All private equity eyes are on Canada right now, where the C$52 billion buyout of BCE Corp. seems to be on life support. Something about how KPMG doesn’t believe BCE could possibly remain solvent after taking on tens of billions of dollars in new debt. Seems like somebody got religion…
BCE is the final act of Buyout Binge ’07, which will be recorded either as a tragedy or as a black comedy. The deciding factor will be how hard the equity sponsors work to kill it. I know that some of them still believe in the investment thesis, but can only conclude that’s because they are blinded by personal investment. Not financial investment, mind you, but the more than 18 months of time spent working toward that closing dinner. From a dollars and sense perspective, this deal stopped making sense long ago…
For context, let’s take a quick look at Clear Channel – another mega-buyout that closed long after the credit crisis became apparent (albeit before Lehman collapsed). Moreover, it was a deal in which the equity sponsors – Bain Capital and THL Capital – seemed determine to close, despite the many reasons not to do so.
Bain Capital told investors earlier this week that it has already written down its Clear Channel equity value by 15 percent. That may have been a bit aggressive, but also means that many people inside Bain and fellow equity sponsor THL Capital are already feeling the pangs of timing regret. Sure they got favorable renegotiation of the financing package, but the pair also (quietly) bought more than $2 billion in Clear Channel senior debt (it was a leveraged purchase, but still…).
Sure Clear Channel and BCE are different businesses, but their buyout deals share similarly inflated equity values and massive leverage burdens. These are the types of transactions that won’t be agreed to again for years, and BCE’s equity sponsors should think long and hard about why. If this deal can only be salvaged by hard work, it’s time to take a vacation. Perhaps it would hurt a bit today, but it would hurt far more tomorrow.
