The $2.15 billion acquisition of Lehman Brothers' (OTC: LEHM.Q) investment management division by Bain Capital and Hellman & Friedman isn't the deal of the year (that would probably be Barclays'
The deal includes the crown jewel of the division, Neuberger Berman, and concludes a process that began weeks ago, as Lehman was struggling to raise capital. Bidders originally included other buyout heavyweights, such as KKR and the Blackstone Group
$2.15 billion … peanuts, I tell you
Let's put that number in perspective:
- Before Lehman's Sept. 15 bankruptcy filing, another buyout firm, the Carlyle Group, was willing to buy the investment management unit for $7 billion and give Lehman the option to buy it back.
- Lehman Brothers paid $3.1 billion for Neuberger Berman alone in 2003. At the time, Neuberger Berman had $64 billion in assets under management (AUM). Since then, Neuberger Berman has more than doubled its AUM to $130 billion. The total for the investment management division is $230 billion.
- If those first two weren't clear enough, here's another way of looking at it: If you were to pay $2.15 billion for Neuberger Berman alone, you'd be getting a great franchise at a good price -- less than 1.7% of AUM. That's what these buyers are doing, and they're getting all the other parts of investment management, which represent $100 billion in AUM, thrown in for free.
For reference, BlackRock
Bain and Hellman & Friedman got a fantastic price, and that's a good thing (for them, not for Lehman creditors), because they won't be able to count on leverage to juice their returns; the acquisition is a cash transaction.
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Alex Dumortier, CFA, has no beneficial interest in any of the companies mentioned in this article. Legg Mason is a Motley Fool Inside Value pick. The Fool owns shares of Legg Mason. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.