In an otherwise mixed year for private equity, the likely, or more accurately, the inevitable sale of the ailing Yahoo enterprise has industry leaders in a buzz in what would obviously be the highest profile deal in a while. Google is leading the charge and is currently in discussions with at least a couple of private equity firms to participate in financing the acquisition. Microsoft, which had previously come to the table with a $45 billion offer, since rescinded, is also circling, but analysts speculate that it is more interested in protecting its search engine advertising arrangement with Yahoo. And, finally, there is some speculation that Apple, with its cash hoard, could be the ultimate buyer and may provide the best fit. It doesn’t get more high-profile than that.
Source: www.dailytechmag.com
According to Reuters and the Wall Street Journal, the deal is still very much up in the air with no serious proposals evident. In the meantime, Yahoo, a company in serious disarray since the firing of its CEO last year, may be closer to spinning out of control than most people know, which makes one wonder whether this is a deal any private equity firm should even consider.
For one, the deal will only amount to about $10 billion after the selloff of Yahoo’s Asia properties, which is not large when you consider the involvement of at least two private equity firms, probably more, along with Google or Microsoft. So, the financing requirements may be minimal among the participants which may not make it worth it for investors. It will be very complicated deal that will require extreme short term fixes for any hope that it can generate the kind of earnings needed to payoff investors – not exactly the wheelhouse for private equity firms that typically favor a more medium range timeframe for fixing companies. Private equity investors usually demand more stability and certainty in cash flow than what Yahoo can provide in its chaotic state. And, with any of the three potential suitors, especially Google and Microsoft, the deal is very likely to get hung up in antitrust reviews which can’t be very appealing for private equity investors.
But, if you are Bain Capital, Blackstone, KKR, or Silver Lake Partners in desperate need of a high profile win after a couple of years of diminishing returns, it may be just deal you need to keep your name out front and, hopefully, revive investor enthusiasm in a struggling industry.
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