Private companies worth more today than in years
Jerry Epperson -- Furniture Today, January 12, 2004
We should all congratulate bedding major Simmons for fetching $1.1 billion from a smart investor like Thomas H. Lee Partners, which once owned Stanley Furniture.
Our history with Simmons goes back to when it was a public company run by Grant Simmons. Since then, there have been several owners, including Gulf & Western, Wesray, Merrill Lynch Capital, Investcorp and, most recently, Fenway. (By the way, Simmons has just been named one of the "Best 100 Companies to Work For" by Fortune magazine.)
Simmons, like nearly every company, has had its moments of incredible success, as with the one-sided mattress, and moments that weren't, like with its ready-to-assemble mattress some years ago. Today's Simmons is confident, creative and growing along with its dealers, who have benefited from its new ideas and move towards higher-priced bedding.
As investment bankers, we are acutely aware the stock market has turned for the better, and that banks have become more aggressive in lending.
My partner, Howard Armistead, on the merger and acquisition side of our business, helped me make a presentation at the American Furniture Manufacturers Assn.'s annual economic forecasting conference.
In discussing the current financial markets, he noted that "buy-out" funds, like Thomas H. Lee, raised an average of $50 billion per year from 1998 to 2000, but for a variety of reasons (the stock market collapse, banks' restrictive lending policies, the recession, etc.) the number of transactions dropped from an average of 2,306 per year in the 1998-2000 period to 1,336 in 2001-2002.
As a result, we now have a lot of money aggressively seeking companies to purchase.
Combine that with banks being more aggressive, and the emergence of non-bank debt in their terms on transactional loans, and you have higher prices being paid — the best since 1999, when the banks began tightening. Remember, it was those more restrictive lending terms that contributed to the bankruptcies of many large retailers in 2000.
While purchase prices are increasing in buy-out transactions, more equity also is being required — 40% or more as opposed to 30% or below in the mid-1990s. This should result in safer deals.
Finally, there are some new types, levels and structures of debt helping get deals done, not to mention a myriad of new foreign investors. Given these higher values, you might want to update your buy/sell agreements, consider the implications of transferring stock to family or management, or review estate planning issues.
The bottom line? Private companies are worth more today than in many years.
