Buyout Execs Look for New Investments
By Dane Hamilton
NEW YORK (Reuters) - Buyout pros know one thing: there is money to be made buying companies. Beyond that, they agree on little else these days.
Or so it seemed among the hundreds of private equity investors who convened on Wednesday at a New York conference to address ``Top trends and outlook for private equity.''
The consensus? Both trend and outlook are still under development.
The next Microsoft(Nasdaq:MSFT - news), Intel(Nasdaq:INTC - news) or Cisco(Nasdaq:CSCO - news), if they exist, probably haven't been discovered yet, although some executives are hawking a few possibilities.
That's a stark contrast to just two years ago, when an industry gathering of venture capitalists and leveraged buyout executives could happily tout the top trends as anything dotcom, wireless, fiber optic, networked or monoclonal antibodied. The outlook? Bazillions of bucks to be made. The future is made here and now. You're toast if you're not in it.
Now that the tech stock crash has made toast out of many who were in it, chastened buyout executives are searching for the next big thing. And while they have lots of money to spend, having collectively raised $100 billion last year, most are gun-shy about spending it these days.
Is it nanotechnology, the shrinking of computers and machinery to molecular levels? Is it distressed asset investing, or buying the wreckage of the tech-stock crash? Or perhaps biotechnology, an industry that regularly emerges as the next vogue until an ImClone Systems (Nasdaq:IMCL - news) sends investors running for cover?
Investing in any of these areas is fraught with pitfalls. But it hasn't stopped some venture capitalists from loudly proclaiming the next big thing, hoping their leadership will seed new markets and create a ready market for selling their assets and bringing a return to their investors.
Tim Draper, partner in Silicon Valley venture firm Draper Fisher Jurvetson, called nanotechnology an industrial ``tectonic shift'' that will revolutionize everything from computing to air travel.
``It's going to open up a whole new world,'' Draper told hundreds of executives gathered at New York's Plaza Hotel for the event. In 36 months, nanotechnology will allow ``all computing power (available) today to fit into the palm of your hand.''
That prediction was too much for Philip Cooper, managing director of Goldman Sachs' (NYSE:GS - news) $10 billion portfolio of private equity investments. ``I would run in the other direction from anything with the word 'nano' appended to it,'' Cooper said in a panel discussion.
While nanotechnology may yet prove itself, it will likely take at least a dozen years for any payoff from it, he said. Many companies will fail in the process, losing investors millions of dollars, similar to what happened with hundreds of collapsed optical networking, dotcom and software companies that litter the corporate landscape today.
Cooper had his own prescription for hefty returns -- buying distressed assets on the cheap in the hope that they may yet prove their value. ``You don't have to be a seer to know there is money to be made in distressed investing,'' he said, ``but only for the next year or two'' until everyone else piles into the market.
Cooper isn't alone. Parthenon Capital, a Boston buyout fund, recently bought MedAssets, a medical supplies company once poised to hold an initial public offering valued at $1.8 billion. After the IPO was pulled, Parthenon bought the company for $6 million, according to Ernest Jacquet, Parthenon managing partner.
Similarly, VantagePoint Venture Partners, a Silicon Valley venture fund with $2.5 billion under management, recently bought Ricochet, a networking company that made $1.3 billion in investments. The price -- $8.2 million, although it also came with $800 million in debt, according to Alan Salzman, a VantagePoint managing partner.
With the plethora of struggling venture-backed companies available and little opportunity for fund-raising, either from their venture partners or through an IPO, some buyout executives were adamant that now is the best time to do deals.
``This year and next will be far and away the best investment environment since 1992 and 1993,'' when the markets were just recovering from the previous decade's recession but asset values were still low,
said Bruce Rauner, managing principal of Chicago venture firm GTCR Golden Rauner. |
