July 22, 2016

The former owner of TVGuide has raised $305M for its debut fund

By Armie Lee

OpenGate Capital LLC, the private equity firm perhaps best known for its purchase of TVGuide Magazine in 2008 for $1, wrapped up raising its first institutional PE fund this month with $305 million of committed capital after 16 months on the fundraising trail. Though the TVGuide deal won Open Gate some attention, the fund raising could help move the firm from the minor to the major leagues of dealmaking.

Until then, the PE shop was more or less a private investment vehicle for its partners. But in deciding to raise money from outside investors, the firm was responding to interest on the part of institutional investors drawn to the firm’s focus on lower market, cross-border, corporate carve-outs.

“We were approached by a number of LPs over two, three years ago, recommending we go to market,” said OpenGate founder and managing partner Andrew Nikou in a recent interview. In the end, it exceeded its fund raising goal by $5 million, about twice the amount raised by the average new fund, according to Prequin.

Los Angeles-based OpenGate, which also has an office in Paris, applies operational turnaround strategies for value creation. The firm seeks opportunities in North America, Europe and Latin America.

Nikou, a Platinum Equity alum, started OpenGate in 2005 with $30,000 of capital. For much of OpenGate’s history, Nikou said, he and his partners at the firm funded deals “from our personal balance sheets.”

The firm’s investments outside of the fund include Paris-based semiconductor wafer manufacturer Ommic SA, which OpenGate acquired from Royal Philips Electronics NV in 2007 and sold to Egalux SA Luxembourg in 2008; Richmond, British Columbia-based network infrastructure products supplier Global Star Solutions, which OpenGate bought from UTStarcom in 2008 and sold to a management-led buyout team in 2009 and Kotka, Finland-based forest products company Kotkamills Oy, which it bought in 2010 and sold to MB Funds in 2015.

Perhaps the firm’s highest-profile investment was TVGuide, which it bought from Rovi Corp. (ROVI), then known as Macrovision Solutions Corp. in 2008. OpenGate paid a symbolic $1 for the magazine. The PE firm assumed certain liabilities of the business and received a $9.5 million loan from Rovi to get the publication back on track. OpenGate said it worked with the staff to realign the publication’s cost structure and improve its editorial content. In the early part of 2015, TVGuide Magazine unveiled a digital site called TV Insider.

After an ownership of nearly seven years, OpenGate sold TVGuide Magazine and TV Insider to TV listings publisher NTVB Media LLC in October of last year for an undisclosed sum.

“While under our stewardship, the business of TVGuide was not just returned to a state of profitability, it also regained its prominence as the authoritative voice on television content, and it launched a new and innovative digital platform,” Nikou said in an Oct. 7 statement announcing the sale.

OpenGate started raising its first fund, OpenGate Capital Partners I LP, in March of last year and the fund had its final close this past July 15. It has 16 LPs, about 60% of which are in the U.S. and the rest in Europe, according to Nikou.

Having a dedicated pool of capital increases OpenGate’s purchasing power, he said. UBS Private Funds Group was the placement agent. Kirkland & Ellis LLP’s Bruce Ettelson, Karin Orsic, Laura Stake, Brian Delaney and Donald Rocap served as OpenGate’s legal adviser on the fundraising.

OpenGate made a GP commitment of nearly 10% of the total fund size, Nikou said.

So far, the fund is about 40% committed, he said. OpenGate has done five deals through the fund, of which four have already closed and the other slated to close later in the year.

Among the investments is Power Partners Inc., an Athens, Ga.-based manufacturer of transformers and adsorption chillers for utility customers in the U.S., Mexico and Caribbean. OpenGate bought Power Partners in January from PPI Inc.

In March, OpenGate completed its purchase of Rennes, France-based building materials distributor Bois & Matériaux from London-listed Wolseley plc. Though exact terms of the deal weren’t disclosed, OpenGate said it was investing €25 million ($27.5 million) into B&M in addition to the purchase price.

Also in March, OpenGate completed the purchase of the window and door profile business of Atlanta- headquartered specialty chemicals company Axiall Corp. (AXLL). The acquired business, based in Ontario, Canada, has been renamed ENERGI Fenestration Solutions.

In June, the PE firm wrapped up the acquisition of Varese, Italy-based polyvinyl chloride film manufacturer Alfatherm SpA from Emerald Fund and PM & Partners, the shareholders and debt holders.

In the same month, OpenGate agreed to buy the Umicore Zinc Chemicals business of Brussels- headquartered materials technology company Umicore NV for for an enterprise value of €142.4 million. The purchase of Angleur, Belgium-based Umicore Zinc Chemicals is expected to close within the second half of the year.

The firm does not have a portfolio company in the UK, but it is looking at opportunities there, according to Nikou. Because of Brexit, deals there “became much cheaper for us,” he said.

“We have not seen a direct impact of Brexit for us except a value play,” he said.

Since 2005, OpenGate has done more than 40 transactions including corporate carve-outs, turnaround acquisitions, industry consolidations and special situation investments.

Nikou said the state of the deal market in OpenGate’s sectors of interest, including auto, building products, chemicals and telecom, is “very strong.”

He sees opportunities stemming in part from asset divestitures resulting from corporate marriages.

“One of the most prevalent themes we see in today’s market has primarily been the consolidation across the larger, strategic corporations as they are looking for growth in a challenging macro environment,” he said, pointing to examples such as Dell Inc. and EMC Corp. (EMC), Dow Chemical Co. (DOW) and E. I. du Pont de Nemours and Co. (DD), Johnson Controls Inc. (JCI) and Tyco International plc (TYC), Holcim Ltd. and Lafarge SA and General Electric Co. (GE) and Alstom SA’s power and grid businesses.

“This activity yields unique situations that drive deal flow into our industrial and technology verticals as the consolidating corporates face anti-trust issues and non-core divestitures,” Nikou said.