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PE Firms, SPACs Rekindle Relationships
Florida SPAC Enterprise Acquisition Corp. buys Workflow Management, providing an exit for target's PE investors.
August 26, 2008
Private equity firms are benefiting from one constituent of investors that they also compete for deal flow with: blank check companies.
Special purpose acquisition companies are providing an exit avenue for LBO firms at a time when the initial public offering market remains shaky and the M&A market depressed. In the latest example, Enterprise Acquisition Corp., a Boca Raton, Fla.-based acquisition company, announced its $669 million purchase of Workflow Management on Monday, enabling its Washington and New York-based private equity owner Perseus and Denver-based investment firm The Renaissance Group to realize liquidity on their four-year-old investment.
Perseus and Renaissance did not release details about their return on investment in the Dayton, Ohio-based $1.2 billion revenue-generating printing and promotional products business. The pair acquired control of Workflow Management, a company with 3,300 workers, for $238 million in 2004.
The transaction isn’t the only one in 2008 whereby a private equity investor agreed to sell a portfolio company to a blank check investment entity. In June, Apollo Global Management agreed to sell Hughes Telematics to Polaris Acquisition Corp. for $700 million in a stock-swap transaction, which left Apollo holding its existing $90 million stake in the Atlanta–based GPS supplier.
“There’s a love-hate relationship between private equity and SPACs,” says Michael Tew, a co-founder of SPAC Research Partners, a Palo Alto, Calif.-based research firm focused on the SPAC market. “Private equity firms are always looking to monetize their investments at a premium for their investors and SPACs are looking to create the best deal structure, generally at a discount to what the sellers are looking for.”
The timing for private equity firms to exit via the SPAC avenue is questionable in light of the slowdown in the SPAC public offering market. But, there are close to 80 blank check companies in registration and almost as many seeking acquisitions, meaning that once the IPO mart rebounds there won’t be a shortage of realization opportunities for financial buyers via the acquisition company market.
“SPACs can be a very attractive exit strategy for private equity portfolio companies and entrepreneurs,” said Tew.
The deal by Enterprise is just one of the latest signs that the SPAC market remains active. Earlier this month Chardan 2008 China Acquisition Corp., a blank check company formed to make acquisitions in China, raised $55 million from its initial public offering on the Nasdaq, while the Toronto Stock Exchange proposed new rules for listing blank check vehicles on its exchange.
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