Private Cash and Public Pension Funds Fuel Boom in Takeovers; Rothschild to Start $711 Million Private Equity Fund

Rothschild to Start $711M Private Equity Fund

September 3, 2009

The Deal - One of the most famous names in finance, Rothschild, is planning to raise a $711 million investment fund as it welcomes chairman David de Rothschild’s son to the firm.

Sources tell Bloomberg that the private bank’s investment vehicle will buy minority stakes in closely held companies, valued at €100 million to €500 million ($142 million to $711 million), with fundraising expected to be completed by year’s end. Marc-Olivier Laurent, Emmanuel Roth and Javed Khan, who came over from the Blackstone Group in June, will manage the new fund.

Also coming aboard to help with the fund is Alexandre de Rothschild, David de Rothschild’s son, entering the family business from European leveraged buyout shop Argan Capital.

Rothschild is marketing the new vehicle as fundraising for private equity is once again starting to pick up. Over the past two months, U.S. private equity firms put more than $11 billion under management; while other firms are targeting another $10 billion.

Rothschild Said to Start Fund; Chairman’s Son Joins

September 2, 2009

Bloomberg - Rothschild, the largest family-owned bank, plans to raise a 500 million-euro ($711 million) investment fund as chairman David de Rothschild’s son joins the firm, two people familiar with the plan said.

Alexandre de Rothschild, 29, moved to the family bank from Argan Capital, Bank of America Corp.’s former European private equity division, to work on the project, said the people, who declined to be identified before the fundraising is completed. Rothschild Managing Director Marc-Olivier Laurent, 57, will oversee the fund, the people said.

The two-century-old firm, which is run by 66-year-old David de Rothschild, plans to buy minority stakes in closely held companies after the pace of global mergers and acquisitions dropped 46 percent in the past year. The fund’s backers include Rothschild partners and clients. It will target companies valued at 100 million euros to 500 million euros, the people said.

“It’s normal for them to bring in family members to ensure succession,” said Anis Bouayad, founder of Paris-based advisory firm AB Conseils. “The bank has always found a way to promote its own, while also bringing outside talent to the top jobs.”

Javed Khan, who joined Rothschild from New York-based private equity firm Blackstone Group LP in June, and Emmanuel Roth, a former executive at investment firm Paris-Orleans, will also manage the fund, the people said. Rothschild plans to complete the fundraising before the end of the year, they said.

‘Family is Fine’

“In a business, the key is to have the best people,” David de Rothschild said in a 2005 interview, addressing the subject of succession. “The family is fine as long as they do a good job. If they don’t, it has to be someone else.”

David de Rothschild took managerial control of the U.K. side of the bank after his cousin Evelyn retired in 2004, cementing control of both the Paris and London businesses by a French Rothschild, a first for the family firm.

David’s younger brother, Edouard, stepped down in 2004 after helping to expand the French bank. Today, he oversees France Galop, the country’s horse-racing association. David’s cousin, Eric, is chairman of Rothschild’s asset-management and private-banking units and also runs the family’s Chateau Lafite vineyard.

Mayer Amschel, founder of the Rothschild banking dynasty, started out buying and selling old coins in a Frankfurt Jewish ghetto in the late 1700s and built an embryonic banking business by extending credit to clients.

In the early 1800s, he sent his five sons to establish bases in London, Paris, Naples and Vienna, in addition to Frankfurt.

His great-great-grandson, Guy de Rothschild, rebuilt the French business in the 1950s and 1960s after reclaiming the bank, which had been seized by the pro-Nazi Vichy regime. In 1981, the French bank was nationalized by Socialist President Francois Mitterrand. Two years later, David persuaded the French government to grant the Rothschilds a new banking license.

Private Cash Fuels Boom in Takeovers

Originally Published on November 21, 2006

Los Angeles Times - Elite private investors are buying up major companies at a record pace in a wave of deals that is raining riches on Wall Street, but also may be raising the risk of a financial bust.

Investors led by Blackstone Group announced late Sunday the biggest takeover ever by a so-called private equity fund, a $36-billion deal to buy Equity Office Properties Trust, the largest U.S. owner of office buildings.

The proposed purchase follows announcements in recent months of buyouts that would put firms including radio giant Clear Channel Communications Inc., casino titan Harrah's Entertainment Inc., and food-service company Aramark Corp. in private hands, taking their shares off the stock market.

Takeovers are nothing new in American business, but historically the largest deals have involved companies whose shares are publicly traded buying other companies.

This year, the buyers behind the biggest deals are private equity funds -- run by generally secretive investment firms that raise money from pension funds, wealthy individuals, and other investors who are hungry for double-digit returns on their capital.

"It's obviously a boom," said C. Kevin Landry, a managing director at TA Associates, a Boston-based private equity firm. "You can raise as much money as you want" to do deals.

A private equity fund typically buys a company using mostly borrowed money, then seeks to improve the firm's bottom line through measures that may include refocusing the business or forcing cost cuts. The goal is to eventually sell the firm to another company, or take it public again, at a fat profit.

The buyout wave is enriching company shareholders because private equity investors usually pay more than a stock's current price to clinch a deal. That is helping to drive share prices higher overall, analysts say; the Dow Jones industrial average has been hitting record highs.

Yet the surge in buyouts this year is making some on Wall Street wonder whether they're witnessing a replay of other episodes when too many investors threw too much money in the same direction -- the dot-com boom of the late 1990s, for example, or a late-1980s company buyout wave led by corporate raiders. Both of those booms gave way to painful busts.

"It's sort of feeding on itself now," said Edward Yardeni, investment strategist at money management firm Oak Associates in Akron, Ohio. "You could make a pretty good case that a bubble is building in private equity, and that it will burst."

Private equity buyers have announced about 1,000 U.S. takeovers this year worth a record $356 billion, according to data tracker Thomson Financial. That dwarfs the $138 billion in such deals announced last year.

Private-fund deals still account for a minority of U.S. takeover activity. In all, the value of announced corporate takeovers this year exceeds $1.2 trillion; most of those are company-to-company deals. But the rising clout of private equity buyers shows in the sizes of the deals they're behind, experts say.

Five of the six top deals this year are private equity. That's never happened before," said Richard Peterson, an analyst at Thomson Financial in New York.

Most private equity firms aren't household names, but more may be on their way to that status as their corporate assets balloon. Big players include Blackstone, Bain Capital, Carlyle Group, Silver Lake Partners and Texas Pacific Group. One -- Kohlberg Kravis Roberts & Co. -- became famous for its massive deals in the 1980s.

More than any other factor, the ascendance of private equity buyers over the last few years reflects the willingness of well-heeled investors to pony up mountains of cash in search of better returns than they can earn in stocks or bonds.

"There is tremendous liquidity in the market," said Brad Freeman, a 23-year buyout fund veteran whose Los Angeles-based firm, Freeman Spogli & Co., has a $1-billion private equity fund it's putting to work. "Deals are being done because they can be."

Private equity firms have raised an unprecedented $178 billion in new capital from investors this year, about 10 times what they raised in 1995, according to data firm Dealogic. The cash comes from investors such as the California Public Employees' Retirement System, or CalPERS, the nation's largest public pension fund.

CalPERS has about $6.3 billion invested in buyout funds, said Joncarlo Mark, a senior portfolio manager. The pension plan expects to earn an annual percentage return in the upper teens on that money, he said. By contrast, U.S. blue-chip stocks have generated a return of 11.4% a year over the last three years.

"There are a lot of investors out there looking for yield," said Josh Lerner, a finance professor at Harvard University.

But the success of buyout deals depends in large part on the purchased companies' ability to handle the debt loads they take on with their new owners.

With many private equity funds wielding huge war chests, competition to acquire companies has become fierce, said Stephen Presser, a partner at private equity firm Monomoy Capital Partners in New York.

"At the moment, private equity firms are paying almost historically high prices for businesses, and are depending on those businesses to continue to grow in order to pay down their debt," Presser said. "If the economy softens -- and someday it will -- those companies are going to have a tough time" managing their debt loads.

Some analysts also question whether companies that are targets of private equity buyers today can be substantially improved by their new owners.

"Companies already are under so much pressure to be lean and mean," Yardeni said. "It's not clear what they're [private equity owners] going to bring to the table to make these companies more profitable."

Still, corporate managers often are happy to attract private equity buyers. One reason is that top managers often participate as investors in buyouts, with the potential to reap hefty financial rewards if the company is eventually sold at a profit.

The costs and regulatory hassles of being a public company also are spurring corporate boards down the go-private road, said Scott Honour, a managing director at Gores Group, a private equity firm in Los Angeles.

"Companies are bogged down by Sarbanes-Oxley requirements," he said, referring to the law Congress passed in 2002 tightening regulation of public companies after the financial scandals at Enron Corp. and other firms.

"Boards are saying, 'Geez, we're better off being private,' " Honour said.

That worries the Bush administration. In a speech Monday, Treasury Secretary Henry M. Paulson Jr. questioned whether the going-private trend might signal that U.S. regulation of shareholder-owned companies had become too severe, and was driving them out of the public market.

The deal wave also has attracted the attention of another branch of the government: The Justice Department reportedly is looking into the power wielded by private equity funds and whether the biggest players may be illegally colluding to increase their clout.