PhillyDeals: Buyout funds are having a tough time

Those multibillion-dollar buyout funds that bought up a string of public companies in the last decade, with backing from state pension funds and other giant investors, aren't looking so smart.

SunGard, the Wayne-based data and software giant that was bought by Silver Lake Partners L.P. and the buyout units of the Bain Capital, Blackstone, Carlyle, Goldman Sachs, KKR, Providence, and Texas Pacific (now TPG) investment groups for $11 billion six years ago, just reported sales were down in all four of its business lines last year, despite the economic recovery.

It's hard to see how the well-paid "private equity" managers behind that deal are going to get out of it with a profit for their investors anytime soon.

Things looked still murkier last week for the 300 Philadelphia-area employees of LECG, a publicly traded, Devon-based expert consulting and accounting firm with offices across the United States.

Since 2007, Boston buyout firm Great Hill Partners L.L.C. has invested $95 million, plus millions more in assumed debt, in LECG and one of its predecessor firms, the former Smart & Co., which had been the largest independent accounting and business-consulting firm based in the Philadelphia area.

LECG said last week that it's negotiating to sell parts of the company to Florida-based Fti Consulting Inc. It needs to get that deal, or some other deal, done before March 31, when LECG has to pay its bankers $28 million. LECG's stock has been trading below $1 a share; the company's market value Friday was just $26 million.

That makes it hard to see how Great Hill is going to get its investors' money back. And LECG partners who still own stakes in the company are also losing.

Last year, the Philadelphia Water Department, pressed by federal water-pollution rules, made big changes in the stormwater-runoff fees it charges business-property owners for the privilege of getting rained on.

Used to be, firms paid a stormwater fee based on how much treated city water they bought.

That made no sense, since city water mostly goes down the drain to the sewage-treatment system, for which you pay yet another fee.

The new stormwater fees, phased in over four years, are tied to how much pavement and roof a property has collecting rain.

At least that's logical, though you could argue with the Water Department assumption that rain only hits the little tops of high-rises, not the long sides.

Logical or not, this radically changes who pays. And radical change makes losers as well as winners.

Hospitals and universities (Penn, Temple, Jefferson), high-rises, and utilities such as Peco Energy pay less with the new rules.

But scores of factory and warehouse owners - even cemeteries - are paying thousands more.

The outraged owners formed a vocal United Business Owners Association of Philadelphia, which has been lobbying City Council for relief, president Jeff B. Allen, of Allen Bros. Wholesale Distribution, at Second and Erie, told me.

Arty Elgart, owner of auto-parts and chemicals distributor Robert Elgart & Sons, at 10th and Butler, says the group is pushing for a slowdown in the Water Department's new system, so fees rise over a 20-year period, giving owners more time to change.

Will the city relent? "There aren't going to be any rollbacks," though the city is offering loans and advice to reduce runoff and qualify for lower fees, Water Department spokeswoman Laura Copeland told me.

"Something's got to change" or the city will lose jobs, Elgart promised.

Elgart cited auto-parts rebuilder Cardone Industries, the biggest industrial employer left in Philadelphia, among companies likely to leave if stormwater fees aren't eased for factories.

But Cardone needs more than cheaper drainage to create new jobs here.

"We're committed to Philadelphia. We're committed to staying here, and we're committed to job retention," Cardone spokesman George Zauflik told me.

So why has Cardone employment already slipped to around 3,700, from 4,000 a couple of years ago? Cardone is keeping veteran workers busy in its Northeast Philadelphia warehouses as they approach retirement. But new orders in China and abroad are being filled by Cardone plants in South Texas, Mexico, and elsewhere, where it's cheaper to operate for many reasons, the company says.

To be sure, Cardone has asked for lower stormwater rates. But it will take more than that to make Philly cheaper than places like South Texas.