Earlier today, Lehman Brothers announced the sale of Neuberger Investment Management to private equity firms Hellman & Friedman and Bain Capital for $2.15 billion in an all equity transaction with each firm sharing an equal stake in the new company. The units offered as part of the sale include asset manager Neuberger Berman, as well as the “fixed income and certain alternative asset management businesses of Lehman Brothers’ Investment Management Division”.
In total, $230 billion worth of assets (as of August 31) are trading hands with the deal set to close in early 2009. What’s interesting about this transaction is that if we look back 5 years, we can see how drastic, times have changed and the tremendous deal H&F and Bain are getting.
In 2003, Lehman Brothers acquired publicly traded Neuberger Berman for $2.68 billion. At the time, the firm had assets of $63.7 billion and the transaction valued the company at roughly 4x revenue ($660 million). In comparing to the acquisition announced today, if asset managers typically generate revenues roughly equal to 1% of managed funds, H&F and Bain could actually be paying less than 1x revenue for Neuberger Investment Management. With the clear substantial discount (even by today’s standards), it is somewhat surprising that a higher value for the business couldn’t be delivered.
However, given a deal was quickly reached, this transaction represents a good example of what PE firms can offer that other likely strategic suitors may not. That being certainty of closure (all equity sure makes things easy in this case) and timing (deal announced in two weeks). No doubt these two points were brought up more than once as negotiations progressed.