The Board

[Fernando 6,585]

@VesperI did not understand the debt we have. 

That is weird, a little more explanation about that please? 

Are these guys doing the same as the Glazers? 

[ZAPHOD2319 4,801]

A little trouble in paradise for Eghbali.

 

arkets

|The Big Take

The End of the Cheap Money Era Catches Up to Chelsea FC’s Owner

The Californian private equity firm has at least $10 billion in distressed debt among its portfolio companies, a snapshot of the difficulties the buyout industry is facing right now. 

A Chelsea flag at Stamford Bridge.

Photographer: Andrew Kearns/CameraSport/Getty Images

By Allison McNeely, Reshmi Basu, and Jill R Shah

July 9, 2024 at 11:00 PM UTC

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Clearlake Capital Group is best known beyond financial circles for owning Chelsea Football Club, an English Premier League team that’s been criticized at times for buying unproven players at sky-high prices.

As the California-based private equity firm raises money for its latest fund, some investors and creditors are asking similar questions about the value of acquisitions it made at the height of the buyout boom.

Back in 2020, Clearlake was turning away people clamoring to get into its sixth flagship fund. The firm had delivered in the past, dishing out best-in-class returns to its limited partners — the pensions, insurers and others who back its wagers. Companies bought from its previous cash hoards such as healthcare software company Provation and self-storage supplier Janus International were well on their way to generating stellar profits for Clearlake and its LPs.

But only a few years on from raising more than $7 billion for fund six, the world is very different. The firm used that fresh influx of investor dollars to carry on spending at the start of the decade, snapping up businesses when valuation multiples were high and piling them up with debt. Today stubbornly elevated interest rates are weighing heavily on many such assets.

 

Clearlake isn’t alone in having to navigate the end of the cheap money era; many of its buyout industry peers are facing the same difficulties. Investors are still signing on in droves to its latest $15 billion fundraising, pointing to its money-spinning track record in previous funds.

And yet the firm does offer a snapshot of the challenges confronting private equity right now, especially anyone who spent big between 2020 and 2022. It’s the PE firm with the most distressed debt among its portfolio companies, at least $10 billion, according to data compiled by Bloomberg at the end of June. The data captures loans trading below 80 cents on the dollar and bonds with both prices below 80 and spreads wider than 10 percentage points.

“A peak like 2021 is going to make for a poor vintage when you want to realize value,” says Christina Padgett, associate managing director at Moody’s Ratings, speaking about private equity acquisitions in general.

Clearlake's Stressed Credits

Clearlake has a number of firms with debt near stressed and distressed levels

Bloomberg

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Source: Prices rounded to the nearest cent based on estimates from debt traders and Bloomberg data during the week of July 1. 

Note: Some companies have co-investors alongside Clearlake. Some companies have undergone liability management exchanges that include new loans ranked above legacy loans quoted here.

Conversations with more than a dozen people familiar with Clearlake — including investors, bankers and rivals — highlight concerns about assets bought at the M&A boom’s zenith, particularly by the sixth fund. 

A slew of businesses Clearlake acquired between 2020 and 2022 such as investment software maker Confluence Technologies and Quest Software Inc., an enterprise IT specialist, are under strain, and some LPs are asking whether the private equity firm’s breakneck growth left it overstretched.

Clearlake is also among the industry’s leading users of continuation vehicles — a controversial practice of selling assets to a new fund the firm manages as well — setting up five deals in the past. It’s now exploring a sixth, for digital-marketing company Constant Contact, people with knowledge of the matter say.

A spokesperson for the firm declined to comment for this story, although others with knowledge of the situation point to the progress in its latest record fundraising as evidence of investor support. Even those who are critical in private about fund six are handing Clearlake more money, expressing the hope that its financial smarts will help it navigate a tough period for buyout groups.

 

Like rivals, Clearlake often plays hardball with lenders to its companies during distressed situations, shielding its own LPs from much of the pain.

Glory Days

Clearlake was founded in 2006 by José E. Feliciano and Behdad Eghbali to target technology, consumer and industrial companies through traditional buyouts and distressed investments, but it really hit its stride at the end of the last decade. These were the industry’s glory days when debt was cheap, inflation low and pension funds were awash with dollars to plow into private markets. A long-running M&A boom made asset prices go up everywhere, and firms rushed back to investors as fast as they could to nab more money.

As Jay Powell’s Federal Reserve holds fire on rate cuts, the buyout gold rush is history. And LPs are short on cash to allocate, making them more demanding.

José E. Feliciano.Photographer: Slaven Vlasic/Getty Images

Behdad Eghbali.Photographer: Mike Egerton/PA Images/Getty Images

Clearlake’s investors didn’t fret too much about its rapid growth when earlier funds were giving them handsome payouts and raking in impressive multiples of invested capital, a key performance yardstick in private equity. Its fourth and fifth funds have already given LPs back more than the capital they put in and have more assets still to sell. These successes have made its lofty fees and fondness for continuation funds tolerable to most backers.

 

The firm’s assets have swelled to more than $80 billion thanks to an aggressive push between 2015 and 2021, when it went back to the market every couple of years or so to raise a new buyout fund, with each one roughly doubling in size.

“Clearlake would be a poster child for the excessive popularity of that particular asset class,” says Jeff Hooke, who just retired from teaching at Johns Hopkins Carey Business School. “When you have multiple funds and start a new one every couple of years, you’ve invested the money pretty quickly.”

Clearlake's Cash Haul

The private equity firm has pursued an aggressive fundraising strategy

Bloomberg

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Source: State of Connecticut

A recent due-diligence report for the State of Connecticut, whose pension plans invest in multiple Clearlake funds, found its soaring assets under management “may cause concerns of strategy drift through the lack of discipline and focus,” while acknowledging the firm’s investment team has grown in line with assets.

Connecticut’s pension consultant wrote, too, that Clearlake “historically utilized higher leverage levels in its portfolio companies, raising concerns in current market conditions.” In common with many peers, the firm didn’t hedge enough against interest-rate shifts, although it does now. It has about $15 billion in hedges on its portfolio, a person with knowledge of the matter says.

Regardless of any investor misgivings, Feliciano and Eghbali’s latest efforts to tap LPs appear to be on track. Clearlake waded into an unforgiving fundraising environment for buyout firms last year when it started gathering cash for its eighth buyout fund, telling backers that it aimed to surpass the $14 billion raised for its seventh fund, which closed in 2022.

A year on, it has nearly $10 billion of commitments toward a $15 billion goal, a person with knowledge of the situation says, and it hasn’t had to offer investors extra incentives.

Trouble Spots

As backers weigh how much they want to commit to the latest fund, some have been paying closer attention than usual to its investments of recent years, especially from the heady days of 2020 to 2022.

 

Plenty are having a torrid time. Confluence, bought in 2021, has been downgraded by Moody’s, who noted that its “highly levered capital structure and weak liquidity” indicates “aggressive financial strategies.”

Clearlake is also looking at combining parts of Quest and cybersecurity outfit RSA Security — two other heavily indebted software companies in fund six — into a new business and selling a stake. It previously sold a division of RSA to repay debt and used proceeds to return money to investors, irking some lenders.

FinThrive, a healthcare e-billing company acquired in 2021, is in creditor talks about an overhaul that could include a below-par debt exchange.

And trouble isn’t confined to fund six. Wheel Pros, a custom-wheels outfit acquired in 2018, did a distressed-debt swaplast year to buy time. S&P Global Ratings says it’s still vulnerable to default, and investors have dumped a new loan placed as part of the swap, driving its price down to near 60 cents on the dollar. Wheel Pros was rolled into a continuation vehicle in 2021 and, according to Connecticut’s report, its internal rate of return was -20% as of Dec. 31.

Elsewhere, Pretium Packaging, a plastic-bottle maker bought in early 2020, did a debt restructuring last year that S&P viewed as a selective default.

 

The deal for which Clearlake is famous, Chelsea, wasn’t loved by some investors but it’s too early to judge financially. The firm had the investment marked at Dec. 31 slightly above what it paid, despite the team reporting a £90.1 million ($115 million) pretax loss last year. Football Benchmark, which provides financial data on clubs, estimates Chelsea is worth £2.8 billion, about £500 million more than what Clearlake splashed out in 2022.

Its owners hope their vast outlay on young talent will pay off ultimately and let it compete with elite rivals such as Abu Dhabi-owned Manchester City.

Clearlake Capital has spent enormous sums on Chelsea’s young players.Source: Visionhaus/Getty Images

Patient Capital

Such calls for patience apply equally to the broader business. The nature of PE investing means sponsors like Clearlake have long time horizons to let wagers play out. They don’t have to price assets more than once a quarter, and one slam-dunk bet can offset a lot of duds. The firm remains chipper about some recently minted investments such as BetaNxt, a wealth-management fintech.

 

Another feature of the buyout world is how fiercely firms work to safeguard returns for themselves and their backers when refinancing distressed debt, often at lenders’ expense. Take the restructuring of Clearlake-owned Valcour Packaging, a maker of bottle caps, which recently offered more than 90 cents on the dollar to a bunch of creditors who promised to fork up new capital.

Anyone outside that group who doesn’t play ball will be pushed toward the back of the line and can trade in their debt at 60 cents. Such bruising tactics can make enemies among lenders just as you’re having to do a lot of renegotiating.

Clearlake’s muscular approach also helps it protect returns even in dire situations. A December report from Pennsylvania State Employees’ Retirement System showed that the multiple on invested capital was more than five times on Wheel Pros, the company sold on to a now struggling continuation fund. Pretium’s was more than double.

Fund six had a net IRR of 24% as of Dec. 31, according to Connecticut’s documents, and the state’s pension plan has committed $200 million to Clearlake’s eighth fund even after its due-diligence report. Other backers took a closer look at Clearlake’s recent dealmaking and reinvested too.

People familiar with Clearlake’s strategy point out that it’s also an investor in distressed assets as well as growth opportunities, which may let it take advantage of depressed prices in today’s private markets. “We’ve had relatively decent US economic growth since the pandemic,” says Padgett at Moody’s. “So there may be decent businesses with bad balance sheets.”

Still, there’s no cause for investor complacency quite yet. PE uses a metric known as the “distributed to paid-in-capital ratio” to show how much it’s returning to investors. A ratio of one means investors got their money back. Fund six was 0.1 at the year end, according to the Connecticut documents, showing how much work remains to be done to realize value from the portfolio.

When Clearlake hosted its annual meeting for LPs a few weeks back, it made a surprising choice as star speaker: former British Prime Minister Boris Johnson. Like him, the buyout industry hit a peak of popularity at the turn of the decade before falling from favor. Getting back to those heights won’t be easy.

 

For Padgett, this is true for PE firms on the whole — and for the funds that lend to their companies. “Both private equity and credit are going to have more meager returns than they’d originally anticipated,” she concludes.

[ZAPHOD2319 4,801]

 

[Milan 17,955]

So a new Netflix series Kick to Survive?

[ZAPHOD2319 4,801]

 

[OneMoSalah 8,883]

9 hours ago, ZAPHOD2319 said:

 

Anything overseen by Stewart & Winstanley is certainly going to be a disaster. Hopefully they get removed from their positions if we have another mixed bag/poor season. 

[ZAPHOD2319 4,801]

 

[ZAPHOD2319 4,801]

 

[Fulham Broadway 17,299]

The football world looks on in astonishment as a club with a rich, colourful history is used as an investment vehicle, a trading platform, by venture capitalist owners.

Accountancy wheezes such as selling the two hotels on the forecourt to a different part of the business, and doing similar with the women’s team, resemble acts of desperation rather than visionary commercial nous. A couple of missteps with fans, including increased ticket prices, unpopular corporate schemes such as the Dugout Club and withdrawing subsidies for travelling away fans have met the ire of militant – and well-organised – supporters’ organisations. Success under Roman Abramovich brought comparative serenity, but now long-serving Blues find themselves harking back to their club’s 1970s financial collapse for a spell as fractious.

[Vytis33 1,261]

 

[Blue Armour 4,436]

7 hours ago, Vytis33 said:

 

That quote keeps coming back to bite them in the arse.

Should never have made such a ludicrous statement.

[Vesper 30,085]

16 hours ago, Blue Armour said:

That quote keeps coming back to bite them in the arse.

Should never have made such a ludicrous statement.

 

Eghbali: Chelsea were ‘not terribly well managed on the football side, sporting side or promotional side’

We’ve got the brawn, they’ve got the brains, let’s make lots of money!

https://weaintgotnohistory.sbnation.com/2022/12/24/23525031/eghbali-Chelsea-were-not-terribly-well-managed-on-the-football-side-sporting-side-promotional-side

We’ve heard a fair amount from Chelsea co-owner Todd Boehly over the past few months, but more recently, it was fellow co-owner Behdad Eghbali’s turn to speak at a business conference, appearing at SporticoLive’s “Invest in Sports” Summit back in mid-October, as part of the “Expanding International Portfolios” panel.

So hot!

Video of the full conversation was published about a month later, and now, thankfully, Football.London have transcribed all of Eghbali’s words, so we don’t have to sit through the public-speaking of a person not very good at public speaking. Clearly that’s not what he gets paid for.

Most of what he says we’ve heard before, at least in broad terms. Basically, they (i.e. Boehly and Clearlake) saw an unexpected opportunity — boy, those sanctions sure worked good! — with an underdeveloped asset in an underutilized market, and are looking to take advantage of a massive untapped market by taking lessons from what’s worked in other leagues (NFL, MLB) and combining that with the current hotness in football (i.e. the multi-club model).

“For us, it was about looking at the macro. You look at the NFL, the NBA, NFL, $20 or so billion revenue, 150-200 million fanbase, media rights, all rights, all IP is shared within the league whereas [in the] English Premier League [you have a] massive global audience, you share broadcast revenue but big disparity otherwise in terms of your IP, your assets.

“We thought Chelsea [was] frankly an asset, a business that was not terribly well managed on the football side, sporting side or promotional side, so meaningful opportunity at the club and we’ll get to it for us, who needed the beachhead to then look at multi clubs. [We] looked at it and we think European sports is probably 20 years behind US sports in terms of sophistication on the commercial side, and sophistication on the data side. [...] These are global assets, global audiences which we think we can certainly help grow.”

“[The] value of NFL teams probably $150-155 billion, the Premier League, La Liga, France, Italy I think you’re probably $30 billion, fanbases of maybe 3-4 billion globally compared to 200 million and that’s being generous to the NFL. A league and a sport that is optimised, clearly not everything is created equal, but a 4 billion fanbase on a cumulative market gap of $30 billion maybe and cumulative media revenue of $5 or $6 billion against $20 for the NFL on 20 times the fanbase globally.”

As Shania said, ka-ching!

But what is all this multi-club talk then? Eghbali mentions Portugal, France, Africa, and South America, but is it just an obvious loophole around work-permit regulations? Is it the sporting equivalent of vertical integration, if not a straight up monopoly? Is it just a profit generator? Is it all of the above?

The answer is always all of the above.

“We think there’s a path to controlling labour costs and still producing a winning product using data, using the multi club. We think the multi club is an interesting tool for player trading [and] if you have a cost structure that can sustain and you invigorate the fanbase we think you can have a business that makes money that are natural monopolies in their markets without the regulation, without the salary caps.

“[If] done well you can make money on each specific enterprise. [If] done right, if you use data, if you’re thoughtful about this global market for talent and access of talent that is not effectively done through a draft or an extensive college or baseball farm system [then] you can capture, acquire, retain, sign talent and monetise talent. There’s a talent arbitrage opportunity that exists.

“[And] it’s the perfect pathway of developing talent whereby you don’t have to spend crazy money on payroll. [We] hired a coach from Brighton and we think they’re one of the best-run teams in the Premier League. The owner is from a sport gaming, data background. Spends 10% of the payroll, wins almost as much and is a very stable mid-market, mid-table, very profitable club. I think if you apply some of that IP into developing talent but keeping your talent.”

And as before, Eghbali assures that all of these business interests are couched in and enabled by developing (or maintaining) a winning culture at the club (the asset). None of this works if the team’s not successful.

Same goes for investing in the club itself in terms of facilities, infrastructure, etc.

“Ultimately, if you’re investing capital into a training facility, an academy, a stadium, if you’re improving the team you’re going to have a lot of public support. [We] think winning and a good product on the pitch and commercial success go hand in hand. You have to have a good product to generate sponsors for the content to work. [...] You’ve got to win. Winning on the pitch, you can do it efficiently as opposed to not, but you have to do that to have commercial success.”

Additionally, while Clearlake may be a private equity firm focused on generating short-term gains for their clients, they’re looking at Chelsea as a long-term, perhaps even a “permanent” investment vehicle that their clients then can also choose to put some of their money into ... or some such. Sort of like picking mutual funds in your 401k, but with sports?

“[At] Clearlake, we’ve done five continuation vehicles, that we call icon vehicles. These are permanent vehicles where LPs (Limited Partner) can choose to sell or stay in. [...] Sports have multiple folks, institutions, and individuals who are interested. [We] think there’s a market for it and we think there’s a market to afford LPs the ability to exit and others to step in and to have a long-duration vehicle to keep these assets. We’ve done it with other assets. There are certainly businesses you want to own for a long time and private equity has to evolve from the formation ‘Hey, I raised a fund, I’ve got to sell’.”

-Behdad Eghbali; source: SporticoLive via Football.London

The only thing we have to keep in mind is that none of this will happen overnight. The plan will take time, will take patience, dedication, and, ideally, flawless execution.

In summary, we’ve got the brawn, they’ve got the brains, let’s make lots of money. (And win some things?)

[Vesper 30,085]

Chelsea chief executive Chris Jurasek steps down after 1 year

https://www.espn.co.uk/football/story/_/id/41132846/Chelsea-chief-executive-chris-jurasek-steps-1-year

Chief Executive Chris Jurasek has left Chelsea and will be replaced by Jason Gannon, the Premier League club said on Thursday.

Jurasek will return to Clearlake Capital, the co-controlling owners of Chelsea, after just over a year in the role at the club.

"I am incredibly proud to have led this historic football club into its next chapter," Jurasek said.

"We have accomplished the task of building a team both on and off the pitch that means the club is well-positioned for long-term success."

During his time as chief executive, Jurasek made several decisions that were met with disapproval by Chelsea's match-going supporters, including referring to them as customers rather than fans.

He also ended a long-standing bus subsidy for away fans and implemented the first general admission season ticket price increases in over a decade.

[TheHulk 2,402]

What a project, already want out. Both are equally trash, can't say who buying who is better.

Edited September 6, 2024 by TheHulk

[TheHulk 2,402]