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Financial Services Buying Spree
The words couldn’t suggest a worse environment for shareholders of banks and financial institutions. But, as the old adage goes, “one person’s trash is another’s treasure”, couldn’t be truer when it comes to financial services, an industry where many expect will produce its share of M&A investment bonanzas.
Large financial institutions are still working through a backlog of bad mortgage loans as a result of last summer’s subprime market route and, in some cases, offloading big chunks of debt through sales to financial buyers. Banks are expected to reorganize their operations, shedding assets or sell shares to replenish depleted capital reserves. Bulge bracket houses, community banks and specialty finance companies all could use a boost.
Large and middle market private equity firms have been, and only continue to be, only happy to oblige. Large transactions like TPG’s participation in a $7 billion capital infusion in Seattle thrift Washington Mutual have commanded headlines and, against the backdrop of the mortgage mess impacting Wall Street and Main Street alike, prompted regulators to review bank holding company regulations.
The mid-sized market has also drawn investment, particularly involving mortgage-related plays of late. Take, for instance, the Blackstone Group’s minority stake infusion in Bayview Asset Management at the end of July or Lightyear Capital’s $400 million deal in May to back a newly formed monoline mortgage insurance company through a transaction with Winston Salem, N.C.-based mortgage insurer Triad Guaranty.
All the activity suggests on first blush that the number of transactions should increase. But, new research by Jefferies Putnam Lovell, a division of Jefferies & Co., indicates that deal execution in financial services should remain about the same over the next 12 months as it has over the last six months. In the first six months of 2008, buyers committed $10.6 billion to acquire partial or full ownership of 104 fund managers, compared to $36.9 billion or 115 deals in the prior-year period. Even so, the aggregate deal sizes and the assets under management that change ownership is expected to increase because of capital-raising moves of troubled financial institutions, which have written down at least $400 billion and sought more than $300 billion in new capital.
That’s a given in the bulge bracket segment of financial services because of the massive writedowns that have taken place. But, it’s notable that some middle market investors have chosen not just to capitalize on mortgage servicing businesses, but chosen to fund the build out of community at a time when large banks remain mired in the credit morass. It’s what Paul Levy, founder of JLL Partners, had in mind when the firm invested $75 million to expand First Community Bank of Dallas ’ regional banking chain.
Meanwhile, as economic challenges and credit problems remain on the horizon the outlook for acquirers of financial service assets should only continue to improve. Purchase multiples are only expected to soften, Jefferies Putnam Lovell notes, reflecting an increasing number of sellers that need to refuel capital reserves and, hence, will settle for lower bids.
For a financial service acquirer that should mean three things: buy, buy, and buy.
Kelly Holman Kelly.holman@sourcemedia.com 
The Leading Authority on Corporate Growth.
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DEALSLightyear Capital Buys Into Higher OnePE firm’s collegiate financial services investment signals interest in sector considered now to be more valuable, stable, than mortgages. Denham Buys Multi-ShotDenham Capital has agreed to acquire Multi-Shot, an independent provider of directional drilling services in the North American oilfield services industry, for $165 million. Multi-Shot, headquartered in Conroe, Texas, operates throughout the continental United States Wind Point Partner Sells York LabelWind Point Partners has sold YORK Label, to Diamond Castle Holdings. YORK Label is one of the largest manufacturers of labeling technologies in North America. Wind Point acquired YORK Label in March 2006 in partnership with Rich Egan.
Please contact Naz Bayazit to inquire about advertising opportunities with this e-newsletter. Naz.Bayazit@sourcemedia.com.
FIRMSTSG Targets Growth PlaysConsumer-oriented firm will look to invest between $200 million to $250 million from latest fund. Norvestor Closes FundNorvestor Equity AS has closed Norvestor V, L.P. with total commitments of EUR 236 million, well above its target size. Commitments to Fund V came from more than 30 existing and new Nordic and international investors, and from a broad range of institutional investors, including fund-of-funds managers, family offices / foundations, insurance companies, pension funds, banking groups and investment managers. Commitments were secured from investors in countries including Norway, Sweden, Denmark, Finland, Germany, France, USA and the UK. Fund V is the successor to Norvestor's previous fund, Fund IV, a EUR 157 million fund raised in 2004, which has made six investments in Norwegian and Nordic mid-market companies and multiple follow-on acquisitions. China Passes Merger Review LawChina released the results of a State Council meeting in which a new draft of antitrust laws was approved that would significantly alter the M&A environment in the east Asian republic. An earlier draft of the legislation was released in March, prompting many deal pros to openly express reservation with an item in the legislation that would have set the threshold of scrutiny at any deal involving a company with sales over $40 million. Under the approved rules, only deals with two or more companies which have a revenue in China of more than 400 million yuan ($58 million) and a combined global revenue of over 10 billion yuan (approximately $1.5 billion) will prompt merger review. The enactment of a fixed standard for merger review in China is viewed as a positive development for a global economy, despite investors’ initial concerns that a low threshold for scrutiny would have inversely impacted even the lower end of the middle market. These concerns were allayed by the significantly lower cap to trigger merger review. Additional regulations are anticipated in the next several months to further specify the new legislation. Gabelli Newest Entrant to SPAC ClassMario Gabelli, the head of GAMCO Investors, is launching a new Special Purpose Acquisition Company (SPAC), according to papers filed with the Securities and Exchange Commission. The Gabelli Entertainment and Telecommunications Acquisition Corp., worth $200 million, will seek a media or telecommunications firm to take public, according to the federal filing. The SPAC will sell $200 million units of stock on a one-for-one basis of common stock and warrants at a strike price of $7.50. Gabelli will serve as his SPAC’s chairman and its chief executive is a well-versed media M&A executive, Frederic Salerno, who has worked on deals including the Bell Atlantic-NYNEX merger and the union of Bell Atlantic and Vodafone into the combination that would come to be known as Verizon. Other management for the SPAC includes Kieran Caterina, who for a year has served as acting co-chief financial officer of GAMCO Investors, another Gabelli investment arm. Another Gabelli SPAC executive, Christopher Marangi, has in the past worked with GAMCO. Gabelli joins a growing class of high-profile names who have lent credibility to the dealmaking vehicle; Ronald Perelman, Thomas Hicks, Bruce Wasserstein and even Ashton Kutcher have jumped into the fray as of late. PEOPLEPower M&A Banker Leaving JPMorgan for QuantumVerma will relocate to Houston for his new role and will make investments via Quantum's fifth fund, which will total more than $3 billion. Livingstone Adds Consumer ExpertLivingstone Partners, a mid-market investment bank, announced the appointment of Gene McCaffery to the post of consumer industry advisor. McCaffery has held multiple positions with private and public companies alike and will concentrate on retail and restaurant sectors with his new organization. Most recently, McCaffery was the chairman and chief executive of Value Vision Media, which owns ShopNBC, a shopping network. He also served on the board of Ralph Lauren Media during the development of POLO.com and spent 14 years with Montgomery Ward, a retail chain, exiting as the company’s senior executive vice president. McCaffery is among 10 sector experts on Livingstone Partners’ advisory panel; additional appointments are planned. Linklaters Hires FTC ChiefLinklaters LLP hired Jeffrey Schmidt, a Federal Trade Commission director, as an antitrust partner at the London, U.K.-based law firm. Schmidt was director of the FTC’s bureau of competition from 2005 until this year. Before joining the FTC, he was a partner for 15 years at Pillsbury Madison & Sutro for 15 years, which later became Pillsbury Winthrop, then merged with Shaw Pittman in 2005 to create Pillsbury Winthrop Shaw Pittman LLP. In his new position, Schmidt will be based in New York, focused on competition and antitrust issues. Earlier this year, the firm announced plans to strengthen the Asia antitrust practice by transferring senior partner Erik Söderlind to the Hong Kong office from Sweden. Moelis Moves In On Fortress’ MDMoelis & Co., the New York-based investment bank founded by former president of UBS Ken Moelis hired Greg Share, a former managing director at Fortress Investment Group. At Fortress, Share was focused mostly on financial services and insurance investments. Previously, he was a vice president at Madison Dearborn Partners. He started his career at Lazard Freres & Co. In his new position, Share will function as a partner in the investment bank’s private equity business in a move that is seen as an effort to expand Moelis’ PE division. | |||||||||||
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