DLJ Merchant Banking: No Quitters Here

DLJ Merchant Banking Partners soon plans to begin pre-marketing its fifth fund, with formal fundraising to begin sometime in 2010, peHUB has learned. No word yet on a target, but parent bank Credit Suisse is expected to remain on board as a cornerstone investor.

DLJ MBP is currently investing out of a $2.1 billion fourth fund that closed in Q3 2006. It has approximately $300 million in uncommitted capital remaining, and is in advanced talks on two deals (with a possible third on the horizon). 

The reason I bring this up today isn’t the 2010 timeframe, since just about every PE and VC firm I know is kicking the can toward that intersection. Nor is it because DLJ MBP could possibly find itself as a temporary member of the zombie crowd (i.e., without enough dry powder to do new deals).

Instead, it’s because rumors keep circulating that the firm is just playing out the string, and that Fund IV will be its last. To reiterate, it is a rumor without merit, according to a firm spokeswoman and others close to the situation. But it’s persistent, for two main reasons:

  1. Layoffs: DLJ MBP quietly dismissed five or six junior/backoffice staffers in late June, as part of larger layoffs at Credit Suisse. These folks are now looking for work, which prompts speculation that there’s trouble back at the ranch. 
  2. Historical Baggage: Credit Suisse tried to spin DLJ Merchant Banking Partners out into an independent entity in late 2004, in order to satisfy mega-buyout clients who were complaining about conflicts of interest. That plan collapsed due to compensation disputes between the bank and certain managers, with Credit Suisse ultimately opting to refocus DLJ MBP on mid-market deals.Soon after, group head Thompson Dean left to form Avista Capital Partners (prior group head Larry Schloss had already left to form Diamond Castle Holdings, while Dean’s successor — Steve Rattner (a different one) — would later resign after being named in an adultery scandal. Nicole Arnabaldi was named chair last summer, and remains in place.

DLJ MBP currently has around 30 staffers, split up between three offices. Expect them to spend a lot of time on portfolio management during the upcoming months, since returns are all that will ultimately matter once those big blue books get sent out.