In June, the private equity fund Monomoy Capital Partners purchased clothing retailer Missy Group, from Redcats, a unit of France's PPR SA. Renaming the unit the Women's Apparel Group, Monomoy is now busy turning around the underperforming unit to prepare it for an eventual sale. But to make the deal, Monomoy made an end run around the banking sector, funding the entire purchase by itself.
For Monomoy, that's no longer an unusual move in today's deteriorating economy. "We are in essence bridging the purchase of many of our companies now," says Stephen Presser, one of Monomoy's founders. "We're funding the entire purchase price, though we may re-finance the transaction after we close." Self-funding its acquisitions is in part strategic, he says. "If you can tell the seller they don't have to deal with any bank, you get a boost with them, and you often get a discount on the sale. There have been one too many private-equity buys in which the banks have pulled out at the last minute."
Up in the Pacific Northwest, the paper manufacturer Pope & Talbot can attest to the pain of a last-minute deal failure. In desperate financial shape (it filed for bankruptcy in October 2007), Pope & Talbot set about restructuring its operations and planned to sell off three of its paper mills. It received an offer from Indonesia's Sinar Mas Group, which put a deposit down on a proposed $225 million purchase. At the last minute, however, Sinar Mas got cold feet and walked away. "Now we have to remarket the same properties, but we're getting nowhere near the same offers," says Bill Skelly, co-chair of the lending and restructuring group at the law firm Heenan Blaikie, which is advising one of Pope & Talbot's creditors. For Pope & Talbot, the game is up-the firm converted to a Chapter 7 bankruptcy filing a few months ago and is now liquidating all its remaining assets.
In the world of turnaround management, in which specialist firms seek to stabilize distressed …