Keating Capital has completed the sale of its position in Corsair Components to Francisco Partners for total net proceeds of approximately $4,675,000. In July 2011, Keating acquired $4 million of common stock and acted as the lead investor in an $8 million purchase of common stock from the founders and management employees of Corsair.
At the time of Keating Capital’s investment, Corsair had an initial public offering registration statement on file with the SEC. However, Corsair announced this month that it had postponed its IPO due to weak equity market conditions.
As a result of the company’s sale of its Corsair interest to Francisco Partners, the company generated approximately $675,000 of net realized gains representing a return multiple of 1.17x its investment cost over a holding period of approximately 1.8 years and yielding an internal rate of return of approximately 8.9% per year.
Corsair supplies products used by PC gaming enthusiasts who build their own PCs or buy pre-assembled customized systems. The company’s products include DDR3 memory upgrades, mobile storage drives, power supply units, solid-state drives, PC speakers, gaming headsets, gaming keyboards, laser gaming mice, system monitoring and control devices, PC cooling products, and computer cases. Corsair had approximately $450 million in annual revenue last year. The company was founded in 1994 and is based in Fremont, CA (www.corsair.com).
“Although Corsair did not complete an IPO and, as a result, we did not achieve our targeted 2x return on our Corsair investment, given the facts and circumstances surrounding this transaction, we are extremely pleased with the outcome,” said Timothy Keating, CEO of Keating Capital. “Corsair attempted to price their IPO just a few days after the Facebook IPO fiasco—an event that froze the IPO market for five weeks—and was unsuccessful. Despite having 2011 revenue and net income of $455 million and $19 million, respectively, the confluence of weak industry and equity market conditions at the time conspired to make the possibility of an IPO at an attractive price unachievable.”
Keating Capital is a business development company that specializes in making pre-IPO investments in growth companies that are committed to and capable of becoming public. Keating Capital is based in Greenwood Village, CO (www.keatingcapital.com).
“We believe the exit from our Corsair position as part of a change of control transaction by a financial investor provides one example of what can happen if one of our portfolio companies can’t complete an IPO. Even though a private-to-public valuation arbitrage may not be attainable if a portfolio company can’t complete an IPO, it is still possible to achieve a net realized gain on a sale or recapitalization of a portfolio company when the quality of the company, the purchase price and the negotiated structural protections as part of our investment provide an adequate margin of safety,” added Mr. Keating.
© 2013 PEPD • Private Equity’s Leading News Magazine • 5-10-13
