All Lehman, All The Time

A few unrelated Lehman Brothers notes:

1. There are currently 65 PE-backed companies in registration to go public, of which 10 list Lehman Brothers among their lead underwriters. This includes VC-backed companies like LogMeIn and EyeBlaster, and buyout-backed companies like Mcjunkin Red Man Holding Corp. and Vought Aircraft Holding Co.

Changing IPO underwriters is more headache than heartache — particularly when most of these companies recognize they’re not actually going public anytime soon — but it’s just another reminder of how many ripples this wave has created. Here’s a spreadsheer of all PE-backed companies in registration for an IPO, with Lehman clients highlighted: pe-backedipos

2. Lots of reports confirming what I said earlier this morning, about how Lehman is likely to sell off 100% of its investment management arm (rather than the original 55% plan). David Faber says that KKR is out of the mix, with just Bain Capital and Hellman & Friedman remaining. WSJ adds Clayton Dubilier & Rice into the mix.  

This sort of thing wouldn’t be unprecedented — H&F’s purchase of Gartmore, for example — but most LPs I’ve spoken with today are a bit nervous. Let me rephrase: Most are a bit petrified. A lot of these folks also have money with TPG Capital, and are just now steeling for a huge loss related to Washington Mutual. Plus, there’s the overall mega-LBO writedown issue which is hanging over everyone like the Sword of Damocles.

As one institutional investor put it: “These big buyout firms are all about to have ‘Come to Jesus’ moments… I don’t see why they’re rushing in to buy something like Lehman [Investment Management], which is very tricky and could be fraught with legal troubles… Plus, who’s to say the wealth management guys will stay? There’s nothing tying them down, or any loyalty to a Bain Capital.” Another said: “It just feels rushed or frantic. I wish everyone would just take a deep breath and think a bit more, instead of just rushing out and trying to buy.”

3. When Lehman raised its fourth Merchant Banking Partners fund last year, it talked a lot about how important it was that around $500 million of its $3.3 billion came from the bank and bank employees. It was a sign of parent company confidence, and strategic alignment. Now it’s a millstone. No one seems to know if Lehman is still good for that money — it comes from broker-dealer units that are not part of the Chapter 11 filing — or if a Lehman “default” on future capital calls would practically necessitate a fund wind-down (and then re-raise with a new name/structure).