway.com to find vacation-rental properties”.  Let’s be honest, this is a vote of confidence investment in the consolidation strategy of highly profitable and growing websites.  The real bet isn’t on the industry or business model, but rather if additional reasonably priced acquisitions are out there and if an intense marketing push can further grow HomeAway’s share of the market.

People tend to visit sites with the most listings and HomeAway appears to have acquired all the online pioneers and current market leaders in the vacation listing marketplace.  HomeAway’s most notable investment was 2006’s $160 million purchase of VRBO, a site that has now been around for thirteen years and in itself claims over 100,000 listings.  The only real current threat is a free listing site such as Craigslist which works great as a classified site for one-time posts, but is set-up poorly as a directory for users who need continual exposure.

Investors are showing they like what HomeAway has done with the first $200 million, essentially cobbling together a high-margin, $100 million business consisting entirely of recurring revenue and feel a further $250 million will corner the industry.  Todd Chaffee, General Partner of investment participant Institutional Venture Partners says the amount of financing is meant to serve as a “statement of ‘game over’” for competitors.  Proceeds are reportedly to be used for overseas acquisitions and to pay down debt.

The real question isn’t whether the business is sound, it’s whether the round’s investors are getting in at a fair valuation.   Hybrid VC/PE firm Technology Crossover Ventures, who is reportedly committing $175 million of the $250 million raise must think so.  However, TechCrunch is reporting the new round has a lofty pre-money valuation of approximately $1.15 billion.  At a multiple significantly higher than 10x revenue, you be the judge . . .

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.

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.

Earlier today, Lehman Brothers announced the sale of Neuberger Investment Management to private equity firms Hellman & Friedman and Bain Capital for $2.15 billion in an all equity transaction with each firm sharing an equal stake in the new company. The units offered as part of the sale include asset manager Neuberger Berman, as well as the “fixed income and certain alternative asset management businesses of Lehman Brothers’ Investment Management Division”.

In total, $230 billion worth of assets (as of August 31) are trading hands with the deal set to close in early 2009. What’s interesting about this transaction is that if we look back 5 years, we can see how drastic, times have changed and the tremendous deal H&F and Bain are getting.

In 2003, Lehman Brothers acquired publicly traded Neuberger Berman for $2.68 billion. At the time, the firm had assets of $63.7 billion and the transaction valued the company at roughly 4x revenue ($660 million). In comparing to the acquisition announced today, if asset managers typically generate revenues roughly equal to 1% of managed funds, H&F and Bain could actually be paying less than 1x revenue for Neuberger Investment Management. With the clear substantial discount (even by today’s standards), it is somewhat surprising that a higher value for the business couldn’t be delivered.

However, given a deal was quickly reached, this transaction represents a good example of what PE firms can offer that other likely strategic suitors may not. That being certainty of closure (all equity sure makes things easy in this case) and timing (deal announced in two weeks). No doubt these two points were brought up more than once as negotiations progressed.

Certainly everyone’s aware of the big story of the day i.e. the bailout plan’s failure to get passed the House in Congress and the stock market’s subsequent (not terribly shocking) disapproval. Declines lead advances at a lopsided clip of 20 to 1 on the NYSE with the Dow falling nearly 7%.

So in the small world of private equity that exists in the public markets, how did the notable firms fare?

> Fortress Investment Group (NYSE:FIG) - Closing Price: $11.00, - 0.13 (1.17%)

> The Blackstone Group (NYSE:BX) - Closing Price: 15.50, - 1.11 (6.60%)

> American Capital (NasdaqGS: ACAS) - Closing Price: 22.46, - 3.83, (14.57%)

> Allied Capital (NYSE: ALD) - Closing Price: 12.55, - 2.35 (15.77%)

> Apollo Investment (NasdaqGS: AINV) - Closing Price: 14.11, - 3.37 (19.28%)

> CapitalSource (NYSE: CSE) - Closing Price: 11.10, - 2.76 (19.91%)

Nothing but red certainly isn’t good, although in glancing at after-hours figures, things appear to be looking a little better with most firms recovering (albeit marginally). At the end of the day, the bailout lost by a close vote, so working out the details on an acceptable plan looks inevitable. Either way, it’ll be a turbulent and interesting week as we begin the fourth quarter.