" /> The IUF's Private Equity Buyout Watch: May 2008 Archives

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May 26, 2008

Lion Capital Picks Up Russia's Biggest Vodka Maker

Buyout fund Lion Capital has followed its August 2007 USD 500 million purchase of Russian juice drinks company Nidan Soki with the acquisition of a majority stake in the Russian Alcohol Group, the country's largest producer of vodka and ready-to-drink (RTD) alcoholic beverages. Russian Alcohol's Green Mark vodka is the largest brand by volume in Russia and one of the top 5 global brands.

Russian Alcohol's other brands include premium vodka Zhuravli. 2008 sales have been projected at ca. USD 500 million, with five production plants, 3,500 employees and a well-developed distribution network. Participating in the deal with Lion Capital were Goldman Sachs and Central European Distribution Corporation (CEDC), the Polish multi-brand vodka maker which also operates an extensive import/export distribution network in Poland and Russia, and Goldman Sachs. CEDC put up USD 156.5 million and arranged debt financing for thhe USD 600 million deal.

The acquisition forms part of growing transnational penetration (including private equity) of the regional beverages market. In April, Coca-Cola Hellenic purchased Russia's drink-maker Aquavision, whose brands also include Botaniq juice. PepsiCo last year paid USD 542 million for Ukraine's fruit juice company Sandora.

Lion Capital bought out the UK cereal maker Weetabix for GBP 640 million in November 2003, picked up Orangina (together with Blackstone), the former European beverages division of Cadbury Schweppes, in February, 2006 and in August of that year bought Kettle Foods, the market leader in both the US and the UK for organic potato chips. Last year, Lion Capital defeated a T&G organizing effort at Kettle Chips by employing the notorious US union-busters Burke Group.

May 23, 2008

Socialist Group in European Parliament Links Financial Crisis to Soaring Food Prices

The Socialist Group in the European Parliament has highlighted the crucial role of financial markets in stimulating the hyperinflation of global food prices and called for urgent action by regulatory authorities. The group tabled three amendments to a motion on EU action to deal with food price inflation.

"The food crisis is closely linked to the financial crisis", said Hannes Swoboda, vice-president of the Group. "It is outrageous that some banks are inviting their clients to speculate on rising food prices. One of our amendments calls for a Europe-wide ban on such speculation. We also want the European Commission to examine the powers of national supervisory bodies to ensure that they can guarantee stable and secure markets and that speculation does not violate the right to food."

More information and a link to the text of the motion are available here.

May 06, 2008

New SEIU Report on Sovereign Wealth Funds Highlights Need for New Regulation

The SEIU has released a new report on Sovereign Wealth Funds to highlight glaring gaps in the rules for assessing foreign investments in U.S. companies, which continue to depend principally on voluntary disclosure. As the report points out, these regulations were largely designed to address foreign entities taking a direct ownership interest in domestic assets, and therefore faile to address the indirect ownership structures that characterize private equity.

The report is available online at www.behindthebuyouts.org.

Sovereign Wealth Funds and Private Equity

Sovereign Wealth Funds (SWF) – state-owned, state-run investment entities– have begun to generate controversy and debate as they have recently emerged as significant global financial players. SWFs have recently taken large stakes in public stock exchanges, major manufacturing, service and infrastructure transnationals, and thrown a lifeline to private equity funds searching for "permanent money". This introductory briefing was prepared for the IUF Executive Committee, which met in Geneva April 17-18, 2008.

Sovereign Wealth Funds (SWF) – state-owned, state-run investment entities– have begun to generate controversy and debate as they have recently emerged as significant global financial players. The debate has largely focused on SWFs derived from central bank foreign exchange reserves (e.g. Singapore, China) or earnings from non-renewable natural resources, chiefly oil and gas (the Middle East), as distinct from government-owned pension reserve funds (such as Norway's state pension fund). Fed by rapid increases in commodity prices and in foreign reserves resulting from growing global trade imbalances, the SWFs (some of which are decades old) have begun to shift their investment strategy away from bonds and small, diversified stakes in public equities into both high-profile big stakes in listed equities and into "alternative assets", chiefly private equity.

The recent infusion of SWF money into major global investment banks in the wake of the sub-prime crisis has highlighted their new role as "mainstream" financial actors. Concern about SWFs has to date been largely expressed in terms of threats to national ownership of politically or economically "strategic industries", loosely and variously defined as ranging from infrastructure (e.g. US ports) to the French food TNC Danone; loss of control over supplies of raw materials; heightened potential for international financial instability, as major investors acquire/divest assets with no regulation or transparency; and the potential subordination of corporate governance to questionable, even hostile political agendas.

SWFs have recently taken large stakes in public stock exchanges, major manufacturing, service and infrastructure transnationals, and thrown a lifeline to private equity funds searching for "permanent money". In addition to the Chinese SWF stake in Blackstone, for example, two Abu Dhabi government investment entities have taken large stakes in Apollo and Carlyle. The funds have also been operating aggressive buyout operations of their own.

Estimates of the size, portfolio composition and investment strategies of the SWFs vary enormously, highlighting the total lack of transparency at the heart of their operations. Estimates for the assets under management of the Abu Dhabi Investment Authority, for example, the largest SWF, range from USD 500 billion to 875 billion; for the Singapore Investment Corporation from USD 100 billion to 330 billion. Estimates of their portfolio composition are simply guesses.

The OECD estimates the total current global SWF wealth at ca. USD 2.4 trillion. This compares with some USD 1.6 trillion attributed to global hedge funds, though this figure is also a guess.

Comparison with the assets under management by private financial corporations is instructive. According to the United Nations Commission on Trade and Development (UNCTAD), whose most recent ranking of the top 50 financial TNCs dates from 2004, each of the top 10 had assets under management of well over USD 1 trillion (e.g. UBS 1.73, Citigroup 1.48 trillion, etc.), dwarfing even the largest SWF.

Morgan Stanley has predicted that by 2015, foreign reserve-based funds like those of China and Singapore will have caught up with today's leading commodity-based funds, and that both classes will dispose of assets on the order of USD 6 trillion. This again is a guess based on fragile suppositions.

All available evidence, however, points to a general and pronounced shift of SWF investment into equity and into "alternative assets" – hedge funds, private equity and real estate. Apart from sensitive political issues, these investments bear directly on employment, and require direct engagement by unions.

The transparency/governance issues raised by SWF investments are similar to those raised by private equity and hedge fund investments. TUAC has sensibly proposed that from this point of view SWFs not be treated separately from other unregulated pools of global financial capital in proposals for greater regulation.

For unions organizing workers in companies in which SWFs threaten to acquire significant or total control, the issues are also similar to those confronting unions faced with a hedge fund incursion or private equity takeover: gaining access to information about investment/employment plans before and under the acquisition, maintaining continuity of employment conditions/union rights and recognition, establishing employer responsibility and accessibility and securing long-term investment in the future of the company.

The failed bid for UK supermarket chain Sainsbury's by the Qatar Investment Authority, which ultimately floundered when pension fund trustees insisted on the buyer meeting stringent pension fund reserve requirements, can serve as a positive example of successful union action in this situation.

May 05, 2008

Global Credit Crisis? Record 2008 Fund Raising for PE Firms

Despite the global credit crisis, private equity firms have raised record amounts of cash so far this year - and that cash will be seeking outlets.

According to the monthly Private Equity International (PEI), buyout funds globally are currently sitting on USD 1 trillion in uninvested capital, much of it from employee pension funds. Buyout funds raised USD 82 billion in the first quarter of 2008 - an increase of 28% over the record first quarter of 2007. Warburg Pincus has closed a USD 15 billion buyout fund, exceeding its target by over 3 billion; Apax Partners and Goldman Sachs have closed funds worth 18.2 and 15 billiion USD, respectively.

This year's second annual PEI ranking of the 50 largest buyout funds, based on funds raised over the past 5 years, shows an aggregate USD 810 billion in funds raised, a considerable increase over the total USD 551 billion contained in the 2007 rankings. Leverage that by a conservative multiple of 3, for example, and workers arer confronted with over USD 2.4 in concentrated buyout power.

The 2008 rankings show 11 new funds on the list, while 11 have disappeared from the league. All but one of the firms (Carlyle, which remains number 1) changed position with respect to the previous year's rankings. Here is the list - the number at the end indicates the 2007 ranking. Click here for the executive summary of the full report.

Top 50 Buyout Funds Ranked - 2008

1 The Carlyle Group Washington DC $52 billion 1
2 Goldman Sachs Principal Investment Area New York $49.05 billion 3
3 TPG Fort Worth (Texas) $48.75 billion 5
4 Kohlberg Kravis Roberts New York $39.67 billion 2
5 CVC Capital Partners London $36.84 billion 10
6 Apollo Management New York $32.82 billion 12
7 Bain Capital Boston $31.71 billion 8
8 Permira London $25.43 billion 6
9 Apax Partners London $25.23 billion 7
10 The Blackstone Group New York $23.3 billion 4
11 Warburg Pincus New York $23 billion 14
12 3i Group London $22.98 billion 13
13 Advent International Boston $18.32 billion 43
14 Terra Firma Capital Partners London $17 billion 15
15 American Capital Bethesda (Maryland) $17 billion 23
16 Providence Equity Partners Providence (Rhode Island) $16.36 billion 9
17 Silver Lake Menlo Park (California) $15.6 billion 19
18 Cerberus Capital Management New York $14.9 billion 34
19 AIG Investments New York $14.22 billion N/A
20 Fortress Investment Group New York $14.0 billion 27
21 General Atlantic Greenwich (Connecticut) $13.3 billion 18
22 PAI partners Paris $12.98 billion 35
23 First Reserve Corporation Greenwich (Connecticut) $12.82 billion 22
24 EQT Partners Stockholm $12.47 billion 21
25 Hellman & Friedman San Francisco $12 billion 16
26 Cinven London $11.93 billion 11
27 Bridgepoint London $11.7 billion 36
28 Clayton, Dubilier & Rice New York $11.38 billion 47
29 Teachers’ Private Capital Toronto $10.69 billion 20
30 Charterhouse Capital Partners London $10.52 billion 24
31 Lehman Brothers Private Equity New York $10.22 billion 25
32 Thomas H. Lee Partners Boston $10.1 billion 30
33 BC Partners London $9.26 billion 29
34 AXA Private Equity Paris $9.24 billion N/A
35 NGP Energy Capital Management Irving (Texas) $8.84 billion N/A
36 Oaktree Capital Management Los Angeles $8.4 billion 49
37 Marfin Investment Group Athens $8.15 billion N/A
38 Sun Capital Partners Boca Raton (Florida) $8 billion 28
39 Doughty Hanson & Co. London $7.44 billion 37
40 JC Flowers & Co. New York $7 billion N/A
41 TA Associates Boston $6.83 billion 39
42 Eurazeo Paris $6.75 billion N/A
43 New Mountain Capital New York $6.69 billion N/A
44 MatlinPatterson New York $6.67 billion N/A
45 WL Ross & Co. New York $6.65 billion N/A
46 EnCap Investments Houston $6.58 billion N/A
47 Madison Dearborn Partners Chicago $6.5 billion 32
48 Barclays Private Equity London $6.43 billion N/A
49 Onex Toronto $6.17 billion 33
50 Welsh, Carson, Anderson & Stowe New York $5.88 billion 42