Rumors are running rampant that we are just hours away from hearing that Lehman Brothers has agreed to sell its investment management group to either a single private equity firm (CD&R) or pair of private equity firms (Bain Capital & Hellman & Friedman). Oh, and I still say this makes too much sense for KKR to not be involved until the final minute. This would be the whole enchilada as opposed to the original 55% stake, although reports vary on total price (anywhere from $4b-$7b, which means finding leverage could present the largest hurdle).
There’s lots of reasons for private equity firms not to buy Lehman IM, including: (a) Lack of certainty that wealth managers won’t bail; (b) Lack of certainty that private equity managers won’t bail/insist on spinning out and (c) Lack of certainty that one of the coming lawsuits won’t stick.
But there’s also an unusual reason why this deal could be particularly lucrative: Access to a treasure trove of high-net-worth individuals who just might like to invest in private equity. I’m not saying this should be a primary motivator (that would be ROI potential), but it sure could be a nice correlary bonus.
Each of the interested firms raises very large funds, and that is becoming harder and harder to do. CD&R is currently more than halfway toward its $7.5 billion target, but that still leaves a ways to go. KKR is expected to begin raising another general fund sometime next year while Hellman & Friedman had already called down more than 1/3 of its $8.6 billion sixth fund as of the end of 2007 (a percentage that would spike if the Lehman deal were to happen). Bain is the only one flush with committed capital, but it has a habit of rapid spending and has been one of the few firms to create and close new billion dollar+ buyouts since the credit crunch began.
Again, not a major reason to do the deal. Just one to keep in mind.