While funding for large leveraged buyouts has dried up in the last month, the middle market M&A climate remains strong, with hundreds of potential deals currently in the pipeline, American Capital Strategies Ltd Chairman and CEO Malon Wilkus said on Wednesday.
Pending tax legislation in Congress will not affect the company's tax bill, Wilkus said in an interview with Reuters.
Wilkus says American Capital is particularly well-suited to weather the credit crunch that has seized markets worldwide and put a damper on the private equity deal bonanza.
The publicly traded, mid-market private equity fund has a syndication group that provides debt for its own deals, allowing the company to take banks out of the LBO process.
American Capital calls this ability a one-stop buyout because it can provide funding for senior debt, mezzanine financing and equity to the small to mid-size deals the company pursues.
We aren't at the mercy of other lenders, Wilkus told Reuters in an interview on Wednesday. We can write one check, buy the company and that makes a huge difference to the sellers. We don't even need to be the highest bidder to win a bid, because we provide such great certainty of closing.
The credit crunch underway has prevented many of those bank lenders from loaning to buyout firms for deals. Big LBO firms such as Kohlberg Kravis Roberts & Co. (KKR.UL: Quote, Profile, Research) are looking to expand their ability to syndicate deals, much in the way that American Capital does.
We syndicate the senior debt, hold the subdebt and keep the equity, Wilkus said, adding that the deals American Capital pursues are not big enough to issue high yield debt -- securities that played a huge role in the two-year leveraged buyout boom.
American Capital is celebrating its 10th year as a publicly traded private equity company.
Private equity firms buy stakes in companies by borrowing most of the money, and typically sell them two to five years later. Recent additions to American Capital's portfolio include payment processor TransFirst Holdings, mattress company Spring Air Co and software company Vision Solutions Inc. Deal sizes for the company range from $50 million to $800 million.
From January 2006 until the end of July 2007, the company's shares rose around 23 percent. American Capital has a more than $7 billion market capitalization and is a member of the Standard & Poor's 500.
But like other publicly traded private equity companies, its shares have taken a hit since early August, when the credit freeze sent a dark cloud over the leveraged buyout market.
American Capital traded at $39.91 per share on Wednesday, down from the $43 range in early August.
Still, Wilkus insists that as a mid-market, pure-play private equity fund in the public market, American Capital is a much different entity than Blackstone Group or Fortress Investment Group -- two large, public funds that do private equity deals and have seen their shares pounded in the last month.
We offer the only opportunity for the average investor to invest in a U.S., publicly traded private equity fund, Wilkus said. He said that American Capital's compounded annual rate of return since it went public was around 22 percent before the market turmoil. Shaky financial markets have only knocked down that rate to 21 percent, he said.
Wilkus on Wednesday stuck with the company's earnings forecast that it gave in its last quarterly conference call.
Wilkus said American Capital's corporate structure is such that it will not be affected by two bills in Congress that plan to raise taxes on private equity firms.
None of these bills will impact American Capital, Wilkus said.
(Reporting by Michael Flaherty)