CPPIB, Permira leverage buyout
Record low interest rates spur $ 5.3- billion US private equity deal
Pushed to the sidelines of private equity deal- making for more than a year by high valuations, the Canada Pension Plan Investment Board ( CPPIB) found a way to craft a $ 5.3- billion US deal to its liking on Tuesday.
Step one was the purchase of Informatica Corp., an enterprise data- integration software company, along with a trusted partner that has previously invested funds for Canada’s largest pension fund manager.
Enter Permira, an international private equity firm that specializes in technology, a sector that has accounted for about a third of its funds’ investments since 1997.
Step two was the structure of the deal. A leveraged buyout, it’s the largest in North America so far this year. Leveraged buyouts are desirable in a market where near- zero interest rates have intensified the search for yield and income.
CPPIB used the same structure in the fall of 2013 when it teamed up with another private equity player, Ares Management LLC, to buy luxury retailer Neiman Marcus Group Ltd. for $ 6 billion.
Douglas Cumming, a finance professor at York University’s Schulich School of Business, said the record low interest rates are spurring such buyouts “and other debt- financed deals.”
Interest rates are a factor in every deal the fund manager does, Mark Jenkins, CPPIB’s global head of private investments, said, but other ingredients, such as a strong partner or a unique asset, play a more crucial role.
“If we don’t have those opportunities we don’t do it, which is why we’ve been so quiet on the direct private equity side for so long,” he said in an interview Tuesday.
“We haven’t done a direct private equity deal since Neiman Marcus, not because of interest rates, but simply because we felt valuations of what we looked at were too high.”
The purchase of Informatica is the first successful direct investing partnership between CPPIB and Permira, but the pair has looked at other opportunities in the past that didn’t come to fruition, he said.
Pension funds and private equity players have proven to be a “fairly good match” on deals, even though the investment horizon of a pension fund is generally longer, said Cumming, the finance professor.
According to media reports, CPPIB and Permira nudged out other interested pension funds and private equity players to buy the data- integration firm that had been under pressure from a large shareholder to improve returns — despite a market- leading position.
Jenkins said CPPIB was willing to step up because of the unique aspects of the investment.
He praised Informatica’s “differentiated suite of software solutions” and stable base of recurring revenues, and said there is strong potential for growth.
Companies are increasingly trying to figure out the best way to analyze and use vast amounts of data they collect for such purposes as cutting costs and developing products and services more efficiently.
The structure of the Informatica deal, and the decision to partner with a private equity player, is in keeping with CPPIB’s strategy of having a mix of medium- and longterm investments, Jenkins said.