A Fond Farewell and Look Back at Eight Years

By the Private Equity Beat staff

We’re moving to a spiffy homepage at WSJ Pro Private Equity. Parting ways with our readers after nearly eight years—not even as long as some private equity hold periods—would be tragic, so we hope you will join us on our new adventure.

This blog, launched in January 2009, isn’t nearly as old as the typical end-of-life private equity fund. But in less than a decade, it’s followed private equity firms as they have gone public, former presidential hopeful Mitt Romney’s return to private equity, and pension funds’ fight (and failed bids) for more transparency from general partners.

As an experiment, we went cold turkey off of private equity-backed products for a week, highlighting the industry’s sway over the myriad of companies that supply our food, entertainment, and health needs. Need a paternity test? Private equity backed the company behind Maury Povich’s dramatic “you are the father” revelations. Want Scottie to beam up your latest X-ray? Private equity financed a medical imaging company with a center that is based on the blueprint of the Starship Enterprise. How about insurance for your giant panda? Private equity has you covered.

Besides capturing private equity’s flights of fancy, this blog has been a keen observer of the industry’s ascent to Hollywood (and its guilty fondness for Nicholas Sparks films). We also pondered the roots of carried interest (and whether it has biblical origins or was introduced by Christopher Columbus). When the industry faced controversy we were there, whether it was over their own behavior or the ethics of businesses or people they backed. One recent example is the fury directed against Weston Presidio-backed Jimmy John’s Gourmet Sandwiches, because of its founder’s passion for big game hunting.

Even as we file our final post, a crop of funds are wrestling with a host of challenges, including investments long-past their expected realization periods, increased regulatory scrutiny and generational shifts in leadership. We’ve learned that GPs still have room to be more forthright, and internal rate of return doesn’t necessarily mean a whole lot.

We hope not to miss a beat going forward, and you may still catch us from time to time on the MoneyBeat blog.

Thank you for your support all these years.

The editors and reporters of Private Equity Beat.

In China, Firms Face Competition as Tech Businesses Target Health Care

Health care-focused, private-equity investors in China are facing competition and forging partnerships as Chinese technology companies seek to leverage their dominance on all things digital in the provision of care.

But consultant Bain & Co. said private-equity investors looking for opportunities in the emerging market’s health-care sector aren’t squeezed out.

“The Internet health-care sector is still small,” said Vikram Kapur, a Bain & Co. partner based in Hong Kong. “The bulk of investments in health care in China is still in biopharma and service providers like hospitals, and that’s where a lot of foreign investors bring in not just capital, but also access to expertise and relationship[s]. That helps to take some of the local services to the next level.”

Three prominent Chinese technology companies have each made health-care investments in recent years, sometimes in collaboration with private equity.

Tencent Holdings led a $100 million investment round for mobile hospital-appointment-scheduling platform Guahao.com in 2014 and again in a nearly $400 million round the next year, led by private-equity firm Hillhouse Capital Group and Goldman Sachs Group

Alibaba Group Holding launched Alibaba Health Information Technology in 2014 with Yunfeng Capital, a private-equity firm set up by Alibaba founder Jack Ma. Baidu recently launched a health-care portal Jiankang that enables users to make doctors’ appointments online.

Technology companies venturing into health care is nothing new. In the U.S., Apple in March launched its health app called CareKit to help consumers actively manage their own medical conditions and track symptoms, adherence to medication and physical therapy progress. Search engine operator Google Inc., which wound down its personal health record porta l in 2011, is making a renewed push into both health-care investments and life science and consumer health product development under its parent company, Alphabet .

Despite the nation’s emerging market status, Chinese technology companies’ efforts in health care aren’t lagging behind their Western peers-but running parallel to theirs, riding on Chinese consumers’ increasing ease with using the Internet.

“There’s a bit of a leapfrog in digital solutions [in China],” Mr. Kapur said. “Reception from consumers has been quite good so far, with solutions targeting inefficiencies in the system. A lot of early success has been on the patient side, around scheduling efficiency.”

Bain said Chinese technology companies’ interest in health-care has been sparked by Beijing’s push-namely, the 13th Five-Year Plan, adopted last year-to accelerate information technology adoption and innovation, and to link traditional industries to the Internet in a bid to buoy overall economic expansion.

China enjoyed a boom in health-care investing last year, with $3.6 billion private equity-backed health-care announced deals in China last year, accounting for two-thirds of the total health-care deal flow there last year, according to Bain’s analysis of Dealogic Ltd. and Asian Venture Capital Journal data. The $3.6 billion also constituted the bulk of $4.9 billion health-care buyouts in the Asia-Pacific region, Bain said.

Write to Amy Or at amy.or@wsj.com; follow her on Twitter: @theamyor

Committed: North Carolina Seeks Wider Berth for Alternatives Portfolio

The North Carolina Department of State Treasurer is seeking to relax limits to how the state pension fund can be invested across private equity and other alternative investments, a move that would give it wider berth to shape an $84 billion portfolio amid interest-rate uncertainty.

The state treasurer’s department got a vote of confidence on Tuesday from a key advisory board to ease statutory restrictions on the pension’s investments in private equity, real estate, opportunistic credit, inflation-sensitive assets and equity hedge funds, spokesman Brad Young said.

North Carolina will seek to raise the maximum allocation to each of the asset classes, though it expects the 35% allocation limit for these investments in aggregate to stay the same. The pension fund wants added flexibility to bolster returns and control risks “in light of expected low investment returns for the next decade,” according to an investment report.

Pension funds are grappling with expectations of slowing growth, soft energy prices and mixed signals over the movement of interest rates. As it reviews its portfolio mix, North Carolina is looking for new levers to pull.

North Carolina has called for an increase in the maximum allowable allocation limit to 15% for private equity, real estate, opportunistic credit, inflation-sensitive investments and equity hedge funds.

The recommended changes can only take effect after it’s passed by the state legislature and signed into law, Mr. Young said. North Carolina expects the proposal to be introduced as legislation in the coming weeks.

For now, the North Carolina Retirement Systems can invest up to 10% in real estate. It sees potential benefit from allocating additional funds into real estate strategies.

The pension fund can have up to 8.75% of invested assets in private equity, according to pension data. Private equity made up 5.1% of pension assets as of the end of February, short of a 6% target.

The pension has a maximum allocation limit of 7.5% for inflation-sensitive assets, which includes timberland and commodities. Opportunistic fixed income made up 5.9% of the pension fund, short of a 7% policy target and a 7.5% maximum allowable limit. The pension fund has its largest exposure to hedge funds through the portfolio.

North Carolina will look at multistrategy credit, global and European distressed strategies, as well as structured credit as it builds its opportunistic fixed income footprint, according to pension slides.

It sees direct lending, distressed plays and long-only structured credit as potential attractive opportunities. The pension fund is also considering ways to take advantage of dislocations in the energy market.

For more on how limited partners are committing their capital, check out LBO Wire. For a trial subscription, visit our homepage, scroll to the bottom and click “try for free.”

The Morning Leverage: Facing Competition in China as Tech Companies Join Health-Care Fray

From this morning’s LBO Wire:

Health care-focused, private-equity investors in China are facing competition and forging partnerships as Chinese technology companies seek to leverage their dominance on all things digital in the provision of care, writes Amy Or.

Consultant Bain & Co., however, said private-equity investors looking for opportunities in the emerging market’s health-care sector aren’t squeezed out. “The Internet health-care sector is still small,” said Vikram Kapur, a Bain & Co. partner based in Hong Kong. “The bulk of investments in health care in China is still in biopharma and service providers like hospitals, and that’s where a lot of foreign investors bring in not just capital, but also access to expertise and relationship[s]. That helps to take some of the local services to the next level.”

More stories available to LBO Wire subscribers:

Greenspring Associates is closing in on an increased target for its latest secondaries fund; Greenspring Secondaries Fund II LP has collected at least $187.2 million of a targeted total offering amount of $200 million…And Wellfleet Credit Partners, the credit business of Littlejohn & Co., completed a $358.5 million collateralized loan obligation.

(LBO Wire is a daily newsletter with comprehensive analysis of all the investments, deals, fundraisings and personnel moves involving private equity firms. For a two-week trial, visit http://on.wsj.com/DJPEVCNews, scroll to the bottom and click “try for free.”)

Elsewhere on the Web:

Goldman Sachs Group and Vista Equity Partners agreed to settle a lawsuit brought by investors in Tibco Software Inc., a software company that went private in a roughly $4 billion buyout two years ago, reports Liz Hoffman for The Wall Street Journal.

Saga PLC is preparing for life after private-equity ownership after Acromas Bid Co., a vehicle controlled by three firms, sold off the remainder of its shares, Marion Dakers writes for The Telegraph.

Finally, The Blackstone Group is mulling a takeover offer for Concordia Healthcare Corp, a publicly-traded Canadian pharmaceutical company, Bloomberg News reports.

Write to Mike Lucas at michael.lucas@wsj.com

The Morning Leverage: Brazos Sheds Apparel Brand Southern Tide

From this morning’s LBO Wire:

Brazos Private Equity Partners LLC sold apparel brand Southern Tide LLC to clothing maker Oxford Industries, Laura Cooper reports. A filing with the Securities and Exchange Commission states Oxford acquired the company for $85 million.

Southern Tide, of Greenville, S.C., sells its Southern style apparel through its website and at Nordstrom, Von Maur and more than 850 retailers in more than 45 states as well as Washington, D.C., the Virgin Islands and Bermuda.

More stories available to LBO Wire subscribers:

Webster Capital has hired investment bank Goldman Sachs Group Inc. to explore a sale of Epic Health Services Inc., a pediatric-focused home-health-care company, writes Amy Or…Trivest Partners is rounding up commitments for a new growth equity fund called Trivest Growth Investment Fund LP, or TGIF, reports Laura Kreutzer…And Staple Street Capital acquired nearly all the assets of Mid-States Supply Co., a distributor of pipes and related products, through a bankruptcy process.

(LBO Wire is a daily newsletter with comprehensive analysis of all the investments, deals, fundraisings and personnel moves involving private equity firms. For a two-week trial, visit http://on.wsj.com/DJPEVCNews, scroll to the bottom and click “try for free.”)

Elsewhere on the Web:

Blackstone Groupid its first-quarter profit fell sharply “as its selling of older investments waned during another period of market volatility,” writes Matt Jarzemsky for The Wall Street Journal. The New York firm posted earnings of $150 million, down from $629.4 million a year earlier.

A union representing casino workers said Apollo Global Management and TPG should be stripped of their voting rights at Caesars Entertainment ’s annual shareholder meeting “over questions raised by a court-appointed examiner’s bankruptcy probe,” report Peg Brickley and Jacqueline Palank for the Journal.

A ruling by a federal judge in Massachusetts, who found that two private-equity funds were jointly liable for the pension fund debt of one of the companies they acquired, “has reverberated loudly through” the industry. Libby Lewis writes in an opinion piece for DealBook of the New York Times.

Write to Mike Lucas at michael.lucas@wsj.com

The Morning Leverage: Battery to Buy Check Image Software Company

From this morning’s LBO Wire:

Battery Ventures said agreed to acquire Goldleaf Enterprise Payments Inc., a payment software provider, publicly-traded financial technology company Jack Henry & Associates, Laura Cooper reports.

Goldleaf, which will change its name to Alogent, offers software that focuses on electronically capturing, processing and analyzing check data and images. Battery General Partner Russell Fleischer said his firm believes the company will be a platform to make acquisitions in the branch-deposit capture and broader banking services sectors, among others.

More stories available to LBO Wire subscribers:

BBH Capital closed its fifth fund with $802 million…Private equity health-care deal value dropped in 2015 although distressed opportunities may pick up this year…And Private equity–backed oil and gas deals fell during the first quarter.

(LBO Wire is a daily newsletter with comprehensive analysis of all the investments, deals, fundraisings and personnel moves involving private equity firms. For a two-week trial, visit http://on.wsj.com/DJPEVCNews, scroll to the bottom and click “try for free.”)

Elsewhere on the Web:

A group of buyers that includes China-based Apex Technology Co. and Asia-focused PAG Asia Capital agreed to buy publicly traded Lexmark International for $2.54 billion, Josh Beckerman reports for The Wall Street Journal.

Also in the Journal, Yahoo reported declining revenue in a fresh reminder to prospective bidders for the Web company of the challenges it faces, Douglas Macmillan and Ryan Knutson report. Suitors for the company include Verizon Communications, U.K. publisher Daily Mail and private equity firm TPG Capital.

U.K.-based Bridgepoint Capital and Boston-based Summit Partners teamed up to purchase financial software provider Calypso Technology, our colleagues at U.K. sister publication Private Equity News report. (Subscription required.)

Canadian pension fund Caisse de Depôt et Placement du Québec has named Macky Tall as executive vice president of the system and chief executive of its infrastructure investment unit, and tapped Chief Investment Officer Roland Lescure to oversee its private equity portfolio, trade publication Pensions & Investments reports.

Write to Laura Kreutzer at laura.kreutzer@wsj.com

PE-Backed Imaging Advantage to Build X-Ray Reading Machine

The first person to read your next X-ray could actually be a machine, thanks to a private equity-backed company.

Imaging Advantage LLC, a cloud-based imaging company backed by Goldman Sachs Group Inc., among others, is hoping to introduce artificial intelligence in the reading of X-rays.

The company, which also counts private equity firms Brightwood Capital Advisors and CRG as investors, teamed up with faculty members from the Massachusetts Institute of Technology and Harvard Medical School’s teaching hospital, Massachusetts General Hospital, to develop a machine learning initiative named Singularity Healthcare. The technology will take a first look at digital X-rays, highlighting potential areas of injury and disease, before sending the images to one of the 500 board-certified radiologists connected to Imaging Advantage’s cloud-based network.

The machine is named after the concept of singularity, in which artificial intelligence would become capable of self-improvement to the point at which it surpasses human control or understanding.

“The whole idea of deep learning is that the machine is becoming better looking at analogies,” said Naseer Hashim, founder and chief executive of Imaging Advantage. “If it detects a potential problem area in one patient, it will also have the knowledge, hopefully, of many more similar indications.”

He added that Singularity Healthcare will continuously learn from Imaging Advantage’s expanding database of 7 billion images.

“The machine will read what radiologists determine in other cases and come up with a potential response on what that is,” he said.

There has been a push to introduce technology in health care. Although electronic medical records have become commonplace for the past couple of years, health care lags behind other industries in the deployment of analytics, often takes on an assisting role in facilitating physicians in back-office functions and hasn’t played that big of a part in treatment.

The Singularity project—to be launched later this quarter—is still far from allowing machines to take over the diagnosis-making process, but it is the first step to let technology aid physicians and clinicians in the more commoditized part of their job, allowing for a faster turnaround of test results and potentially help eliminate errors or misses on X-ray reading.

Despite its name, however, Mr. Hashim said the technology isn’t set up to take over the jobs of radiologists.

“I don’t believe the market will be ready to have non-board certified radiologists reading exams from a patient perspective,” Mr. Hashim said. “I don’t think insurance companies will support it. You are looking into the distant future, even if the technology is perfect, before radiologists come out of the equation.”

Write to Amy Or at amy.or@wsj.com; follow her on Twitter: @theamyor

The Morning Leverage: Castle Harlan Closes the Book on Baker & Taylor With Follett Sale

From this morning’s LBO Wire:
Castle Harlan Inc. is checking out of its investment in library book distributor Baker & Taylor Inc. by selling the company to college bookstore operator Follett Corp., Amy Or reports for this morning’s LBO Wire.

The deal comes amid ongoing consolidation within the publishing industry, in which, as Follett President and Chief Executive Ray Griffith said, “You are either a consolidator or you get consolidated.”

Castle Harlan, which said it has ceased fundraising efforts for the time being to focus on managing existing portfolio companies, originally acquired Baker & Taylor back in 2006 out of its fourth fund, a $1.2 billion vehicle raised in 2003.

More stories available to LBO Wire subscribers: Sterling Partners has merged portfolio companies Innotrac Corp. and EBay Enterprise to form omnichannel commerce operator Radial…Stonepeak Infrastructure Partners has committed $500 million of equity to Sage Midstream Ventures LLC…and Ardian has rounded up a total of $14 billion across secondary vehicles and funds of funds.

(LBO Wire is a daily newsletter with comprehensive analysis of all the investments, deals, fundraisings and personnel moves involving private equity firms. For a two-week trial, visit http://on.wsj.com/DJPEVCNews, scroll to the bottom and click “try for free.”)

Elsewhere on the Web:

Chinese authorities have quietly informed local regulators to halt the formation of new investment businesses, including ones backed by large foreign firms, Mia Lamar reports for The Wall Street Journal’s WSJ Pro Financial Regulation newsletter.

China’s Dalian Wanda Group Co. is predicting lofty returns for private investors joining its $4 billion property arm buyout deal, Wei Gu reports for the Journal.

In Europe, U.K.-based buyout shop Cinven Ltd. is in the process of wrapping up its sixth buyout with €7 billion, Yolanda Bobeldijk reports for sister publication Private Equity News (subscription required).

Also in Private Equity News, Ms. Bobeldijk writes that global buyout shop Apax Partners aims to hold a closing on more than $6 billion for its ninth fund, which has a $7.5 billion target.

Dubai International Capital LLC, a private equity firm founded by the prime minister of the United Arab Emirates, is winding down operations, Bloomberg News reports.

Write to Laura Kreutzer at laura.kreutzer@wsj.com

The Morning Leverage: EIG Global Energy Caught by Breitburn’s Liquidity Woes

From this morning’s LBO Wire:

EIG Global Energy Partners is starting to feel the pinch from the liquidity issues faced by oil and gas company Breitburn Energy Partners, reports Shasha Dai. EIG and co-investors pledged up to $1 billion in preferred stock and debt to the company in March 2015.

Breitburn said it is suspending dividend payments on preferred stock and skipping interest payments on certain bonds. The company has 30 days to pay up or it will trigger a default. However, Ms. Dai notes that EIG could have some downside protection should Breitburn enter into a restructuring.

More stories available to LBO Wire subscribers:

Kohlberg & Co. agreed to buy American Capital-backed behavioral health care provider The Meadows of Wickenburg LP…North Castle Partners collected at least $221 million so far for its sixth fund…And Aurora Behavioral Health Care, which owns and operates 14 acute psychiatric hospitals, hired Goldman Sachs Group to help it find an investor.

(LBO Wire is a daily newsletter with comprehensive analysis of all the investments, deals, fundraisings and personnel moves involving private equity firms. For a two-week trial, visit http://on.wsj.com/DJPEVCNews, scroll to the bottom and click “try for free.”)

Elsewhere on the Web:

Verizon Communications’s quest to acquire assets from Yahoo received a lift as several other prospective bidders dropped out, Douglas MacMillon and Ryan Knutson report for The Wall Street Journal. But the company may still go head-to-head with a handful of private equity bidders.

Also in the Journal, private equity firm Vista Equity Partners agreed to purchase publicly traded Cvent for about $1.65 billion, Austen Hufford reports.

China is quickly becoming a go-to destination for Hollywood directors and screenwriters, Lilian Lin writes for the Journal’s China Real Time blog. They include U.S. filmmakers Joe and Anthony Russo, who recently formed startup studio Anthem Pictures with backing from Chinese private equity firm HDQH

Paris private equity firm Astorg Partners is nearing a final closing on its sixth fund, which has a €2.1 billion cap, Yolanda Bobeldijk reports for U.K. sister publication Private Equity News. (Subscription required.)

Also in PEN, private debt firms may be due for more regulation in Europe as part of a continent-wide Capital Markets Union push, Elizabeth Pfeuti reports.

Write to Laura Kreutzer at laura.kreutzer@wsj.com

The Morning Leverage: Brookfield Raises at Least $3.38B for Restructuring Fund

From this morning’s LBO Wire:

Brookfield Capital Partners raised at least $3.38 billion so far for its fourth fund to buy distressed companies, writes Chris Cumming.

The firm, the private equity arm of Toronto-based Brookfield Asset Management, didn’t list a target for Brookfield Capital Partners IV LP in a filing with the Securities and Exchange Commission. However, a New Jersey state pension document last year said the firm is seeking $3.5 billion.

Brookfield Capital funds invest in distressed or underperforming companies in Canada and the U.S.

More stories available to LBO Wire subscribers:

SV Life Sciences Advisers and Health Enterprise Partners formed Jet Health Inc. as the two firms seek to tap into growing demand among patients for medical treatment at home, Amy Or reports…And despite the dim financial outlook of Fairway Group Holdings, its private equity backer Sterling Investment Partners may come out just fine with its investment in the grocery chain, writes Shasha Dai.

(LBO Wire is a daily newsletter with comprehensive analysis of all the investments, deals, fundraisings and personnel moves involving private equity firms. For a two-week trial, visit http://on.wsj.com/DJPEVCNews, scroll to the bottom and click “try for free.”)

Elsewhere:

Asian firm MBK Partners aims to raise up to $4 billion for a buyout fund, reports Alec Macfarlane for The Wall Street Journal, citing people familiar with the situation.

French firm Ardian entered into an exclusive pact to buy Envision Pharma from U.S.-based firm Halifax Group in a deal said to be between £200 million and £250 million in value, William Louch writes for U.K. sister publication Private Equity News. (Subscription required.)

The widow of Clessidra founder Claudio Sposito is in talks to sell her 79% stake in the Italian firm to a third party, Yolanda Bobeldijk reports for PEN.

Waterton Global Resource Management plans to do half a dozen base-metal deals this year, according to Bloomberg’s Danielle Bochove, who notes that gold’s 16% rally “is taking pressure off miners to sell assets, at least for now.”

Write to Mike Lucas at michael.lucas@wsj.com