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More Private Equity Firms Target Michigan

September 30th, 2011 9:32 AM by Eileen Denhard

More private equity firms target Michigan

State ranks seventh in the country in investments in local companies

Michigan companies are becoming increasingly attractive to private equity investors looking to profit from the state's strong talent pool and manufacturing potential.

Private equity firms invested more than $5 billion in 35 Michigan-based companies last year, ranking the state seventh nationwide in such investment, according to a report from Washington, D.C.-based Private Equity Growth Capital Council, an advocacy and resource center for the private equity and growth capital investment industry. The council didn't identify the companies that received investment.

Michigan's ranking, bested only by California, Illinois, New York, Texas, Connecticut and Massachusetts, suggests that the Great Lakes State is pulling through the recession faster than most of the country, said David Brophy, director of the Center for Venture Capital and Private Equity at the University of Michigan's Ross School of Business.

"We're way ahead of a lot of other states, which are now where we were a year ago," Brophy said. "It means there's enthusiasm for more companies starting in Michigan."

Private equity investors are primarily private equity companies, venture capital firms or angel investors who invest in private companies to help them grow, or buy out public companies to take them private — usually because they feel they can run the company better without justifying their decisions to shareholders.

They fly somewhat under the radar, but private equity firms are a key pillar for the Michigan economy, providing working capital to a target company to nurture expansion, new product development or restructuring of its operations, management or ownership, said Doug Rothwell, president and chief executive of Business Leaders for Michigan, a group whose goal is to improve the state's business climate.

Private equity firms are more tolerant of risk than commercial banks and can allow companies to reinvest faster and more effectively, Rothwell said.

"In the long term, some of the industries we have in Michigan (automotive, manufacturing, technology) are quite attractive," Rothwell said. "These firms see there's a tremendous upside."

Cerberus Capital Management LP's majority stake in Chrysler Group LLC and Bain Capital LLC's investment in Ann Arbor-based Domino's Pizza Inc. are examples of recent private equity investments in Michigan-based companies, he said.

Cerberus bought out Chrysler in 2007 and took it private but was unable to keep the Auburn Hills automaker from filing for bankruptcy in 2009. Chrysler is now controlled by Italy's Fiat SpA.

Bain held control of Domino's from 1998 through 2004, when the Ann Arbor-based firm made an initial public stock offering.

Michigan is an attractive place for private equity investment, even though it's had the worst job creation and business growth in the nation for the past few years, because the state has strong universities and manufacturing potential, talented workers and abundant executive talent, said Tom Gordy, senior managing director at Variant Capital Advisors LLC, an investment banking firm in Birmingham.

"Certainly, their capital is important to allowing Michigan companies to continue to grow without having to sell to an industry player that may be located outside of Michigan," Gordy said.

Two Michigan congressional districts ranked in the top 20 nationwide for private equity invested, according to the report.

Private equity firms invested $3.3 billion in nine companies in the Oakland County-centered 9th district, represented by Democrat Gary Peters of Bloomfield Hills, the report said.

One company in mid-Michigan's 4th district, represented by Republican Dave Camp of Midland, received more than $1.6 billion.

"I've worked hard to attract the kind of investments to our area that will create and protect jobs for folks here in the Greater Detroit region," Peters said. .

Across the country, private equity firms invested more than $148 billion in 1,234 companies last year, according to the council report.

The No. 1 state, California, had 195 portfolio companies with a deal value of $16.2 billion.

But Michigan's No. 7 ranking is good news that the state is becoming more competitive in attracting capital, Rothwell said. The Midwest often is overlooked for investment, particularly in technology companies, he said, "and traditionally capital flows to the coasts."

Source - The Detroit News

Posted in:General
Posted by Eileen Denhard on September 30th, 2011 9:32 AM



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