💵 Has TPG Set The Ball Rolling?
Peloton falls below IPO price.
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💵 TPG: Attractive To Investors?
If it was Affirm in 2021, in 2022, TPG (TPG) took the mantle of the first IPO of the year. The leveraged buyouts (LBO) expert raised $1B through its IPO last week, coming a decade behind brethren such as BlackRock and Apollo Global. Better late than never! (Tweet This)
Some Pretty Good Deals (Well, Almost!)
Texas Pacific Group was founded in 1992 by David Bonderman, James Coulter, and William S. Price III. In November that year, it completed its first deal - the LBO of Continental Airlines for $450M in partnership with Air Canada. Continental emerged from bankruptcy in April 1993. The deal fetched TPG returns of nearly $700M on an investment of just $64M.
In 1996, TPG targeted companies such as Beringer Wine and Ducati Motorcycles. The Beringer exit in 2000 resulted in a return of $350M. Ducati wasn’t a home run with TPG selling 65% of its stake during Ducati’s IPO in 1999 for $285M, and the remaining in 2005 for a paltry $50M to an Italian PE firm. TPG had invested nearly $500M in Ducati between 1996-1998.
J. Crew, the clothing retailer, became TPG’s target. In 1997, the buyout fund acquired an 88% stake in the retailer and exited in 2009 with a 7x return. The fund came back again in 2010 to complete a $3B LBO of J. Crew. The retailer filed for bankruptcy in May 2020 due to the pandemic, but TPG charged enough fees for buying and managing the company that it walked away with a profit.
In 2002, TPG partnered with Bain Capital and Goldman Sachs Capital Partners to oversee a $1.5B investment QSR giant Burger King. The Triumvirate, which collectively owned 31% of the company, sold the stake to 3G Capital in 2010 for $3.3B.
TPG has morphed from a buyout fund into a mid-to-late-stage investor in India. Its portfolio includes booking platform BookMyShow, mobile operator Reliance Jio, fantasy cricket leader Dream11, and baby products portal firstcry.com. TPG invested ~$25M in online beauty retailer Nykaa and sold a third of its stake for $80M during Nykaa’s IPO last year. The remaining stake is worth ~$330M.
The fund also has the dubious distinction of being part of the worst deal in PE history. In 2008, TPG invested $1.35B as part of a consortium to shore up savings bank Washington Mutual. Shortly thereafter, the subprime mortgage crisis wiped out the bank after the US government closed it and sold the assets for pennies on the dollar.
The Marquee Portfolio Speaks For Itself
Over the years, TPG has invested in 280+ companies worldwide, including Airbnb, Uber, Spotify, and McAfee. Earlier this month, the company filed for an IPO, planning to sell 28.3M shares, priced between $28 - $31 apiece. Eventually, it sold 33.9M shares, at $29.50 apiece, and raised ~ $1B, valuing the fund manager at $10B. Shares began trading at $33, and TPG's overall AUM stands at $109B.
Thus far, the fund has invested in healthcare, life sciences, tech, real estate, and sustainability. As a result, its real estate and sustainability portfolio has $10B+ in assets. Going forward, the fund also plans to invest in sectors such as credit and infrastructure to take advantage of consolidation opportunities in this space.
TPG's listing comes almost a decade after peers such as BlackRock and Apollo Global went public, as it adopted a wait-and-watch approach to see what structure would suit public investors. The company then decided to list as a "corporation" instead of a "partnership." Incidentally, Blackrock crossed the $10T mark in AUM last Friday.
For the first nine months ending September 2021, the company's net profit jumped more than five-fold Y-o-Y to $1.7B. Revenue rose to $3.89B from $564.4M for the same period. The growth in the topline was led by income from asset sales across its portfolio.
2021 was a record year for IPOs in the US, with companies raising over $150B. 2022 has witnessed a broader sell-off due to fears surrounding persistently high inflation and the possibility of rate hikes from the US Federal Reserve, which has put a dampener on IPOs.
In fact, firms are now queasy about going public. Justworks, a software company that planned to go public last week, postponed its proposed issue. Others joining the cancellation club included apparel chain operator Authentic Brands and TypTap Insurance Group.
When it was a private player, it was only answerable to its Limited Partners (those who invested in its funds). But now, the company is answerable to its broader shareholders as well. At the same time, the portfolio's risk has indirectly been diversified to the public at large. You give some, you take some!
TPG ended at $33.81, down 0.56%.
Company Snapshot 📈
TPG $33.81 -0.19 (0.56%)
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Today's Market Terminology: Target Leverage Ratio
Target Leverage Ratio is the ratio of the market value of debt to the total market value of the firm that the management seeks to maintain
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