Elevation Partners Planning New Fund?

Posted By: Ryan Kairer Wednesday, December 16, 2009 10:20:49 AM

Fortune has an article out this morning discussing the private investment outfits current state of affairs. The editorial paints a dim picture of Elevations track record to date with a focus on the firms $460 million dollar investment in Palm Inc. The article also points out the posibility that Elevation is considering raising a new fund, while at the same time hinting that they may need to force a sale of Palm to a bigger player.

[...] the fate of Elevation's first fund rests almost solely on one investment, its $460-million stake in beleaguered smartphone maker Palm (PALM). That investment is barely in the money for Elevation. It's worth about $500 million currently.

Elevation is demonstrably in for the long term: It chose not to sell late last year when the stock peaked around $18, compared to Tuesday's close of $11.65. Palm recently raised $500 million in a stock offering, so its near term is secure.

Thanks to Gekko for the tip.

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Be carfeul about believing the Me-Too Media

SeldomVisitor @ 12/16/2009 11:04:19 AM #

Elevation Partners has about $4+ per share profit at this point in time - about $7-ish cost average and the current price is about $11-ish so they're more than "barely" making money off their investment.

"Forcing a sale" of Palm would require soem DUHmb company to buy Palm at an outrageous premium that would make the ACCESS PalmSource purchase seem like sheer genius.

Or would require Palm to get down in stock price to a reasonable level, MUCH below EP's average cost.

Ain't gonna happen soon.

==========

BTW - ya need a little editting on the article - mucho typos.

RE: Be carfeul about believing the Me-Too Media

Ryan @ 12/16/2009 11:55:20 AM #

typo monkey has the day off, thx will double check.

RE: Be carfeul about believing the Me-Too Media

SeldomVisitor @ 12/16/2009 12:57:25 PM #

You can correct my typos at the same time!

Crash and pass?

CFreymarc @ 12/16/2009 12:17:02 PM #

There is an old Wall Street trick to drive a companies valuation down to the point where it can be sold off at a profit. You under resource the company, thus saving money. The earnings goes down and just before it goes bankrupt, you sell it off at a hefty profit due to under capitalization.

The SEC tends to be all over you if this is done with a lot of malice. Accountants can play with numbers like crazy such that is looks like you were attempting to become profitable. With technology companies and the crazy valuations changes, it is almost child's play to do this. Is this in the plan?

RE: Crash and pass?

SeldomVisitor @ 12/16/2009 1:05:50 PM #

Elevation Partners needs $7-ish to break even.

That price is WELL above a reasonable valuation for Palm at this time.

Note - actually the above $7-ish isn't QUITE correct. As part of the original EP deal with Palm they got REALLY SPECIAL shares. The Preferred Shares that EP has, about 55 million when converted to common shares I think, actually get to have any funds of a buyout distributed to them FIRST before the other common share stockholders up to EP's original purchase price. So if Palm gets sold for, say, half a billion dollars then EP almost gets it ALL and the run-of-the-mill shareholders (including the OTHER shares EP owns) split up the dregs. And this is the case even though EP "only" owns about 40% of PALM.

RE: Crash and pass?

CFreymarc @ 12/16/2009 2:01:31 PM #

The $7-a-share of what you are quoting is not a hard number. Sometimes there is so much arm waving on these valuations that you end up floating in the middle of the room.

RE: Crash and pass?

SeldomVisitor @ 12/16/2009 3:33:41 PM #

Actually, it IS a hard number - I went through each acquisition by Elevation Partners of Palm stock and did the math.

This is the post I made elsewhere:

http://tinyurl.com/epstake

RE: Crash and pass?

CFreymarc @ 12/16/2009 6:07:54 PM #

You are assuming in your calculations of no outside, third party investment. Actions like that tilt apple carts a lot!

RE: Crash and pass?

SeldomVisitor @ 12/17/2009 4:37:59 AM #

Perhaps we're talking past each other. All my comments under this article have been about how the sourced article says Elevation Partners is doing REALLY poorly with their Palm investment when actually they're doing fantastic so far - better than 60% ROI (still on paper, of course).

How EP is doing with OTHER investments, of course, ain't the best.

Wait isn't Elevation Partners....

jnuneznj @ 12/16/2009 1:56:05 PM #

Isn't this firm run by the same guy who ran Commodore Computers into the ground? Can't remember his name?!?!? Anyway I see MS buying Palm in an attempt to get a bigger foothold in the mobile market.

RE: Wait isn't Elevation Partners....

CFreymarc @ 12/16/2009 1:59:52 PM #

While I was a Palm fan for years, the post-Hawkins Palm has a lot lacking. I can easily see Palm carved up like a Christmas Goose by this time next year. Hell, auctioning off the patent suite could make a good amount of money. I have all but given up on them and mostly here for the occasional golden nugget of data that shows in these posts.