I found out interesting Jack Hough's Barron's write up from last month.
Research firm Preqin puts PE "dry powder" or unused funds it at $300 billion, and Cambridge Associates says $355 billion -- and leverage can multiply the buying power of those dollars. If these funds are not spend within an agreed upon term, usually 5 to 6 years, they must be returned to LPs, foregoing any future fees/gains.
For comparison, the Standard & Poor's MidCap 400, an index of medium-size U.S. companies, has a total stock market value of around $1.2 trillion.
Hough proposes four companies that make up good candidates for PE to buy:
1. Retailer Guess (GES) which trades at 11x earnings (vs. S&P Midcap 400 16x) Market cap. $2.1 bn.. Has very little debt. FCF $124 MM, EV/Ebitda: 4.8x
2. Terex (TEX) (heavy-construction machiner). trades at 12x earnings, Market Cap: $2.5 Bn. FCF $376 MM. Recent price $22.60/sh. EV/Ebitda 8.7x
3. Big Lots (BIG): Market val $1.8 Bn. (stock price $30.29/sh.) FCF: 138 MM. , P/E 11.2, EV/Ebitda 4.9 . It is hard, however, to turn around retailers, but BIG is in the niche thrift low income retailing space that gained during the recession.
4. Charles River Labs (CRL): Market val $1.9 Bn, FCF: $162 MM, Price: $39.44/sh. (14x earnings) EV/Ebitda: 9.7x-kind of high.
For the quarter ended Sep. 29 (Q3), Charles River Laboratories met expectations on revenues and beat expectations on earnings per share. Margins increased across the board. For the quarter, gross margin was 33.5%, 10 basis points better than the prior-year quarter. Operating margin was 13.5%.
Charles River and AstraZeneca announced a drug development partnership in October 2012.
These do look like fairly strong companies, assuming management is interested in selling if they ever receive an offer. PE firms, as a general rule, do not engage in hostile takeovers.
Deals are discussed at a variety of venues, including Conferences such as SuperReturn, which I had the pleasure of attending twice. You can watch an interview with George Siguler at the Conf. last year on his thoughts on the PE industry challeges.
