BRIEF-Gemini reports Q1 net loss per share of $0.04
* Now expecting revenue for 2017 to be less than 2016 but expects activity to pick up in second half of 2017 into 2018 Source text for Eikon: Further company coverage:
* Buyout firms eye minority stakes, seek board seats
* Deals require no debt financing
* Still looking for 25-30 pct gross returns
For more Reuters DEALTALKs, click [DEALTALK/]
By Simon Meads
LONDON, July 2 Buyout firms are eyeing minority stakes in publicly listed companies as sparse credit conditions prompt them to look for deals requiring no leverage -- although they still want private-equity style returns.
Debt funding for buyouts has dried up in the wake of the credit crisis, leading many large European and U.S. buyout houses to consider PIPEs -- private investment in public equity -- as a means of putting their $1 trillion cash pile to work.
"I suspect every firm at the moment is, or should be, looking at the public market as a source of deals," said Michael Wand, managing director at the Carlyle Group [CYl.UL].
Wand said Carlyle was not likely to do PIPE deals "right and left" but would invest if it liked a public company and could attain enough control in this way.
One recent example is Carlyle's return as a shareholder of German human resources software and services company Personal & Informatik (P&I) through the purchase of a 29.34 percent stake.
It had owned a majority stake in the business until 2007 before selling out, but decided to reinvest as it thought P&I's recent performance had yet to be reflected in the share price, Wand said.
Elsewhere, BC Partners [BCPRT.UL] last week agreed to invest $350 million in Office Depot ODP.N, the U.S. office products firm, in a deal that could give it around 20 percent of the group. [ID: nN2338798]
BC reckons it could make gross returns of 25 to 30 percent, aided by a 10 percent dividend payout, senior partner Jamie Rubin said. Rubin said Office Depot's profitability was likely to soar as the downturn ends.
"We are expected to make investments that hit return parameters: if it didn't hit return parameters in a reasonable case, we wouldn't do it, even if we had tremendous downside protection," said Rubin.
Other deals agreed with public companies could see Bain Capital take about 23 percent of Chinese electronics retailer GOME (0493.HK), and Advent International take around 28 percent of Brazilian educational group Kroton KROT11.SA. [ID:nHKG70961] [ID:nN25250804]
Minority investments do not always work out as planned, however, and can be unpopular with private equity investors as they see firms buying shares in public companies -- something they could do directly without a layer of fees.
Permira [PERM.UL] recently sold its 14 percent stake in British soft drinks firm Britvic (BVIC.L) -- originally intended as a springboard for mounting a bid -- with only a marginal gain.
Elsewhere, Blackstone (BX.N), which invested $3.3 billion in Deutsche Telekom (DTEGn.DE) in 2006 at 14 euros a share, has seen the stock lose almost 40 percent of its value.
Firms looking at PIPEs need to be sure of the potential for adding value and need to communicate that to limited partners -- the private equity investors, said Carlyle's Wand.
Being able to influence directly the governance and the strategy of the target company are key considerations, he added.
Carlyle expects to take one or two seats on P&I's board of three, while BC Partners will take three seats on Office Depot's 14-strong board. Their leading positions on the share register will also give them a strong position in shareholder votes.
In some cases, public companies are now approaching private equity firms, looking for an anchor investor to support their strategic decisions, said Wand.
However, PIPEs are complex to structure and execute, said Andrew Roberts, partner at law firm Travers Smith, with only the most determined able to do the deal. (Editing by Simon Jessop)
* Ironhorse announces Q1 2017 financial and operating results
* AT&T announces IBEW-represented employees vote to ratify midwest wireline agreement