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Mysterious XIO Group to exit Lumenis in rare $1B SBO

Kevin Dowd

Baring Private Equity Asia has agreed to purchase medical device maker Lumenis from current owner XIO Group in a move that gives the Israeli business an enterprise valuation of more than $1 billion, marking an SBO of a size seldom seen so far in 2019—as well as an exit for a reclusive investor that made headlines last year for the uncertain source of its funding.  

During the first nine years of the present decade, the global private equity industry experienced a steady increase in secondary buyouts worth $1 billion or more. The frequency of such deals quadrupled between 2010 and 2018, from 19 to 78. This year, though, that number has fallen off a cliff: 
 
That decline is in line with a significant drop-off in overall PE exit count across the US and Europe this year, a dip likely driven in part by both sky-high deal multiples (making it more difficult for firms to find potential buyers at the prices they're seeking) and broad geopolitical uncertainty caused by US-China trade tensions, the looming specter of Brexit and more. 

There's also been a major decrease this year in exits via corporate acquisition and IPO—in fact, for exits of all sizes, SBOs have proved more resilient than those other deal types, according to PitchBook's 3Q 2019 US PE Breakdown. In the US in 2019, SBOs have so far made up a higher percentage of all exits than in any other year since 2010. But the decline of $1 billion SBOs has been starker than the change in smaller SBOs, suggesting it's been difficult for firms to agree on prices for highly valuable (and often highly leveraged) assets. 

For XIO Group, the sale of Lumenis comes about a year later than many thought it would. Reports emerged in November 2018 that the firm was on the brink of offloading the company to CVC Capital Partners for about $1 billion. But that deal never came to pass. XIO has backed Lumenis, which makes laser-based clinical and surgical products, since 2014, when it took the business private for $510 million. 

In the years since, XIO has been in the news for other reasons. In January 2018, The Wall Street Journal published an article on the firm's acquisition of car-rating company JD Power and Associates for $1.1 billion in 2016, reporting that neither JD Power executives nor XIO's own employees were certain of how XIO was financing the deal and prompting larger questions about the opaque nature of the firm's ownership. While it's now based in London, XIO was founded in Hong Kong and retains apparent ties to China.

In one particularly unusual facet of the story, a Beijing businessman named Xie Zhikun claimed to have invested about $1 billion in XIO; XIO denied it and told Xie to stop saying he had any affiliation. The WSJ also notes that, shortly after the acquisition, JD Power took on another $180 million in debt that went in part toward paying a $100 million dividend to investors whose identity XIO declined to make public. 

As it's domiciled in the Cayman Islands, XIO told the WSJ it wasn't legally allowed to identify its investors without their consent. The firm didn't immediately respond to PitchBook's request for comment. 

Whoever's behind XIO, it seems they might not be in the buyout business for long. The firm's website lists three portfolio companies: Lumenis, JD Power and a fertilizer company called Compo Expert. Lumenis is now being sold to Baring PE Asia. Thoma Bravo agreed to buy JD Power from XIO in July. And a Polish chemical supplier called Grupa Azoty purchased Compo Expert in November 2018. 

Most private equity firms are struggling to find exits in 2019. But not all of them.
 

For more on PE exits, check out our 3Q 2019 US PE Breakdown