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By Stephen J. Gulotta, Jr. and Kenneth Koch
Law360, New York (October 30, 2014, 10:25 AM ET)
Private equity sponsors and investors love the long ball. Who doesn’t? Those doubles, triples and home runs do wonders to enhance the value of the PE portfolio, the sponsor’s reputation and the investors’ return. But what about the singles — the investments that, while not losers per se, do not attain the level of growth and profitability that was projected at the outset?
These investments can drag down the overall value of the portfolio, suppress the portfolio’s rate of return and tie up precious capital. Moreover, given their performance, certain exits and monetizing strategies, such as the traditional initial public offering, a robust auction process and leveraged recapitalizations, may not be available. Fortunately, there are several alternative strategies that may be employed by PE sponsors to exit these investments and, perhaps in the process, stretch singles into doubles.
The menu includes a variety of items that are not part of the regular diet of most PE fund managers, including small-cap and microcap public offerings, reverse mergers and Form 10 transactions, SPAC transactions, middle- market/small-cap sales and a variety of spinoffs, carveouts, splitoffs, and bolt-on transactions.
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Stephen J. Gulotta, Jr., Member
Kenneth Koch, Member
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London
