Private-equity firms Bain Capital LLC and Hellman & Friedman LLC reached a deal to acquire a chunk of Lehman Brothers Holdings Inc.'s investment-management unit, including its prized Neuberger Berman division, for $2.15 billion.
An auction of the profitable investment-management unit began more than a month ago as Lehman scrambled to raise capital. The firm originally planned to sell a 55% stake in the unit, but as a result of its bankruptcy filing the entire business was placed on the block.
The price paid by Bain and Hellman represents a sharp discount to the price Neuberger and Lehman's other money-management assets would have fetched pre-bankruptcy. As recently as one month ago, Wall Street analysts had valued Lehman's investment-management unit at about $7 billion.
Underscoring the credit-market crisis, the deal is an all-equity transaction, meaning the buyers aren't borrowing money to finance it. Employees will also own a significant stake in the new firm, which will be called Neuberger Investment Management and run by Lehman investment-management chief George Walker.
Still, at $2.15 billion the Neuberger transaction is valued higher than the entire price Barclays paid for Lehman's blue-chip investment banking and trading operations. On Sept. 20, Judge Peck approved Barclays's purchase of Lehman's U.S. assets for $1.54 billion. The transaction included a Lehman brokerage arm — separate from Neuberger — that accounted for about 40% of the investment-management division's revenues last year.
In Neuberger, Bain and Hellman have snapped up one of Lehman's most coveted assets. The money manager oversees about $130 billion in mostly plain-vanilla investments such as stocks and bonds. Lehman acquired Neuberger for $2.6 billion in 2003 when it had about $55 billion in assets under management.
The new owners face the challenge of navigating Neuberger's unique business culture. Founded in 1939, Neuberger has roughly 120 money managers that cater largely to wealthy individuals and have virtual autonomy as to how they manage client portfolios. The deal was held up in recent weeks due in part to protracted contract negotiations with the Neuberger money managers. People involved the discussions have described the process of persuading them to sign on to the deal as something akin to "herding cats."
The deal presents a lucrative opportunity for Neuberger executives. Though many of them have lost substantial money due to Lehman's collapse, much of Neuberger's top management had become wealthy from the company's 1999 initial public offering and again through a rich retention package that Lehman lavished on them when it acquired the firm. Under their new private-equity owners, Neuberger's employees could cash out again down the road through another IPO or sale.
The new firm will have roughly $230 billion in assets and include several of Lehman's private-equity businesses, including a co-investment fund and a vehicle that buys secondary interests in private-equity funds. The deal does not include Lehman's flagship merchant-banking fund or real-estate private-equity funds.
The acquisition also does not include Lehman's hedge-fund assets. LibertyView, a roughly $2 billion hedge-fund group that is part of Neuberger, will remain with the bankrupt entity, as will minority stakes in hedge funds including GLG Partners Inc. and D.E. Shaw & Co.
San Francisco-based Hellman has deep experience investing in asset-management businesses, with current holdings that include the U.K.'s Gartmore Investment Management and Mondrian Investment Partners; Milwaukee-based Artisan Partners; and Chicago's Grovesnor Capital Management. It also has a strong Lehman connection: founder Warren Hellman spent nearly two decades at the investment bank and served as its president in the 1970s.
Boston-based Bain, though it has little experience investing in asset-management firms, itself manages roughly $80 billion in funds.