Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Some private-equity deals aren't that private.

Investors Vote on NCR
Blackstone Group trading down as investors react to news that they would inject $820 million into NCR Corp.
Source: Bloomberg

Blackstone said Thursday it would inject $820 million into NCR Corp. by way of convertible perpetual preferred stock, which the maker of cash registers and ATM machines intends to put towards buying back $1 billion worth of its shares. Blackstone's investment  -- also known as a "PIPE," or private investment in public equity -- comes after the New York firm and some of its rivals explored a traditional leveraged buyout of NCR.

Judging from investors' reaction to the news, they'd far prefer an LBO to a PIPE. Shares of NCR were down 1 percent to about $26.50 in trading Thursday afternoon, below the $36.50 peak in June when investors believed a buyout was nigh.

Moody's Investors Service downgraded NCR's rating on the basis that the company is taking on increased credit risk to finance the buybacks. Also, one of its biggest shareholders, Marcato Capital, on Thursday gave up its board seat and said that although it still owns 6.4 percent of NCR, its ownership is now passive and no longer "held for the purpose of or with the effect of changing or influencing" the company.  Marcato is still in the red, with an average entry price of $29.16 (some 9 percent higher than where NCR is trading) and will be hoping Blackstone’s presence at NCR pays off. 

NCR's Rocky Road
Blackstone's investment didn't receive a warm welcome
Source: Bloomberg

For followers of Blackstone, this may all sound familiar. In December 2013, the firm made a $200 million investment in Crocs (via convertible preferred stock) which the maker of clogs used to fund a $350 million share buyback. That deal also came together after buyout talks faltered and, like NCR, gave Blackstone control in the form of two board seats.

So how did it work out at Crocs? Initially, the stock soared on word of Blackstone’s bet and the concurrent news that the shoemaker's CEO was stepping down. Nearly two years later, things aren’t going great. 

The retailer is trading at its lowest level in more than five years, and Blackstone’s convertible stake is out of the money (the implied conversion price is $14.50, 50 percent higher than Crocs' last-traded level of $9.64) after a third-quarter earnings miss and headwinds around distribution in China. But private-equity investors are used to sticking around for more than two years. The firm is betting that under CEO Gregg Ribatt, who before taking the top job was on the company's board as a Blackstone representative, Crocs can turn itself around.

Rather than betting on new management like it did at Crocs, Blackstone's resources will, according to NCR, enable the company to accelerate its transformation into an integrated software-and-services company, expand its partnership network and grow recurring revenue.

If that bears fruit, Blackstone will eventually exit NCR with a tidy profit, as well as its annual 5.5 percent dividend. Though that's not a bad result, it's a far cry from the outsized return for which private-equity firms strive. In this case, the math for an NCR take-private didn't work because such a deal would have required Blackstone to put up more equity because of the company's already-hefty debt load and regulatory constraints around such lending.

Capital preservation is paramount for the pension funds and endowments that entrust billions with Blackstone and its peers. But they also keep a close eye on both returns and fees: the industry-benchmark for private-equity firms is 2 percent on capital managed and a 20 percent kicker if they achieve a return above a certain threshold.  

But if more would-be LBOs keep morphing into potentially less lucrative structures such as PIPEs, that fee conversation may need to change.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Beth Williams at