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Private Equity Briefcase

By Kelly Holman, IDD Magazine

November 10, 2007

On Secondary Thought...

The private equity crowd has waded in financial quicksand since the credit market retrenchment took hold this summer. But, even though the pace of new dealmaking has slowed, do LBO investors stop thinking about making money?

The answer is, of course, no.

To the contrary some private equity firms are in harvest mode, raking in profits from earlier investments through secondary offerings. While secondary offering are a routine way buyout investors realize liquidity, often on a partial basis, two big league dealmaking firms in the news of late are also carrying out secondary offerings.

Hellman & Friedman, the San Francisco private equity firm, sold 23.5 million shares it owned in the Nasdaq Stock Market, reaping gross proceeds of more than $1 billion based on the company’s closing price of $45.40 a share on Thursday. The offering, a secondary market transaction managed by Morgan Stanley, liquidated H&F’s entire 17.8% stake. H&F initially invested $240 million in the exchange in May 2001.

For the Nasdaq, which disclosed the secondary sale in a Securities and Exchange Commission filing on Nov. 8, the offering by H&F follows two days after the New York securities exchange agreed to acquire the Philadelphia Stock Exchange for $652 million on Nov. 6.

Separately, Kohlberg Kravis Roberts & Co. L.P. and DLJ Merchant Banking Partners, the New York private equity firms, plan to sell 10 million shares of their majority stake in Rockwood Holdings Inc. The Princeton, N.J.-based specialty chemicals company announced its secondary offering on Nov. 5, noting that it will not receive any proceeds from the sale being managed by Credit Suisse, Goldman, Sachs & Co., KKR Capital Markets, UBS Investment Bank, Lehman Brothers, First Analysis Securities Corp. and Deutsche Bank Securities.

Based on Rockwood’s Friday afternoon trading price of $33.92 a share, the offering is worth $339.2 million.

With the credit crunch still pretty much holding down the syndication efforts of previously arranged buyouts, the secondary offering market might just provide the buyout industry the boost to close the year out.

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Kelly Holman

Kelly Holman is the assistant managing editor at Investment Dealers' Digest, where he writes about private equity and leveraged finance. Prior to joining IDD, he reported on leveraged buyout transactions, private equity fundraising activity, corporate auctions, the middle market and credit markets as a senior writer for The Deal. Before joining The Deal in 2000, Holman was a reporter for PRWeek magazine, where he reported on financial services PR and investor relation activities, as well as international PR developments. He also assisted with Haymarket Media Group's US launch of the public relations trade magazine. Previous to PRWeek, Holman wrote about private equity for Private Equity Week and Buyouts and served as a contributor to IDD in the late 1990's. A Colorado transplant, Holman has called New York home for more than a decade. He received his B.A. in Mass Communications from the University of Colorado at Denver..

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