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Coronavirus Day of Reckoning Arrives | HOOPP's Keohane Reflects
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Good day. Amid forecasts of a sharp drop in U.S. economic output for the quarter that starts today, it's easy to see the basic argument for another jolt of economic stimulus to blunt the impact of the coronavirus. A potential second round is expected to focus on infrastructure, where government spending is always welcomed by labor unions—not an insignificant group in a presidential election year.
The coronavirus also weighs heavily on private-equity firms as they face the task of repricing their assets in light of the new realities ushered in by the pandemic during the first quarter, as our Chris Cumming reports. Some holdings could see drastic reductions. Finally, our Preeti Singh brings us reflections from just-retired Ontario pension fund leader Jim Keohane. All that and much more awaits below, so please dig in...
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A shuttered gym shows how badly the coronavirus pandemic can affect consumer-facing businesses as governments around the world order people to stay home to stem the outbreak. PHOTO: ASANKA RATNAYAKE/GETTY IMAGES
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The coronavirus-driven stock-market rout is forcing private-equity firms to make tough calls about how much their investments are actually worth, WSJ Pro Private Equity's Chris Cumming reports. Worldwide lockdowns and disruptions caused by the virus have hit public markets hard, erasing almost 20% of the value of the S&P 500 index in the first quarter of the year. Private-equity firms often boast that the value of their investments is protected from wild swings in stock prices because of their long-term investment horizon and the fact their companies aren’t traded publicly, which offers insulation from market panics and fire sales. But the day of reckoning for valuations has arrived.
On Tuesday, Jim Keohane retired after 21 years with the Healthcare of Ontario Pension Plan, where he most recently served as the pension’s president and chief executive. Mr. Keohane spoke to WSJ Pro Private Equity's Preeti Singh about his career and the lessons he learned from steering the pension system through multiple economic cycles.
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The potential median debt to Ebitda deal multiple for private equity-backed buyouts should the U.S. economy contract as much as 20%, as forecast, up from the median 5.5x multiple last year, according to PitchBook Data Inc.
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The Midtown Manhattan headquarters of News Corp., which is selling its News America Marketing unit to Charlesbank Capital Partners. PHOTO: DREW ANGERER/GETTY IMAGES
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Charlesbank Capital Partners has agreed to buy News America Marketing from News Corp, also the parent of The Wall Street Journal, for about $235 million. The carve-out is expected to generate $50 million in cash for News Corp when the deal closes, along with additional deferred payments totaling $125 million to $185 million. News Corp will also retain as much as a 15% interest in the operations. The deal is expected to close in the fourth quarter.
J.P. Morgan Investment Management Inc.’s Infrastructure Investments Fund has been authorized to acquire El Paso Electric Co. by the Federal Energy Regulatory Commission, with mitigation considerations to address competition issues. The El Paso, Texas-based utility serves about 433,000 customers in the Rio Grande valley in West Texas and New Mexico. The investment fund said it aims to provide mitigation steps as required under the FERC order and expects to close the transaction by the end of June. The take-private deal was announced last June at $68.25 a share in cash, giving the company an enterprise value of about $4.3 billion.
Kudu Investment Management, based in New York, is backing impact investment specialist Creation Investments Capital Management. Chicago-based Creation focuses on micro lending, small- and medium-enterprise credit and other financial services in developing markets that have limited access to capital, according to a news release. It managed about $707 million at the end of December from investors such as private individuals, family offices and institutions.
Thoma Bravo has agreed to acquire construction planning and coordination software provider Command Alkon Inc. from Quilvest Capital Partners. The European private-equity investor initially backed the Birmingham, Ala.-based company in 2005.
Ares Capital Corp., a business development company, has increased commitments to its revolving credit facility to about $3.6 billion and pushed back its final maturity date to March 30, 2025, the company said Tuesday. In all, the company has increased its bank-led revolving facilities to more than $5.9 billion. Ares Capital is managed by a unit of Ares Management Corp., based in Los Angeles.
Alchemist Capital Partners Korea Co. and Credian Partners have acquired the Foundry Services Group and the Cheongju factory known as Fab 4 from South Korean chipmaker MagnaChip Semiconductor Corp., through a newly formed special-purpose acquisition company called Magnus Semiconductor LLC. The buyers paid $344.7 million in cash for the assets, subject to later adjustments, and assumed about $90 million in severance liabilities for roughly 1,500 employees of the two operations who are subject to transfer to the new owners.
Seafort Advisors has acquired a majority stake in cloud-based services provider Deskcenter AG. Based in Hamburg, Germany, Seafort is a private-equity firm focusing on midmarket technology-enabled companies in Central Europe.
Resolute Capital Partners has invested $2 million in San Francisco-based Plum Inc., which does business as Plum Lending, backing the real estate-focused financial technology company alongside SoftBank Group and activist investor Elliott Management. Resolute made the investment through its Strategic Technology Assets II fund.
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Our add-on deal interactive tool allows you to sort and analyze volumes of add-on deal data compiled by WSJ Pro. View more.
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Growth investor Ampersand Capital Partners has closed its latest private-equity fund with $690 million in commitments. The Wellesley, Mass.-based firm that targets midmarket investments in health care said in a March 26 filing with the Securities and Exchange Commission that it had yet to receive a commitment for the new fund, Ampersand 2020 LP. The vehicle is the firm’s 10th fund and closed three months after fundraising began, the firm said Tuesday in a news release.
Gilde Healthcare, the European specialist venture- and growth-capital firm, has announced the first and final close of its fifth fund at €416 million ($458 million), Selin Bucak writes for Private Equity News, a U.K. trade publication of Dow Jones. The fund invests in a range of health-care sectors including digital health, medtech and therapeutics in Europe and North America. Gilde Healthcare V will typically invest between €10 million and €40 million in individual companies and have a particular focus on companies that enable improved care at an affordable cost, the firm said in a statement.
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Oaktree Capital Management has raised at least $1 billion for its new Oaktree Latigo Investment Fund LP, a regulatory filing shows. The Los Angeles-based firm said the first and only commitment to the fund so far was received just last week.
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Thomas Masthay takes over as the new director of private equity at the Texas Municipal Retirement System today, replacing Chris Schelling, who left the pension system last month, a spokesman for the pension system confirmed. He joined the organization in January 2015, according to his LinkedIn page. Also, Edbert Schultz has been promoted to replace Mr. Masthay as director of real assets.
Ardian has named Daniel Graf von der Schulenburg as a managing director and head of infrastructure Germany, a new position, starting April 1. Previously, he worked at 3i Group in London as a partner responsible for infrastructure investments in energy, telecommunications and transport. Ardian has $96 billion of assets under management, including $16 billion managed by its infrastructure team, according to a spokeswoman.
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The U.S. economy could contract by as much as 34% in the second quarter and the unemployment rate could reach 15%, warned strategists at Goldman Sachs Group Inc., Rob Curran reports for Dow Jones Newswires, citing a note to clients from analysts at the firm. Meanwhile, at money manager Leuthold Group, Jim Paulsen, chief investment strategist, said the nation may be in for the worst recession since the end of World War II, calling the economy "the inadvertent casualty of a war on a nasty health bug."
Congress and the White House are eyeing another stimulus measure aimed at countering the economic effects of the coronavirus pandemic, this time focusing on infrastructure investments, Catherine Lucey and Andrew Duehren report for The Wall Street Journal. President Donald Trump called for a $2 trillion package, or roughly equivalent to the $2 trillion CARE Act passed last week. But with both houses of Congress in recess, a new measure may not emerge until near the end of April.
Canadian pension system Caisse de dépôt et placement du Québec has mounted several initiatives designed to help companies in the province hit by fallout from the coronavirus pandemic. CDPQ is setting aside 4 billion Canadian dollars ($2.8 billion) to support the liquidity needs of companies that must have been profitable before the pandemic and require at least C$5 million in financing as they recover from the crisis. Also, CDPQ froze senior executives' salaries and won't pay out their 2019 bonuses until the third quarter of this year.
Latin America's economy is likely to fall into recession this year because of the economic impact of the coronavirus pandemic, S&P Global Ratings forecast on Tuesday. The region’s gross domestic product is expected to contract 1.3% this year then bounce back to rise 2.7% in 2021, Stephen Nakrosis reports for Dow Jones Newswires, citing the forecast from the credit ratings company. Previously, S&P had forecast a 1.5% increase in the region’s GDP this year and 2% in 2021.
The Ontario Teachers' Pension Plan Board said its fund ended last year with 207.4 billion Canadian dollars ($145.18 billion) in assets and notched a net annual return of 10.4% on investments, producing about C$20.2 billion in investment income—a record amount. Net assets rose about 8.5% from roughly C$191.1 billion at the end of 2018. The fund reported a 9.7% annualized net return since inception through the end of last year, as well as five- and 10-year returns of 7.8% and 9.8%, respectively, through year-end 2019.
People are buying athletic apparel during the coronavirus outbreak to work out at home and because it's "more casual," says Michael Farello, a managing partner at consumer-focused private-equity firm L Catterton, which backs women's activewear brand Sweaty Betty. Thanks to internet shopping, the retailer is recording year-over-year increases in sales even as it has closed shops in the U.S. and U.K., Mr. Farello told WSJ Pro Private Equity’s Luis Garcia. Self-isolation and working from home has changed demand, though. "We're seeing a lot more yoga, a lot more outdoor-running" outfits, he said.
Private-equity firms, hedge funds and other investors, including Warren Buffett, who are flush with cash are circling the hardest-hit companies in the travel, lodging and entertainment sectors, eager to offer financial lifelines should they be needed, Cara Lombardo reports for The Wall Street Journal, citing people familiar with the matter. As the coronavirus pandemic’s economic disruptions subside, a major source of M&A activity could be hostile takeover bids, with companies emerging from the crisis in relatively strong positions moving on those that struggle to recover.
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