Wednesday, October 15, 2008

Number one, and on the run

Back when I was a much younger man, dabbling occasionally in early hip-hop, the letters "PE" immediately brought to mind (beyond memories of humiliating episodes on the basketball court) "Public Enemy," of course. Now, as a somewhat older man, "PE" clearly stands for "Private Equity," though the two may still occasionally be confused in popular media coverage. 

I have recently made the point (here, and here) that there are going to be some very interesting opportunities around picking up the pieces from PE deals which, in hindsight, look somewhat less than inspired, or sales of good investments under duress. One doesn't have to look too far to see signs of strain emerging. 

First to Italy, where a private equity consortium has a controlling stake in directories/online media group Seat Pagine Gialle, whose equity has been crushed (-74%) this year. Yesterday, MF reported that the consortium was looking at consolidating its holdings in a single entity, as a precursor to taking the company private and finding a buyer. Today it looks as though perhaps this is not going to happen, due to a mandatory tender to the minorities which might subsequently arise, so it would seem that the PE parties involved are stuck in a holding pattern - probably not where they want to be. 

Next to Poland, where Icelandic investor Novator holds 30% of Netia, Poland's largest altnet in the wake of the Tele2 deal. Just two days back, Novator sold out of its remaining position in Elisa, which presumably reflects a need to claw back some capital, as one might infer from this article. At its current market cap of PLN903m, adjusted for a net cash position of PLN200m, Netia is trading at just over 3x EV/EBITDA on a prospective 2009 basis, which seems a bit harsh. There is obviously a significant overhang for anyone other than someone looking to take out Novator's stake, but I expect we may see that soon enough. 

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