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The fate of Lehman Brothers Merchant Banking and other related fund groups remains unresolved, but unlike Barclays plc's purchase of Lehman Brothers Holdings Inc.'s investment banking assets and Monday's buyout of Neuberger Berman LLC by Bain Capital LLC and Hellman & Friedman LLC, there isn't an enormous risk of fund managers leaving. Lehman issued a statement late Thursday to harp on this point, saying the investment teams for these funds "remain intact," even as they pursue the "best strategic alternatives going forward."
That LBMB completed its purchase of a 40% stake in Chicago bicycle component supplier Sram Corp. on the same day that the Neuberger Berman deal was announced may be a positive sign for the unit -- that it's business as usual. For LBMB, headed by Charles Ayres, the most probable outcome, as we previously suggested, is to spin out under a new name. All that needs to be done is for LBMB to find a well-heeled limited partner or sovereign wealth fund to buy the Lehman parent's interests -- roughly 15% to 20% of $5 billion of managed assets, including unfunded commitments -- in the family of funds it manages. The same holds true of the venture capital, real estate and other investment groups that were not part of the Neuberger Berman assets sale. Given that dealmaking has slowed to a trickle, there is even less urgency for something to happen immediately. Lehman closed its latest fund in June 2007 with over $3.3 billion of capital, and has made a couple of investments so far this year. But until such time as it undertakes new investments, LBMB does not need to draw down commitments, which would mean forcing the parent to default on a capital call. Penalties vary from one fund to the next if that happens, so Lehman's stake could take a haircut of up to 50% in net asset value. Chances are, LBMB wouldn't want to force an insolvent parent's hand unnecessarily. And a default would clearly make the holding a tad less attractive to any potential buyer. - Vyvyan Tenorio Vyvyan Tenorio is the senior editor of private equity for The Deal. CategoriesPrivate capital video
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