Erin Griffith

Following my post this morning on ABS Capital's partial exit of Rosetta Stone, I spoke with Phil Clough of ABS Capital. He said private equity activity in the education sector, which has proven to be wildly successful for his firm, is getting a bit overheated. It's a curious thing to say; Rosetta Stone's debut traded up more than 40% today, and Bridgepoint Education, another for-profit education company backed by Warburg Pincus, traded up in its debut this week as well. The pair of IPOs are the first PE-backed offerings of the year and mark the first time the markets have seen two IPOs in one week in 11 months. (For context, Thomson Reuters has published a chart showing there was an average of 3.9 IPOs per week in 2007.) And it's not ABS Capital's first success in the sector. The firm made a killing on its offerings of American Public Education, which it floated for 17.1x its money in December. Prior to that, the firm made 2x its money selling CourseAdvisor Inc. to Washington Post after owning it for only a year. And as I reported earlier, ABS Capital is poised to make 6x its money on Rosetta Stone based on a $25 per share stock price. Even so, Clough said finding another home-run education deal in this market wouldn't be as easy.

The education sector has been good to private equity this year, especially in the case of ABS Capital. The firm is poised to earn at least 6x its money on its investment of Rosetta Stone Inc., a foreign language learning software business. Yesterday the company priced its IPO at $18 a share, well above its expected range of $15 to $17. Today, the shares opened at an impressive $23 a share, and as of 11:00 a.m. they had risen above $25. So let’s break down what that means for ABS Capital’s investment. The firm purchased Rosetta Stone with Norwest Equity Partners in 2006 for $62 million. ABS Capital put down $29 million in...

For Sale: Allen Stanford's face, on a souvenir tile. (Reuters) Speaking of Fraud: What's going on with Danny Pang, former exec at Private Equity Management Group? Fake insurance policies? Fake MBAs? Even a Ponzi scheme? (WSJ) Aha! Skype's IPO is set for 2010-not because the company is waiting for the markets to return (though that doesn't hurt), but because it is settle a legal skirmish with its founders. (NY Times) Columnist: Charlie Gasparino writes that recovery is not coming anytime soon. The era of high profits is over. (Daily Beast) On Bankruptcies: Here's some more analysis on Q1 from Financial News. (WSJ)

“Black Swan” author Nassim Nicholas Taleb today told Bloomberg TV that leveraged buyouts are “too close to Madoff” because “you rely on new investors to pay off other ones.” What? Who ever told him that’s how buyout firms pay their returns? Any point about the riskiness of LBOs Taleb was trying to make has officially […]

There’s some tech industry rumbling that’s gotten louder with the news of eBay’s Skype and StumbleUpon spinoffs. Once-acquisitive tech companies are taking a harder look at whether their subsidiaries make sense, with an eye toward possible sales. It may not ultimately lead to increased divestitures, but the pace of analysis on the topic has, as […]

Time To Change It Up: Peter Rip outlines what VCs can learn from PE. "The venture capital game has changed, yet many VCs are still using an old, outdated playbook." (BusinessWeek) We've Been Saying This: Now BreakingViews is. PE needs better governance. LPs, assert yourselves. (Breaking Views) Why Can't You Do Deals? ‘Poison Puts' might be holding you back. Fancy word for change-of-control clauses. (WSJ) Further Coverage: More on how the poison put is affecting Amylin Pharmaceuticals. (BusinessWeek) Ha: Mayor Bloomberg actually said the words, "People that go out and murder people don't read The Wall Street Journal." Cityfile made a nice little endorsement to go with the comment. (Cityfile)

eBay has announced it will take Skype public via IPO in the first half of 2010. The implication for private equity? We now have proof that, at least in this case, the buyer/seller disconnect on pricing will not ease up through the recession, and M&A will remain down. What I mean is that eBay just thumbed its nose at the “masters of the universe,” who have been "raging bulls" -- proclaiming this discounted environment is the “best buying opportunity of their lives” for the past six months. Valuations may be low, but rather than settle, sellers will simply work around it. In eBay's case, this means announcing an IPO rather than negotiating with the company's former founders and four private equity firms. The best part of the IPO press release is the details. Quelling the debate over the company’s profitability, eBay tells us that Skype’s margins in 2008 were approximately 21%. Further: “In 2008, Skype generated revenues of $551 million, up 44 percent from 2007.” Can’t wait to find out what this prices at--if it's above the $2 billion eBay reportedly asked for, KKR, Providence, Warburg and Elevation may regret walking away.

Two can play the game of press leaks. If you read between the lines of yesterday’s reports on eBay’s potential divestitures of Skype, it appears both sides of the deal might be using the media to influence pricing. Before I get into it, I want to mention that a private equity investor told me his firm first received the Skype pitch around nine months ago. The inquiry was led by Mark Dyne of Europlay Capital Advisors. You may remember that name from Skype’s initial sale to eBay—Dyne was a member of Skype’s board (he didn't return calls for comment). My source’s firm passed on the deal because Skype isn’t profitable, he said. The company’s profitability has been debated, but it had $550 million in revenues last year, according to its annual report. So, The New York Times broke the news, reporting that Skype’s founders had been talking with private equity backers to help them buy the company back from eBay. The crucial pricing details are:

Hexion and Huntsman: The deal that never ends. One party is now being haunted by the other in loan negotiations. (Debtwire) At Least Someone Does: A teacher is using the AIG backlash to teach kids compassion. Now they're making cards for AIG employees that say "Keep working hard, dudes! Keep eating your vegatabos!" (Clusterstock) Also From There: Google Health records is just perpetuating antiquated technology. (Cs) Mark To Market: We know, bear rallies hurt the mark-to-market valuations of Public stocks too. Here is exactly how. (WSJ)

Quarry Capital has proven that with a little perseverance, a first-time fund can do its first-ever deal in even the most volatile deal-making market. Granted, it's a very small deal. But the firm is happy to take Royal Pet Supplies off its owners’ hands. Quarry will acquire 100% of the family-run company and its owners will retire. Brent Johnstone, Managing Director with Quarry Capital, said that while the pet supply industry is not necessarily “recession-proof” it is “recession-resistant.” Royal Pet Supplies distributes pet supplies to independent pet shop operators, who he said have been stable through the recession. "People are still spending money on their pets because it is a place of comfort and a source of happiness."