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JIM CASELLA'S BLOG Mar 16, 2009

EBOs vs LBOs

BY Jim Casella


On Thursday March 12th in the Wall Street Journal, Peter Lattman wrote, "The LBO is dead. Long live the EBO" (WSJ, "Lacking Leverage, Firms Embrace EBOs"). In the article he quoted Scott Nuttall, a partner at KKR speaking at a private equity conference, "Opportunities abound right now. You don't need to use leverage to buy companies when they're trading at a 50% discount to their historic average multiples."

The appeal of the EBO for the seller is there is not the risk of a transaction failing to close because of the credit markets. In the same article, an October deal by Advent was cited. Advent paid all cash for a card-processing business, later renamed Monext. This was a $260M transaction. "We were able to provide certainty, which is a scarce commodity these days," according to Advent's Stephen Hoffmeister.

In the media space we will see more EBOs than LBOs this year -- if deals are going to get done. The EBO does carry some risk for the private equity firm, though. In order for these deals to be successful in the long run, there needs to be realistic price expectations on the part of the sellers and their advisers.

Earlier this week, Bill Cohan's new book, "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street", was published by Doubleday. The initial reviews have all been outstanding. Bill has clearly made the transition from investment banker to established author. This story of Bear Stearns' demise, together with his first book, "The Last Tycoons," has established him as a force to be reckoned with on Wall Street.

Later this afternoon, "Selection Sunday" will provide answers for the March Madness field of 65. There are always disappointments for the schools on the bubble, but on Monday morning the NIT selection extends their season.

Several readers have asked for some new wine recommendations to carry them from winter to spring. Here are several new ones from northern California that provide both value and very good quality.

Steel Plow Syrah

Landmark Vineyards consistently produces quality wines that represent real value. Most of their releases are priced between $20 and $40. One of my recent favorites is their '06 Steel Plow Syrah, which can be purchased on their website for $30. I have had it several times recently in restaurants and find it to have depth. It is perfect when paired with a short rib on a winter evening. The Wine Spectator recently rated it a 94 (WS 94). www.landmarkwine.com

Anagram

I was recently introduced to Rich Moran by my friend and former publishing colleague Stewart Alsop. Rich is a partner at the venerable venture capital firm Venrock. Rich and his wife Carol collaborate on producing limited (600 cases per year) Bordeaux-style blends, named Anagram. Their vineyard is located in Knights Valley. I ordered a mixed case of their '04, '05 and '06 releases. When we returned late on Friday night to New York City from Blackhawk, we opened the '04 Anagram with our favorite pizzas from Una Pizza Napoletana (www.unapizza.com). I was impressed with the balance, the wonderful nose and the nuances of this release. I could not find a review from either the Wine Advocate or the Wine Spectator, but I rated it an 89-90. At an average price of $40 this represents excellent value. Please let Rich or Carol know when you order that you have read this blog entry. Small wineries need viral, word-of-mouth marketing. It is nice to see someone from our industry have as many varied interests, all of which Rich does successfully. While Stewart introduced us, Rich and I must thank Tom Peterson of El Dorado Ventures for pointing out to us that we shared a passion for wine.
www.moranmanor.com

Lucia Chardonnay, Lucia Pinot Noir

This is another brand from Pisoni Vineyards. The current releases include the '07 Lucia Chardonnay, $40 and the '07 Lucia Pinot Noir, $40. It also includes the Gary's Vineyard release for $50. I am just ordering this weekend, but since their introduction several years ago, all of the Lucia releases have represented excellent quality and value. www.luciavineyards.com


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