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Bear Stearns Cos.' private equity chief, John Howard,
counts himself lucky. Although his personal stake in Bear has been
pulverized, he says he dodged the devastation endured by colleagues
whose wealth was tied up in the wobbly bank, which J.P. Morgan Chase & Co. has agreed to purchase for a pittance.
"I was the only person" within Bear Stearns Merchant Banking, the
bank's $5 billion-in-assets private equity unit, who lost significant
money in Bear's collapse, he says, "It's painful and a lot of people
got hurt. But we're fortunate to have this great [private equity]
franchise."
"We're trying to figure it out," says Howard, 55, who founded BSMB nine years ago after working for many years at Wesray Capital Corp., under buyout legends William Simon and Raymond Chambers. "Our first focus is exploring how we can work together with J.P. Morgan." Although he and his colleagues own most of BSMB, Bear has considerable power over it -- power that J.P. Morgan stands to inherit. Consequently, Howard says, BSMB's future must be decided jointly. Of the possible outcomes, Howard says the least likely is a straight merger of BSMB and J.P. Morgan's own successful middle-market private equity arm, One Equity Partners LLC. He also says he and his partners want fervently to keep the team intact. "My first priority," he explains, is to continue to deliver strong investment returns for BSMB's limited partners. "And we know that our best value-added [for LPs] is to stay together." The group has a sparkling record, posting average gross yearly returns since 1997 of more than 30%. It has scored hefty profits investing in apparel and consumers goods vendors including Aérospostale Inc., Seven For All Mankind LLC and Reddy Ice Holdings Inc. It has stakes in gourmet food chain Balducci's and nutrition retailer Vitamin Shoppe Industries Inc. Among its rare losers is struggling bond insurer ACA Capital Holdings Inc. Another conceivable path for BSMB is independence; it's very nearly independent now. Bear only funds 20% of BSMB, with the bulk of its latest, $2.7 billion buyout fund, pledged by outside institutions. Moreover, Bear and BSMB aren't umbilically linked the way that most banks' in-house buyout operations are to their parents. Unlike most "captive" units, which live off the banks' deal flow, BSMB derives almost none of its deals from Bear. But history suggests Howard and his partners many not wish to sever the tie. In 2005, before setting out to raise the $2.7 billion fund, they debated whether to step out from Bear's shadow. But they decided against it, believing the Bear brand carried weight with LPs. Today, few banking brands are as potent as J.P. Morgan Chase. Howard says he hopes to find a home for BSMB within J.P. Morgan while "continuing to operate the way we're been operating. That's what we're exploring first and foremost." -- David Carey Related coverage:
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