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PE Mergers a Reality? Edgewater Sells To Lazard

Investment bank Lazard today announced plans to purchase Chicago-based Edgewater Funds, in what is only the third example of a private equity firm takeout that I can think of. This begs an obvious question: Why?

The press release says that Edgewater, which makes growth-oriented investments, will “compliment Lazard’s Financial Advisory business in the Midwest.” Other than Lazard’s desire for a Chicago office, this tells us precisely nothing, which is just how press release writers like it.

The less-obvious question is: What happens to Edgewater’s current efforts to raise $750 million for a new fund? It entered the market last year and has only raised $153 million as of June. Maybe that vehicle will be scrapped in lieu of a new, Lazard-branded fund. The press release says Edgewater aims to “leverage” the Lazard brand, but that seems to be in reference to portfolio company expansion.

We’re still waiting to hear back from Edgewater or Lazard for any available color on the deal. In the meantime, let’s look at how two past PE mergers are faring:

In 2005, Apax Partners took over Saunders Karp & Megrue. Not too long after the deal closed, Alan Karp, who had become the firm’s co-CEO in the merger, and U.S. consumer head Chris Reilly left to form a new middle market buyout shop, called KarpReilly. Seems the independent buyout pros didn’t like having a corporate parent to answer to.

The other example is Metalmark. The firm began life as an in-house unit of Morgan Stanley, until spinning itself out in 2004. Three years later the firm agreed to sell to Citi Alternative Investments. Since then, Metalmark appears to have existed without incident under the Citi umbrella.

So there’s a success and a (slight) failure. By that measure, Edgewater has 50/50 odds of success under Lazard.


Metalmark is no longer alone

PE Firm Mergers Are a Bad Idea. Here’s Why: