Earlier this year, KRG Capital, an existing holder, put out a “For Sale” sign, with the enterprise value (equity value plus debt) pegged at over $1 billion, consistent with recent EBITDA (a measure of cash flows) said to be in excess of $150 million. Yesterday, an announcement was made that BDT Capital Partners (led by a “Banker to the Billionaires”) would be taking out KRG. It’s interesting to speculate on the timing. Last year, BDT indicated that it had raised $3.4 billion for a new investment fund. On Marquette’s debt side, a $250 million high yield bond, issued in 2010 and coming due in 2017 (but callable) along with existing bank funding, may have been taken out by cheaper debt. A public announcement offered few specifics, but referred to a new senior secured facility led by Bank of America Merrill Lynch, PNC Bank and Wells Fargo Capital Finance.
Private equity’s (PE) interest in the brownwater sector mirrors the dynamic seen in bluewater shipping, with some important differences. At the recent Capital Link offshore and shipping event in New York, participants on a PE panel lamented that outside financial investors may have contributed to industry overbuilding, certainly in the dry bulk and tanker sectors. An important differentiator compared to brownwater is that bank lenders have pulled back in the international shipping space, opening a void filled by PE players, most notably Oaktree Capital, who’ve sought cyclical gains in a highly volatile market.
In the brownwater sector, characterized by more stable industrial cash flows (and asset values), the partnership mantra, where PE teams up with strong family businesses, is more applicable.