On Saab’s ability to find a buyer….

The following was posted in comments by Ed K. I think you’ll find these thoughts as sobering as I did, but it’s good to have a dose of reality every now and then.
I’m still optimistic that Saab can and will find a buyer, but it won’t be a walk in the park.
My thanks to Ed for his insights.
Personally, as a lawyer who specializes in representing private equity firms in buy-outs/divestments, I have trouble seeing what private equity firm would be willing to put their capital at stake in any car company under the present market environment – let alone one as troubled as Saab.
It’s just to risky, and I doubt that the investors behind PE firms (remember, these are funds who answer to their investors in capital calls, investment committee approvals, etc.) would in particular be willing to let a PE fund invest capital at this point – especially with the Chrysler debacle so fresh in everyone’s minds.
Who in their right minds would put their own fresh capital into the car industry in this environment?
Plus, we all agree that support from the Swedish government will be key to any future for Saab – but this creates a Catch 22 situation: a buyer would only take over Saab if it did not have to put much capital at risk (and leveraging – the classical private equity tool – is out of the question in this market environment since the credit markets are in the flusher); but the Swedish government will only provide support if a strong financially backed owner steps in and puts its own cash at risk….
As mentioned previously, debt is a key component to the classical private equity model (especially with a business of this size). The way it works is that PE firms leverage the asset they are purchasing to the hilt to use as little of their own capital as possible in order to increase the returns on the capital they employ. This way, the return on their own capital employed increases. A crucial part of this model is the availability of CHEAP DEBT. Unfortunately, in the current market environment, THERE IS NO DEBT AVAILABLE – whether cheap or expensive. The banks are quite simply bust – they do not have money to lend. In fact, they need to borrow money from the governments to stay afloat themselves.
Accordingly, I personally place very little hope in a private equity firm purchasing Saab….perhaps if the Swedish government was willing to cough up tax payer’s money without the PE firm putting much of its capital at risk (which would replace the bank debt typically used by PE firms); but as our dear friend Maud has already told us, this is NOT an option without a new owner providing clear financial backing….and now we are back to the aforementioned Catch 22.
In my view, the only way out of the Catch 22 is if the Swedish government promised to provide Saab with cash so long as Saab is in the hands of a owner with a solid business plan. To keep insisting that the new owner will also need to make capital available to Saab in this market environment is a no go. We might as well start digging the grave now….I am sure that this is exactly the message which JAJ is communicating to the Swedish government. The Swedish government’s current stance is making it near impossible for Saab to find a viable new owner.
In any event, the value of Saab as an asset keeps on deteriorating the longer this stale mate continues. With sales plummeting the way they are and Saab being viewed by the public as being one step away from bankruptcy, the Saab company may be completely without value by the end of the year.
Real decisive action (with the Swedish government changing its tone) is needed NOW….at least the right messages need to be sent.