Private equity firms buy Lehman's Neuberger Berman

Business Materials 30 September 2008 03:57 (UTC +04:00)

The prized Neuberger Berman asset management business of bankrupt Lehman Brothers Holdings Inc is being sold to private equity firms Bain Capital LLC and Hellman & Friedman LLC for $2.15 billion (1.2 billion pounds) -- a lot less than original estimates, Reuters reported.

The deal includes Lehman's Asset Management unit and private funds investment group, but excludes Lehman's major direct private equity businesses, the firms said in a statement Monday.

Some estimates in August had valued the business -- including the private equity and hedge fund unit -- at between $8 billion and $10 billion, according to a Wall Street Journal article at the time.

But it is hard to do an apples-to-apples comparison of the price because, at various points of the sale process, different parts of the business were being offered for sale.

The final price is likely to be lower than original estimates because some units were excluded, the market has fallen significantly and the businesses are being sold after Lehman's holding company filed for Chapter 11 bankruptcy protection, said Michael Holland, founder, Holland & Co, which oversees more than $4 billion.

"On the face of it ... it looks to be an attractive if not a bargain price," said Holland.

But he said it was impossible to value without knowing the deals that buyers struck with Neuberger to keep its portfolio managers -- the money managers who create the revenues and profits for the business.

In another sign of how seized-up the credit markets are, the deal was struck just in cash -- a stark difference to typical private equity deals, which involve a significant amount of debt.

The businesses would be housed in a newly created investment management company that would manage assets valued at more than $230 billion at the end of August. The Neuberger arm would be its largest operating unit.

A total of 2,068 professionals are moving to the new Neuberger Investment Management company, an official at Neuberger said. Despite the turmoil in the market and the problems at Lehman, the team remained stable, with very few people leaving, that person said.

George Walker, Lehman's global head of investment management, would be chief executive and Neuberger's head, Joe Amato, would continue to lead the Neuberger division.

Bain Capital managing director Phil Loughlin said in a statement he believes that, over the long term, there would be a "great deal of value and unleashed potential in this newly independent company."

Bain and Hellman & Friedman would be equal partners in the new company. Portfolio managers and management would also own a significant stake and increase their ownership over time, the firms said.

Lehman said earlier this month it was in advanced discussions with a number of bidders to sell the investment management division, including the crown jewel, Neuberger Berman.

An internal memo obtained by Reuters at the time said the investment bank hoped to announce a deal for the division "within a very short period of time."

Lehman originally put just a majority stake of the asset management arm up for sale, but later sought a deal for the whole unit.

Separately, French utility Electricite de France SA agreed on Monday to buy Lehman's Eagle Energy Partners, a North American wholesale energy transportation, gas storage and services business, for undisclosed terms.

Among the assets remaining to be sold from Lehman are its private equity businesses, including Merchant Banking, Real Estate and Venture capital, as well as hedge funds held by Lehman.