Mode note: Blast from the past - "Best of Eddie" - this one is originally from December 2010.

Monty09 may have gotten the best plug yet for his Energy Rodeo in Houston next month, and it came from none other than the New York Daily News. The Daily News piece on the ridiculous cost of living in New York pointed out that it takes six figures just to make it into the middle class in the city, and a New Yorker has to earn $123,322 a year just to match the lifestyle $50,000 a year buys in you Houston. On top of that, $60,000 a year in Manhattan is the equivalent of just $26,000 a year in Atlanta - just over the poverty line.

What the article doesn't mention, however, is perhaps the most compelling reason to choose Houston or another southern city over the Big Apple: GRITS.

No, I'm not talking about the delicious breakfast staple. I'm talking about Girls Raised In The South.

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Inspired by comments from this: http://www.wallstreetoasis.com/forums/basic-guide-...

Lets just jump in.

Technology: In this space there are really two metrics that matter the most, sales growth and EPS growth. EV/Sales will be used if you are thinking about investing in growth companies (IPO valuations). To keep the post short if you’re investing in large tech it is more about EV/EBITDA (cash flow) and P/E’s, if you’re investing in growth stocks it is more about year over year sales growth and EPS growth since many do not have positive earnings.

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Aspen Aerogels, Inc. said it raised $22.5 million in a convertible note financing and has decided not to pursue an initial public offering. The company said it will withdraw its S-1 registration statement.The new money will be used for working capital.

PRESS RELEASE

Aspen Aerogels Announces $22.5 Million Private Placement

NORTHBOROUGH, Mass., May 17, 2013 /PRNewswire/ — Aspen Aerogels, Inc., a leading provider of aerogel insulation, announced it has successfully raised $22.5 million in its latest convertible note financing. The funds will be used for working capital to support revenue growth and for capital expenditures to improve the efficiency and throughput of existing manufacturing assets. This round brings Aspen’s total funds raised through issuance of convertible notes to more than $80 million.

“This financing is expected to provide Aspen with sufficient funding to continue to grow our business to meet increasing demand for our aerogel blankets. We also remain laser focused on improving our profitability while investing for growth,” said Don Young, President and CEO of Aspen Aerogels, Inc.

In conjunction with the recent financing, Aspen has decided not to pursue an initial public offering at this time. The company intends to withdraw its registration statement on Form S-1 as filed with the Securities and Exchange Commission.
“We believe our recent financing provides Aspen with the financial flexibility to pursue a range of financing and strategic opportunities in the future,” said Mr. Young.

Aspen Aerogels is a leading provider of industrial aerogel insulation, which delivers maximum thermal protection with minimal weight and thickness. Its flexible blanket form is up to five times thinner than traditional insulation products, saving space and total installed cost on piping, vessels, tanks and equipment. Aspen’s insulation product line is used in industrial facilities worldwide on applications ranging from -460 degrees F (-270 degrees C) to 1200 degress F (650 degrees C) and in wall-systems for commercial and residential buildings.

About Aspen Aerogels, Inc.

Aspen Aerogels (www.aerogel.com) supplies reinforced, flexible aerogel insulation products that provide up to five times the thermal performance of other widely-used insulation materials. Aspen’s aerogel insulation delivers thermal and other benefits that enable customers to conserve energy and save money in many industries including oil and gas production and processing, LNG transportation and storage, building and construction, outdoor apparel, appliances, transportation, military and aerospace. Headquartered in Northborough, Mass., Aspen manufactures its Cryogel®, Pyrogel® and Spaceloft® products at a state-of-the-art, high-capacity plant in East Providence, R.I.

The securities offered in the private placement have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or applicable state securities laws.  Accordingly, the securities may not be offered or sold in the United States except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act and such applicable state securities laws.

This press release does not constitute an offer to sell or a solicitation of an offer to buy securities, nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of such state.

This press release contains “forward-looking” statements about Aspen Aerogels and its products and technology.  Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.  These risks and uncertainties include, among other things, the possibility that Aspen Aerogels’ future funding requirements or financial performance, including cash from operations, will not meet its expectations, and that demand for its products will be less than anticipated.  Aspen Aerogels assumes no obligation to update the forward-looking statements contained in this release as the result of new information or future events or developments.

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Jelly Industries, a startup from Twitter co-founder Biz Stone, has closed a Series A round led by Spark Capital. SV Angel also invested, according to an announcement on Jelly’s site. Other investors in the company include Jack Dorsey, Square’s co-founder and CEO; Bono; Reid Hoffman of Greylock Discovery Fund and Al Gore. Stone is co-founder and CEO of Jelly, which is based in San Francisco.

ANNOUNCEMENT

A group of jellies is called a bloom, and this group just closed its Series A. Our round was led by Spark Capital with additional investment by SV Angel. With this investment, Spark General Partner Bijan Sabet joins Jelly’s board of directors. We’re also proud to announce a group of committed individual investors who share our optimistic worldview and believe in our vision.

Jack Dorsey, Co-founder and CEO of Square
Bono, Musician and Activist
Reid Hoffman with the Greylock Discovery Fund
Steven Johnson, Author and Entrepreneur
Evan Williams and Jason Goldman via Obvious
Al Gore, Politician, Philanthropist, Nobel Laureate
Greg Yaitanes, Emmy Winning Director
Roya Mahboob, Afghan Entrepreneur and Businesswoman

We chose angels like Al Gore, a Partner at KPCB and Chairman and Co-founder of Generation Investment Management, Greg Yaitanes, a Hollywood director, and Roya Mahboob, an entrepreneur doing amazing work for women in Afghanistan partly because they work in divergent fields. Knowledge diversity is something we prize highly and is also something that will be represented in our product.

As mobile devices have taken an increasingly central role in our lives, humanity has grown more connected than ever—herein lies massive opportunity. With this capital raise, Jelly has the means to hire more great talent and continue building what we think of as the natural next step for our connected society. We will share more about Jelly from a product perspective when we move beyond early prototyping.

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Great Hills Partner said Friday that Charlie Papazian, a Vice President on its investment team, passed away due to complications from an injury. Papazian joined Great Hill in 2001 and returned to the firm after graduating from Harvard Business School in 2008. “He was an incredibly smart, diligent and humble professional, but most importantly, he was a wonderful person with a big heart and a great sense of humor,” Great Hill said of Papazian.

PRESS RELEASE

Boston, MA – May 17, 2013 – Great Hill Partners mourns the loss of Charlie Papazian, a Vice President on its investment team, due to complications from an injury suffered last August.  Charlie passed away peacefully surrounded by his family on May 9. Charlie originally joined Great Hill Partners in 2001 and returned to the firm after graduating from Harvard Business School in 2008.  He was an incredibly smart, diligent and humble professional, but most importantly, he was a wonderful person with a big heart and a great sense of humor.  Charlie leaves behind his beloved wife Christie and their daughter Molly, whom he adored.

Here is what we sent to our limited partners earlier today:

To Our Partners:

It is with great sorrow that we are writing to inform you of the loss of our friend and colleague, Charlie Papazian.  Due to complications from an injury suffered last August, Charlie passed away peacefully surrounded by his family on May 9.  As many of you know, Charlie originally joined Great Hill Partners in 2001, returned to the firm after graduating from Harvard Business School in 2008, and most recently served as a Vice President on our investment team.  He was an incredibly smart, diligent and humble professional, but most importantly, he was a wonderful person with a big heart and a great sense of humor.  Charlie leaves behind his beloved wife Christie and their daughter Molly, whom he adored.

Charlie was an integral part of our Great Hill family.  For those of you who had the chance to meet Charlie, we are sure you will join us in missing him dearly.

Great Hill Partners

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Univar, a global chemicals distributor, said on Thursday that it has acquired Quimicompuestos, a leading Mexico-based distributor of commodity chemicals. Financial terms of the transaction were not disclosed. A portfolio company of Clayton, Dubilier & Rice and CVC Capital Partners, Univar has more than 260 facilities in North America, Europe, the Asia-Pacific region, and Latin America, with additional sales offices in Eastern Europe, the Middle East, and Africa.

PRESS RELEASE
16 MAY 2013
REDMOND, Wash. and MONTERREY, Mexico – May 16, 2013 – Univar Inc., a leading global distributor of chemistry and related services, today announced it has completed the acquisition of Quimicompuestos, a leading distributor of commodity chemicals in Mexico. Terms of the acquisition were not disclosed.
Quimicompuestos is a leading chemical distributor in Mexico. The company has strong relationships with over 50 key suppliers, and delivers over 100 products to more than 4,500 customers in 25 diverse end markets. The company is well positioned in Mexico, with a nationwide distribution network and strong expertise in high growth industries.
“We are extremely pleased to announce the acquisition of Quimicompuestos,” said Erik Fyrwald, President and Chief Executive Officer of Univar. “Quimicompuestos provides a strong commodity business with reach throughout Mexico and is a recognized leader in key industries driving the region’s growth including those like Oil & Gas and Coatings & Adhesives. The combination provides a platform for future growth and enables us to offer our customers and suppliers the complete, end-to-end value proposition with both specialty chemical and commodity offerings.”
“Univar is an excellent partner for Quimicompuestos,” said Edmundo Sillas Vidal, President and Chief Executive Officer of Quimicompuestos. “The combination will create many synergies by providing enhanced services for our customers, access to a broader base of chemical manufacturers and products, and opportunities to leverage the global capabilities of Univar.”
About Quimicompuestos
Quimicompuestos was founded in 1984 and is headquartered in Monterrey, Mexico. The company’s 17 locations provide a broad, nationwide infrastructure. They currently partner with over 50 key suppliers and serve more than 4,500 customers in diverse end markets. Quimicompuestos distributes over 100 products from its facilities, including a range of thinners, aromatics, aliphatics, alcohols, ketones, esters, glycols, glycol ethers, monomers, blends, and acids.
About Univar
Univar is one of the world’s leading distributors of industrial and specialty chemicals. Univar represents over 3,500 chemical producers and provides its customer base, made up of 115,000 customers, with a full portfolio of products. Univar operates a global network of more than 260 facilities in North America, Europe, the Asia-Pacific region, and Latin America, with additional sales offices located in Eastern Europe, the Middle East, and Africa. In 2011, Univar reported sales of $9.7 billion. For more information, visit: www.univar.com.

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I work as a long/short equity analyst at a large hedge fund. I've been lucky enough to be more than just a model monkey early on in my career, but have also been exposed to the stress of being measured on returns. I primarily cover consumer and TMT names. I went the typical path (target school --> IB --> HF), but have insight for those that have to follow more non-traditional paths.

ps I did one of these last year that you can see here: "Finishing 1st Year as HF Analyst - Ask Anything"

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Summit Investments said on Friday that it has launched Polar System, which is is designed to gather 50,000 barrels of crude oil per day, in Williams County, North Dakota. Summit Investments (or Summit Midstream Partners, LLC) owns a 69% limited partnership stake in Summit Midstream Partners, LP, which is focused on exploring energy assets in North America. Summit Investments is headquartered in Dallas, TX with offices in Houston, TX, Denver, CO and Atlanta, GA.

PRESS RELEASE
DALLAS, May 17, 2013 /PRNewswire/ — Summit Midstream Partners, LLC (“Summit Investments”), the privately held company that owns and controls the general partner of Summit Midstream Partners, LP (NYSE: SMLP) and owns a 69.1% limited partner interest in SMLP, announced today that it has commenced operations of the Polar Crude Oil and Water Gathering System (the “Polar System”) in the Bakken Shale Play in Williams County, North Dakota. The Polar System is designed to gather 50,000 barrels of crude oil per day and 25,000 barrels of water per day from the Bakken and Three Forks shale formations in North Dakota. The Polar System includes approximately 50 miles of crude oil gathering pipeline and 35 miles of water gathering pipeline. Crude oil gathered on the Polar System is delivered to the COLT Hub Terminal in Epping, North Dakota under long-term, fee-based gathering agreements. Kodiak Oil & Gas Corp. is the anchor customer on the Polar System.
Steve Newby , President and CEO of Summit Investments commented, “The start-up of the Polar System is a key milestone for Summit as it diversifies our service offerings and provides much needed gathering infrastructure in the region. We are excited about the potential of the Polar System given its strategic location in one of the largest and fastest growing crude oil basins in the United States.”
About Summit Midstream Partners, LLC
Summit Midstream Partners, LLC is a growth-oriented midstream energy company focused on owning and operating midstream energy infrastructure assets that are strategically located in the core areas of unconventional resource basins, primarily shale formations, in North America. Through its ownership of (i) Summit Midstream GP, LLC, the general partner of Summit Midstream Partners, LP; (ii) a 69.1% limited partner interest in Summit Midstream Partners, LP; (iii) a 100% ownership of Red Rock Gathering Company, LLC; and (iv) a 100% ownership of Meadowlark Midstream Company, LLC, Summit Investments provides primarily fee-based natural gas gathering, treating, processing, and compression services, as well as crude oil and water gathering services supporting some of the largest oil and gas exploration and production companies in North America in the Piceance Basin in western Colorado, the Fort Worth Basin in north-central Texas, the Uinta Basin in eastern Utah, the Williston Basin in northwestern North Dakota, and the Denver-Julesburg Basin in northeastern Colorado. Summit Investments is headquartered in Dallas, TX with offices in Houston, TX, Denver, CO and Atlanta, GA.
Summit Investments was formed in 2009 by members of management and funds controlled by Energy Capital Partners II, LLC. Together with its affiliates, Energy Capital Partners is a private equity firm with over $7.5 billion in capital commitments that is focused on investing in North America’s energy infrastructure. In August 2011, Energy Capital Partners sold an interest in Summit Investments to GE Energy Financial Services. GE Energy Financial Services invests globally in essential, long-lived and capital-intensive energy assets.
For more information, visit Summit’s website at www.summitmidstream.com, Energy Capital Partners at www.ecpartners.com and GE Energy Financial Services at www.geenergyfinancialservices.com.
SOURCE Summit Midstream Partners, LLC

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Tableau Software has raised $254.2 million after selling 8.2 million shares at $31 each, above its $28 to $30 range, via join bookrunners Goldman Sachs and Morgan Stanley. Tableau itself is selling 5 million shares while certain stockholders are unloading 3.2 million. New Enterprise Associates and Meritech Capital own stakes in Seattle-based Tableau.

PRESS RELEASE

Tableau Software, Inc. (NYSE: DATA) today announced the pricing of its initial public offering of 8,200,000 shares of its Class A common stock at a price to the public of $31.00 per share. A total of 5,000,000 shares are being offered by Tableau Software, and a total of 3,200,000 shares are being offered by certain selling stockholders. The shares are expected to begin trading on the New York Stock Exchange on May 17, 2013 under the symbol “DATA”. In addition, the underwriters have been granted a 30-day option to purchase up to an additional 1,230,000 shares of Class A common stock from Tableau Software. Tableau Software will not receive any proceeds from the sale of shares by the selling stockholders.

Goldman, Sachs & Co. and Morgan Stanley & Co. LLC are acting as lead joint book-running managers for the offering. Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC are acting as book-running managers. UBS Securities LLC and BMO Capital Markets Corp. are acting as co-lead managers, and JMP Securities LLC is acting as co-manager.

A registration statement relating to these securities has been filed with the Securities and Exchange Commission and was declared effective on May 16, 2013. The offering is being made only by means of a prospectus. A copy of the final prospectus relating to the offering, when available, may be obtained from: Goldman, Sachs & Co., Attention: Prospectus Department, 200 West Street, New York, NY 10282, telephone: 1-866-471-2526, email: prospectus-ny@ny.email.gs.com; or from Morgan Stanley & Co. LLC, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, NY 10014, telephone: 1-866-718-1649, email: prospectus@morganstanley.com.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

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Look, I can understand counterfeiting Gucchi or Prada stuff and even electronics like Iphones. But Condoms... Really?? That is just... absolutely absurd.

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Skyword has received $6.7 million in growth capital from a financing round led by Cox Media Group. In addition to Cox Media Group, Skyword is also backed by Allen & Company, Progress Ventures, and American Public Media Group. Skyword is a content marketing platform based in Boston.

PRESS RELEASE

BOSTON, MASS. — May 17, 2013 — Skyword, the leading platform for quality, original content production at scale, today announced it has closed $6.7 million in growth financing led by Cox Media Group. The investment will be used to expand the team and help scale the company to meet increasing customer and partner needs as content marketing becomes an integral part of brand marketing initiatives and digital content production for media companies.

“We see tremendous market opportunity for Skyword. With its powerful combination of visionary leadership, innovative technology, extensive writer network, and blue-chip customer successes, the company is poised for explosive growth as agencies, brand marketers and media companies increasingly look for ways to use quality, original content to reach and connect with consumers in a digital era,” said Shereta Williams, vice president of corporate development, Cox Media Group.

The Skyword Platform streamlines and automates the critical steps in the content creation and publishing process and provides marketers and publishers unmatched content intelligence. This includes the SEO scorecard assessment to ensure content will earn high search rankings, streamlined content promotion across various social channels, and the ability to track real-time search engine referral information so marketers can map content creation strategies to trending topics and stay ahead of industry developments. Skyword also collects search/social performance data, allowing users to continually improve content offerings based on the customers’ needs, and provides complete transparency into the editorial process with access to a network of thousands of professional freelance writers.

“We are in the midst of a perfect storm in the digital information era. Today’s converged media landscape and the evolving relationship between brands and consumers are driving marketers and publishers to rethink their tried-and-true strategies and invest in new technology solutions to better connect with customers,” added Tom Gerace, founder and CEO of Skyword. “Cox Media Group continues to be a strategic partner in our growth as we push to reshape the industry.”

Skyword’s Board of Directors is chaired by Jim Manzi, former CEO of Lotus Development Corporation and current chairman of Thermo Fisher, and includes: Shereta Williams, vice president of corporate development for Cox Media Group; Former Senator Bill Bradley, currently of Allen & Company; Bill Kling, founder and President Emeritus of American Public Media Group; and Tom Gerace, founder and CEO of Skyword.

About Skyword
Skyword delivers all that organizations need to reach and engage their audiences with quality, original content designed to succeed in search and social media. Quality content is essential for reaching and engaging consumers today, but the creation process is messy, inconsistent and immeasurable. The Skyword Platform makes it easy to produce, optimize and promote content at any scale to create meaningful, lasting relationships with customers. Skyword also provides access to a community of more than 20,000 professional writers, and its content strategy and editorial teams can help ensure the ongoing success of clients’ content programs. Skyword is a privately held, privately funded company headquartered in Boston, Massachusetts. Investors include Allen & Company, Progress Ventures, Cox Media Group and American Public Media Group.

About Cox Media Group
Cox Media Group, Inc. is an integrated broadcasting, publishing, direct marketing and digital media company that includes the national advertising rep firms of Cox Reps. With $1.8 billion in revenue, the company operations include 15 broadcast television stations and one local cable channel, 85 radio stations, eight daily newspapers and more than a dozen non-daily publications, and more than 100 digital services. Additionally, CMG owns and operates Valpak, one of the leading direct marketing companies in North America. For more information about Cox Media Group, please check us out online at www.coxmediagroup.com.

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Assisted Living Concepts announced on Thursday that its stockholders had approved TPG‘s previously announced plan to acquire the company. Under the agreement, ALC stockholders will receive $12 in cash for each share of Class A common stock while holders of ALC’s Class B common stock will receive $12.90 in cash per share. The transaction is expected to close this summer. Assisted Living Concepts is a Wisconsin-based operator of housing for senior citizens.

PRESS RELEASE
MENOMONEE FALLS, WI–(Marketwired – May 16, 2013) – Assisted Living Concepts, Inc. (NYSE: ALC) (“ALC”) announced that, at a special meeting of stockholders held earlier today, its stockholders voted to approve the previously announced merger agreement with affiliates of TPG. Under the terms of the merger agreement, ALC stockholders will receive $12.00 in cash for each share of Class A common stock. In accordance with the ALC charter, based on the Class A per share merger consideration, holders of ALC’s Class B common stock will receive $12.90 in cash per share.
According to a preliminary report of the inspector of election, more than 81 percent of the voting power of shares of ALC’s common stock held by all stockholders and more than 61 percent of the voting power of shares of ALC’s Class A common stock held by unaffiliated stockholders were voted in favor of approval of the merger agreement. Additionally, more than 77 percent of the voting power of shares of ALC’s common stock held by all stockholders voted in favor of the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to ALC’s named executive officers in connection with, or following, the consummation of the merger.
The acquisition is subject to the receipt of customary regulatory approvals and other customary closing conditions. The transaction is expected to close in the summer of 2013.
About ALC
Assisted Living Concepts, Inc. and its subsidiaries operate 210 senior living residences comprising 9,313 resident units in 20 states. ALC’s senior living residences typically consist of 40 to 60 units and offer a supportive, home-like setting. Residents may receive assistance with the activities of daily living either directly from employees or through our wholly owned home health subsidiaries. ALC employs approximately 4,600 people.
About TPG
TPG is a leading global private investment firm founded in 1992 with $54.5 billion of assets under management and offices in San Francisco, Fort Worth, Austin, Beijing, Chongqing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, São Paulo, Shanghai, Singapore and Tokyo. TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings. The firm’s investments span a variety of industries including real estate, healthcare, financial services, travel and entertainment, technology, energy, industrials, media and communications, retail and consumer. For more information, visit www.tpg.com.
Safe Harbor Statement
Statements about the expected timing, completion and effects of the proposed merger and all other statements made herein that are not historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements may be identified by the use of words such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “continuing”, “believe” or “project”, or the negative of those words or other comparable words. Any forward-looking statements included herein are made as of the date hereof only, based on information available to ALC as of the date hereof, and, subject to any applicable law to the contrary, ALC undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking statements are not a guarantee of future performance and are subject to a number of risks, assumptions and uncertainties that could cause ALC’s actual results to differ from those projected in such forward-looking statements. Such risks and uncertainties include: any conditions imposed on the parties in connection with consummation of the transactions contemplated by the merger agreement; the ability to obtain regulatory approvals of the transactions contemplated by the merger agreement on the proposed terms and schedule; ALC’s ability to maintain relationships with customers, employees or suppliers following the announcement of the merger agreement; the ability of the parties to satisfy the conditions to closing of the transactions contemplated by the merger agreement; the risk that the transactions contemplated by the merger agreement may not be completed in the time frame expected by the parties or at all; the risks that are described from time to time in ALC’s reports filed with the SEC, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on March 14, 2013, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and in other of ALC’s filings with the SEC; and general industry and economic conditions.

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Top stories in this morning’s LBO Wire:

Move over, Bacchus Capital Management: There’s another private equity firm entering the wine market. Amy Or reports that Golden Equity Investments has acquired Yountville, Calif., boutique winery Goosecross Cellars. While Bacchus is set up specifically for vineyard investments like the deals announced earlier this week for Panther Creek Cellars and DeLille Cellars, Goosecross represents a bit of a departure from Golden Equity’s focus on midmarket manufacturing businesses. “We veered a little bit away from that,” said Golden Equity analyst Heidi Robbins, “but we joked that Goosecross still manufactures things.”

More stories available to LBO Wire subscribers: A Securities and Exchange Commission filing shows that Levine Leichtman Capital Partners appears to be nearing the halfway point for its latest fund…Univar, backed by Clayton Dubilier & Rice and CVC Capital Partners, buys Mexican commodity chemicals distributor Quimicompuestos…and Aldine Capital Partners raises $31.3 million toward the $70 million goal for its second mezzanine and subordinated debt fund.

(LBO Wire is a daily newsletter with comprehensive analysis of all the investments, deals, fundraisings and personnel moves involving private equity firms. For a two-week trial, visit our homepage, scroll to the bottom and click “try for free.”)

Elsewhere on the Web:

Blackstone Group is planning a “super” hedge fund that will cherry-pick top trades from third-party vehicle with which it invests in return for paying them a commission, according to the Financial Times.

The Independent quotes Simon Brorrows, the chief executive of 3i Group , as saying activist investor Ed Bramson “has not given any indication of what he is doing” by buying up the private equity group’s publicly traded shares through his investment firm Sherborne Investors Management.

Dell posted a nearly 80% decline in net income for the fiscal quarter ended May 3 as Chief Executive Michael Dell and Silver Lake Partners vie against Carl Icahn and Southeastern Asset Management to buy out the computer maker, Shira Ovide and Ian Sherr report for The Wall Street Journal.

Write to Thomas Dunford at thomas.dunford@dowjones.com

A recent Free exchange column discusses the European Central Bank's troubles in providing support to peripheral economies (summary here). We are inviting experts in the field to comment on the piece and related research. Michael McMahon, a macroeconomist at the University of Warwick commented here. Gilles Moec, co-head of European economic research at Deutsche Bank, added thoughts here. Luis Garicano, professor of economics at the London School of Economics, contributed here. Christopher Bowdler, a fellow in economics at Oriel College, University of Oxford, commented here. Next up is William Porter, head of European credit strategy at Credit Suisse.

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The first 17 years of EMU saw real currency appreciation on the periphery. In the theory of monetary union, such moves return to equilibrium over time. In practice we have instead hit the zero bound and the monetary system cannot deliver the adjustment smoothly. The result has been an abrupt “internal devaluation”. Spain’s external accounts are now in equilibrium, but at an unbearably low level of economic activity which was definitely not in the theory. Spain in our view is the tipping point at which periphery issues can no longer be considered peripheral.

An “internal devaluation” and a “true devaluation” are different. Both address flow but only a “true devaluation” adjusts stock. Consider a counter-factual, where Spain had remained in Stage 2 of EMU (ie in the ERM, not the euro) and had realigned 30%, rather than “internally devalued”. The effect on flow accounts such as wage costs would be the same, but not on the stock. Every euro in every (Spanish law) financial instrument in Spain would be worth 70¢. As we stand, they are all still worth a euro. Many domestic entries would offset, but Spain’s external creditors would be worse off. This stock problem, well understood as a consequence of foreign exchange rate moves, remains when nominal rates are fixed, and cannot just be assumed away. Consider the value of the capital structure of a company whose costs and revenues have both fallen by 30%, to illustrate the idea very simply.

We believe that equivalent costs will come to the core regardless of nominally-fixed rates. No-one, least of all core creditors, wants to acknowledge this because no-one likes to recognise a loss that can be extended behind more acronyms and a lazy assumption that all euro are created equal and have remained equal even as real FX moves occurred.

As we have seen clearly in Greece and Cyprus, and more subtly in Ireland, the stock loss tends to show up somewhere and in our view it will show up somewhere in Spain. It can be assumed away through assumed future relative competitiveness gains, but as we have said, this mechanism is not working, with a possible exception in Ireland. In fact in Spain, we seem to have a self-fueling loop operating against it.

For a while, the market feared the stock problem showing up in the value of government bonds, through restructuring or Spain “leaving EMU” (never a possible policy). Mario Draghi knocked that on the head and for now has removed “tail risk” from Spanish government bonds and from correlated asset classes such as the bonds of “TBTF” banks and of supra-national corporates. But he cannot make the stock issue go away; rather, in buying time by excluding it from certain spheres, thereby creating the illusion that the crisis is over as bond yields converge, he can only concentrate it on others. Such as loans to SMEs operating in an “internally devalued” environment, mortgages being serviced in the same, unguaranteed deposits in “small enough to fail” banks, backed by such mortgages and loans, and the like. Suddenly this emerges as a theme because the effect on the real economy, which ultimately underlies all financial transactions, becomes apparent.

This effective tiering means that investing in SME loans (or any financial asset outside the umbrella that Mr Draghi created) at par is a loss-making proposition. Distressed investors are interested, but not at par. Their traditional “bid” is 55¢; the offer, naturally, remains at par. Business could probably be done at 70¢, fairly reflecting the effect of the “internal devaluation” on stock items, but this is not a prospect. Widespread transactions at “devalued” prices would require recapitalisation of the banking system, but that system would then again be making par loans at par. There is nothing in principle unmanageable in this. What is unmanageable is pretending that the stock issue does not exist, and hoping that the self-fueling consequences of such denial magically reverse themselves.

The result is that banks cannot lend because making the loans at “non-devalued” terms is a lossmaking proposition, as evidenced by the continuing sharp rise in “doubtful” loans to productive sectors. So the outright level of loans to such companies is falling at 30% annual rates. These are the very companies which would have to power any improvement in competitiveness.

So this process initiated by the denial of a stock problem is self-fuelling and, if unaddressed, will lead to an unstable outcome.

There are no easy answers; the ECB easing funding for such loans is no answer at all if the banks think they are 70¢ loans being made at par. Marginally easier funding will barely enter the calculations, and will bring forward the day when ECB exposure to banking systems caught in this subtly-hidden dual currency regime will become more of an issue (collateralisation with tail-risk-free, ie premium, investments such as Spanish government bonds, eases the ECB’s concerns for now). Some central agency directly making such loans at par (displacing local creditors) and then taking any haircut would be a way to transfer costs to the core, aka a fiscal transfer mechanism, but would be a massive extension of the ECB’s role. This would require a profound crisis before the ECB (which will always preserve itself in extremis) was thus incentivised. And we are orders of magnitude away from the capital the European Investment Bank would need in order to act as transmission mechanism for these losses. Far more likely, on current trends, is a debilitating crunch and wholesale restructuring of the banking system. Anything to avoid taking a loss today.

The headline news out of Preqin's recent Hedge Fund Spotlight was that long/short hedge funds are faring well, outperforming all other strategies in the first quarter and finding favor with more institutional investors.

Most in the industry believe that the dismal state of Dell's earnings strengthens Michael Dell's hand when it comes to the leveraged buyout offer he and Silver Lake have on the table. The deal for $13.65 looks richer and richer as the company's operating prospects tumble.

Once home prices were battered into submission, private equity firms rode to the rescue, sensing the deal of a lifetime.

To Buy Bonds or Not to Buy: Fed Hawks, Doves Air Views (WSJ) The presidents of the Dallas, Richmond and Philadelphia Federal Reserve banks, long skeptics of the wisdom of the bond buying, said this week that they would like to see the purchases scaled back immediately. And San Francisco Fed President John Williams, who…

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A recent Free exchange column discusses the European Central Bank's troubles in providing support to peripheral economies (summary here). We are inviting experts in the field to comment on the piece and related research. Michael McMahon, a macroeconomist at the University of Warwick commented here. Gilles Moec, co-head of European economic research at Deutsche Bank, added thoughts here. Luis Garicano, professor of economics at the London School of Economics, contributed here. Next up is Christopher Bowdler, a fellow in economics at Oriel College, University of Oxford.

Despite a range of constraints on its ability to launch unconventional monetary policy measures, the ECB has played a key part in managing the Eurozone crisis, particularly through large scale and long maturity liquidity injections through its Long-Term Refinancing Operations. However, while not explicitly stated, the essential aim of such interventions has been to provide private banks with the funds necessary to stabilise sovereign debt markets in the Eurozone, in the absence of alternative adjustment mechanisms. The focus of the ECB must now turn to private lending and in particular a European version of the Bank of England’s Funding for Lending Scheme, which ties central bank financing of commercial banks to increases in banks net lending in the real economy. Since its inception in 2012 the Bank of England scheme has supported a decline in lending spreads in the mortgage market (see this recent FT coverage). One reason to be optimistic about the prospects for some kind of economic recovery in Britain is that such a boost to the consumer sector combined with some delayed boost to exports through sterling depreciation will raise demand for business loans to exploit the potential supply of cheaper lending possible as a result of the Funding for Lending Scheme. A similar ECB initiative is necessary to address weaknesses in credit supply in the Eurozone. Without it, the prospects for lending growth and economic recovery are bleak, for the incentives to commit available bank funding to risky bank loans ahead of safe but less economically productive investments are very limited.

What are the prospects of ECB intervention of this kind? One implication of linking central bank funding to increases in commercial lending is that risk exposure for both private banks and central banks increases, and policy-makers at the ECB must be willing to demonstrate this kind of risk appetite. Hawkish policy-makers, particularly those linked to the Bundesbank, will no doubt cite risks to central bank capital and the potential inflation threat from action of this kind. On the other hand, the ECB has a longer history of accepting private securities and other risky instruments as collateral than do the Bank of England and the Federal Reserve (see for instance the review of the ECB’s recent monetary measures by Cour-Thimann and Winkler this recent issue of the Oxford Review of Economic Policy) and so linking its investments to private bank lending need not be interpreted as such a radical step. Furthermore, as the focus of such an initiative would be commercial banks rather than the governments of member states, the move is less likely to result in the legal disputes connected to existing unconventional ECB measures.

Ultimately, the ECB must overcome any obstacles to introducing a version of the Funding for Lending Scheme. Without it, there seems little prospect of a recovery in bank credit supply in the Eurozone.