Private equity suitors TPG, Advent International Corp. and a partnership of Sycamore Partners and Vector Capital Management are into the final round of bidding for Yahoo Inc., according to people familiar with the matter.
The three buyout groups join Verizon Communications Inc., AT&T Inc. and Quicken Loans Inc. founder Dan Gilbert in the last weeks of the bidding process, with each vying to win Yahoo’s core Internet business, as well as some of its intellectual property and real estate assets.
All of the offers value Yahoo from about $4 billion to $6 billion except for Verizon, said one of the people, all of whom asked not to be identified as the matter is private. Verizon’s bid was lower — from $3.75 billion to $4 billion — because it doesn’t include Yahoo’s patents and real estate, the person said. Verizon would be willing to acquire both additional assets, people familiar with the matter said last week.
The bids are difficult to compare because each includes a different amount of Yahoo’s intellectual property, the people said. Assessing offers for different assets extended the auction period, they said.
Fort Worth-based buyout firm TPG offered from $5 billion to $6 billion for Yahoo’s core internet business, patents and real estate holdings. TPG, which sees itself as Yahoo’s best chance to turn around a struggling business, has had preliminary talks with strategic partners, although it continues to bid alone, one of the people said.
A winning bidder for some combination of Yahoo’s assets will probably be chosen early next month, the people said.
Sycamore and Vector, two investment firms that have teamed up to bid, typically invest in smaller assets. Sycamore focuses on retail and consumer investments, rather than technology firms, and owns stakes in shoe retailer Nine West Holdings Inc. and department store chain Belk Inc., according to its website. Vector invests in tech companies including Gerber Scientific Inc. and Triton Digital.
While the group is still in the running, Sycamore and Vector probably don’t have the capital resources to win, one of the people said.
Apax Partners and a group comprising Bain Capital and Vista Equity Partners are no longer involved in the process, the people said.
AT&T and Gilbert, whose effort is backed by Warren Buffett, each bid about $5 billion for Yahoo, including at least some of its patents as well as the real estate assets, people with knowledge of the matter said last week.
Representatives for Apax, AT&T, TPG, Sycamore, Verizon and Yahoo declined to comment. Representatives for Advent, Bain, Vector, Dan Gilbert and Vista didn’t immediately respond to requests for comment.
Private equity firms may find it difficult to compete with strategic companies if a bidding war ensues. Given Yahoo’s declining profitability and revenue, lenders aren’t likely to provide financing of more than four times adjusted earnings before interest, taxes, appreciation and amortization, the people said.
Yahoo projects adjusted Ebitda of $700 million to $800 million this year. Using the midpoint of the range would imply a ceiling of about $3 billion in debt, based on the four times multiple. Yahoo’s patents and real estate may be worth between $1 billion and $3 billion, according to analysts.
Yahoo, which began a strategic review of the company in February, accepted first-round proposals in April, attracting offers that ranged from about $4 billion to $8 billion, people familiar with the matter said at the time. The company received more than 10 initial bids, the people have said.