The Top Ten Deals of 2011 by Fees
Meet the deal makers who profited the most from M&A in a tough 2011.
For anyone expecting a big rebound in mergers and acquisitions, 2011 was a disappointment. A sluggish world economy and a spiraling euro zone crisis muted deal activity. Through early December announced global M&A volume stood at $2.6 trillion, up just 4 percent from $2.5 trillion a year earlier, according to Dealogic. But for rainmakers things looked brighter: Fee revenue rose 9 percent, to $17.7 billion.
The bankers featured in Institutional Investor’s 2011 Rainmakers of the Year claimed a big chunk of those earnings. The top ten deals by fees, as estimated by investment consulting firm Freeman Consulting, fetched a combined $800 million, just shy of the $839 million total for 2010.
Cross-border mergers led the way. Five of the ten transactions involved companies from two countries, including the No. 1 deal, French drugmaker Sanofi’s $21 billion takeover of U.S.-based Genzyme Corp. These tie-ups proved lucrative for bankers and shareholders despite a 3 percent year-over-year drop in cross-border deal volume, from $861 billion to $834 billion, Dealogic reports.
Likewise, some sectors yielded more riches than others. Four of our top ten deals are in health care, which remained robust with volume of $220 billion as of early December, a 5 percent increase over 2010. Telecommunications and high-tech take four positions, even though telecom deal volume plunged 18 percent, to $200 billion. And old media coughs up the big bucks as Comcast Corp.’s $31.5 billion buyout of NBC Universal claims the No. 4 spot.
Will 2012 bring more rain? “There has certainly been a recent slowdown in announcement activity because of market volatility,” says Anthony Whittemore, New York–based co-head of M&A Americas at Deutsche Bank. “But as the fundamental drivers for deals remain in place, we could see a good snapback in M&A early [in 2012] if volatility subsides.” — Xiang Ji
1/Stuart Smith & Team/Credit Suisse
For Genzyme, it was the opening salvo of a war on the drugmaker. In February 2009, Henri Termeer, then Genzyme’s chairman, president and CEO, received a scathing warning letter from the U.S. Food and Drug Administration. The document listed numerous violations of FDA manufacturing standards at the biotech company’s plant in Allston, Massachusetts. It escalated a mounting crisis that included delayed approval of Lumizyme, a drug therapy for the rare genetic disorder Pompe disease, and knocked more than 25 percent off Genzyme’s share price in 2009 alone.
Carl Icahn and his fellow activist investors demanded a shake-up. Others wanted to oust Termeer, who had been CEO since 1985. Then in the summer of 2010, Paris-based pharmaceuticals giant Sanofi-Aventis (now called Sanofi) offered to buy the company for $18.5 billion.
Cambridge, Massachusetts–based Genzyme needed a straight-talking banker who understood the company. Girding for a proxy fight that would be followed by a takeover defense against Sanofi, it called in Stuart Smith, global co-head of health care at Credit Suisse Group’s investment banking division. The 56-year-old Connecticut native has a ten-year history with Genzyme, having advised on such deals as its $1 billion acquisition of GelTex Pharmaceuticals in 2000 and its $600 million purchase of SangStat Medical Corp. in 2003.
New York–based Smith, who worked closely with D. Scott Lindsay, Credit Suisse’s co-chairman of global M&A, helped draw up a broad cost-reduction plan as part of Genzyme’s defensive efforts. The cuts included 1,000 layoffs and slashing of travel expenses. “It was difficult when we were in those emotional times,” says Michael Wyzga, Genzyme’s former vice president of finance and CFO. “Having someone who can offer frank and pragmatic advice was critical in that boxing match,” Wyzga adds of Smith.
The lawyer-turned-banker’s deep pharma connections sped up the divestment of Genzyme’s noncore businesses, a move that commanded a higher price from Sanofi as it closed in for the kill. In September 2010, Smith got on the phone with his old friend David King, chairman and CEO of Burlington, North Carolina–based Laboratory Corp. of America, to wrap up negotiations for LabCorp’s $925 million all-cash purchase of Genzyme’s genetics division. Sanofi finally raised its offer from $69 per share to roughly $74, for a price tag of $20.86 billion when the deal closed in April.
Seven banks shared more than $120 million in the top deal of 2011 by fees, according to Freeman Consulting. Credit Suisse tied with Genzyme co-adviser Goldman Sachs Group as the best-paid bank, earning $31.2 million. Leading the Goldman team was Jack Levy, co-chairman of M&A. Evercore Partners and JPMorgan Chase & Co. each earned $27.6 million for advising Sanofi. — X.J.
2/George (Woody) Young III & Team/ Lazard
Pick a major U.S. telecommunications player and chances are that Woody Young has advised it. The lanky, quick-witted banker can also trace that company’s history back a decade or two, recounting deals as if they happened yesterday. Young’s encyclopedic knowledge and his long-term outlook make him a go-to banker for telecom CEOs. Lazard’s New York–based head of technology, media and telecoms advised Cingular Wireless Corp. on its $41 billion merger with AT&T Wireless Services in 2004, Sprint Corp. on its $47 billion takeover of Nextel Communications in 2005 and AT&T on its $89 billion acquisition of BellSouth Corp. the following year.
When Qwest Communications International began considering a $22 billion sale to then-CenturyTel in late 2009, Young had strong ties to both sides. That year he and his team had represented CenturyTel during its $12 billion acquisition of Embarq Corp. (the combined company later renamed itself CenturyLink). His relationship with Qwest dates back to 1999, when he advised the Denver-based phone company on its $45 billion merger with U.S. West.
Young, 52, ended up as lead financial adviser to Qwest in the top telecom deal of 2011 by estimated fees, earning $20 million for Lazard. Early on he helped clarify Qwest’s best strategic option when a major private equity firm was vying with Monroe, Louisiana–based CenturyLink. “Knowing CenturyLink’s management and how they had garnered synergies from their previous transaction gave us great confidence that they were the ideal partner to create significant value with the combined company,” says Young, referring to the almost $1 billion in synergies achieved by CenturyLink since its Embarq purchase.
Young joined Lazard in 2009 from Merrill Lynch & Co., where he was global head of TMT. He’d moved to Merrill the previous year after 14 years at Lehman Brothers, most recently as head of the global communications group. Young did his first telecom deal in 1990; then at First Boston Corp., he helped take Telecom Corp. of New Zealand private in its NZ$4.25 billion ($2.54 billion) sale to Ameritech Corp. and Bell Atlantic Corp.
He’s since built lasting company relationships that transcend personal ties with chief executives. When advising Qwest on its merger with U.S. West, for example, Young worked with then-CEO Joseph Nacchio. Three years later he counseled Nacchio’s successor, Richard Notebaert, on the $7 billion sale of the company’s directories businesses to private equity firms Carlyle Group and Welsh, Carson, Anderson & Stowe. During the CenturyLink tie-up, completed in April, Young advised Edward Mueller, CEO of Qwest since 2007. — X.J.
3/Luca Ferrari & Team/Goldman Sachs
In the M&A world lunch is seldom just lunch. Ten days after March’s Japanese tsunami, Yasuchika Hasegawa, president and CEO of Takeda Pharmaceutical Co., visited the posh Stoke Park country club on the outskirts of London. There he and two of his senior managers dined with Håkan Björklund, then CEO of Zurich-based rival Nycomed International Management, and the heads of Nycomed’s three major private equity owners. After lunch Hasegawa and Björklund signed a memorandum of understanding for Osaka-based Takeda’s $13.7 billion purchase of Nycomed, the third-largest overseas acquisition by a Japanese company.
Luca Ferrari, London-based head of Northern European M&A at Goldman Sachs and lead adviser to Nycomed, didn’t organize this ceremonial meeting to cheer up the Japanese executives. According to people who attended, it was calculated to mesh with the ringi decision-making process in Japanese corporate culture, which seeks companywide consensus once a top manager approves a decision. Ferrari wanted to put Nycomed in a favorable position during the due diligence phase, when buyers often find reasons to lower their purchase price.
It worked. Not only did it take less than two months to reach a final agreement and win approval from both companies’ boards—a rare feat in M&A—but the price held on without major adjustments.
The all-cash deal, which closed in September, combines two companies that complement each other geographically. Having added Europe and emerging markets to its traditional Japanese and North American strongholds, Takeda is now the world’s No. 12 drugmaker by prescription sales, up from 16th place before the merger. “Luca and his team are thoughtful and confident bankers,” says Björklund, who was succeeded in September by Frank Morich, Takeda’s former vice president of international operations. “We had a great long-term relationship, and they helped us reach the finish line.”
It wasn’t the first time that soccer fan Ferrari, a 44-year-old Italian from Milan, used his cultural smarts to finesse a cross-border transaction. Earlier in 2011 the London School of Economics graduate set up a similar signing ceremony when he advised Swedish medical technology company Gambro on the $2.6 billion sale of its blood banking business to Japanese peer Terumo Corp.
On the Takeda-Nycomed deal, which netted total fees of almost $80 million for its five banks—$21 million of it for Goldman—Ferrari worked closely with managing director of health care Raj Shah. Thomas Davidson, co-head of global health care at Credit Suisse’s investment banking division, also advised Nycomed on behalf of his bank, which earned $21 million too. Deutsche Bank’s global chairman of M&A, Tom Cooper, together with Darren Campili, head of health care for Europe, the Middle East and Africa, led the team advising Takeda. — X.J.
4/James Lee Jr. & Team/JPMorgan Chase
It’s safe to say that Comcast Corp.’s takeover of NBC Universal was the only deal of 2011 parodied on a television sitcom. In several episodes of NBC’s 30 Rock, network executive Jack Donaghy (played by Alec Baldwin) frets about being acquired by a Philadelphia-based cable company. That’s just what happened when Philly-based Comcast bought 51 percent of the broadcaster from General Electric Co. for $31.5 billion in January 2011.
JPMorgan Chase vice chairman James Lee Jr., who represented NBC, says he’s prouder of this deal than any other during his long career. Lee’s many successes include News Corp.’s $5.6 billion acquisition of Dow Jones & Co. in 2007 and two of the biggest transactions of 2010: the $20 billion IPO of General Motors Co. and United Air Lines’ $6.5 billion merger with Continental Airlines.
Lee, 55, had mentioned to GE chairman and CEO Jeffrey Immelt that the conglomerate wasn’t getting credit for NBC in its share price. Arguing that the broadcast network would be more valuable with another company, he suggested Comcast. Finding a buyer willing and able to pay more than $30 billion for half of NBC wasn’t easy, Lee contends. Also, he was familiar with Comcast because his JPMorgan team had represented the cable provider when it tried to buy Walt Disney Co. in 2004. “Comcast wanted Disney for the same reasons it wanted NBC—content being one of the main ones,” Lee says.
The merger was unique for New York–based Lee, not least because his team negotiated it first and then did its due diligence. He says he worked backward so that no one would catch wind of the impending deal. After negotiations began in March 2009, Lee’s covert ops included using GE helicopters to rendezvous with Comcast COO Stephen Burke at secret locations outside Philadelphia. And that summer at investment banker Herbert Allen Jr.’s annual Sun Valley, Idaho, conference for media moguls, he made sure he was never seen chatting with Immelt and Burke at the same time so reporters wouldn’t suspect anything.
Lee knew Burke, who is now CEO of NBCUniversal, because Burke sits on the board of JPMorgan Chase and is the son of Daniel Burke, former CEO of Capital Cities/ABC. In the end, though, Lee decided to be lead banker for the target, NBC. “At the outset we asked Jimmy to play the honest broker and help us structure a deal,” says Immelt. “Then I asked him to work for General Electric.”
The most hotly debated aspect of the deal was in structuring how Comcast could acquire the remaining 49 percent of NBC. Lee says his formula involved lots of multi-asset-class financing — cash, equity and debt — because of NBC’s size. He and his team earned $22.2 million in fees, according to Freeman Consulting. Morgan Stanley, lead adviser to Comcast, pocketed $17.3 million. — Jay Akasie
5/Vincent Le Stradic & Team/ Lazard
Vincent Le Stradic, Lazard’s head of technology and telecommunications, has worked on some of the biggest mergers in history. But none was tougher than advising Naguib Sawiris on the $22.4 billion sale of Weather Investments, the bulk of the Egyptian entrepreneur’s telecommunications empire, to Russia’s VimpelCom. That’s saying something, given that Le Stradic represented German conglomerate Mannesmann during its unsuccessful defense against a $183 billion hostile bid by British telecom Vodafone Group in 2000, when he was at Morgan Stanley. “This deal was the most complex,” the Paris-based banker says of the Weather transaction. “There were a number of challenges that seemed insurmountable, but we got through them all.”
French-born Le Stradic, who has known Sawiris for many years, remembers his starting out with a single mobile phone license in Egypt and building it into Weather, which owns Italy’s Wind Telecom and half of Middle Eastern provider Orascom Telecom Holding. “Naguib was always a strong believer in consolidation in the telecom industry,” says Le Stradic, 43. “He believed that scale was important and had been looking at a number of options before VimpelCom came along.”
That was in May 2010, after Le Stradic and Lazard had been advising Sawiris on his failed merger discussions with South African rival MTN Group. “We were initially skeptical, because VimpelCom had recently changed its ownership and the discussions with MTN had just ended,” Le Stradic recalls.
Earlier that year VimpelCom had incorporated itself in Amsterdam to defuse a five-year governance feud between its two biggest shareholders, Altimo—the telecom investment arm of Moscow-based Alfa Group Consortium—and Norway’s Telenor. Weather carried $24 billion in gross debt and had to carve out assets for the deal to proceed, principally Orascom’s investments in Egypt and North Korea.
Lazard’s status as an independent advisory firm with no other products meant it could assemble a small, focused team comprising Le Stradic and three fellow members: vice president Sergio Barbosa, executive director Maxence Kasper and associate Marc Verrier. Though Lazard was lead adviser, Cairo-based investment bank EFG-Hermes shared advisory duties and handled all the Egyptian details.
The key for Lazard and UBS, lead adviser to VimpelCom, was to focus on what they could control. Alfa supported the transaction but Telenor said no, partly because it held assets that competed with Weather in such countries as Bangladesh and Pakistan. VimpelCom won shareholder approval anyway, and the deal closed in April.
UBS’s effort was run by Mark Lewisohn, the Swiss bank’s global head of TMT, and Lucas Wilson, who leads its Central and Eastern European investment banking business. Lazard, Credit Suisse and EFG-Hermes each earned $12.1 million for advising Weather, while VimpelCom advisers UBS, Deutsche Bank and JPMorgan Chase merited $10.6 million apiece. — David Rothnie
6/Christopher Ventresca & Team/JPMorgan chase
Mergers of two equals don’t really exist—one company always acquires the other. That’s why deal making often involves a clash of CEO egos and distinct corporate cultures. But JPMorgan Chase’s Christopher Ventresca didn’t have to worry about that when he learned he’d be the exclusive financial adviser to construction equipment maker Caterpillar in its acquisition of Bucyrus International, a manufacturer of mining equipment. Not only were the two businesses complementary, but Ventresca knew that Caterpillar CEO Douglas Oberhelman and Bucyrus chief executive Timothy Sullivan had hit it off the first time they discussed the deal, which they announced in November 2010. Oberhelman, who had taken the reins at Peoria, Illinois–based Caterpillar just a few months earlier, can claim credit for leading the biggest takeover in the company’s history.
“Caterpillar had studied the commodities industry for years and was convinced of its robust growth prospects and viability,” says Ventresca, JPMorgan Chase’s New York–based co-head of North American M&A. “They knew mining equipment was a business they wanted to be in for the long term.” And they were willing to pay for it: some $8.6 billion in cash. Caterpillar’s $92-per-share offer represented a 32 percent premium over Oak Creek, Wisconsin–based Bucyrus’ closing price on November 12, 2010. To avoid compromising its credit rating, Caterpillar was prepared to issue as much as $2 billion of equity.
Ventresca had recommended an all-cash bid from Caterpillar based on the companies’ relative sizes; at the time of the deal, Caterpillar and Bucyrus had market caps of $59 billion and $7.6 billion, respectively. “Ultimately, Caterpillar didn’t need to issue equity as part of the transaction, a positive development for shareholders given the strong free cash flows since the announcement.” Caterpillar kept its A/A2 rating.
Ventresca, 45, has plenty of deal-making experience in this sector. He advised United Industrial Corp., a specialized aerospace and defense company, on its $1.1 billion sale to conglomerate Textron in 2007, and Black & Decker Corp. on its $4.5 billion merger with toolmaker Stanley Works in 2010.
JPMorgan estimates that the Caterpillar-Bucyrus merger, which closed in July, will yield cost savings of $400 million in 2012. Caterpillar now uses its dealer network to sell Bucyrus mining equipment, which utilizes Caterpillar engines and components.
Ventresca’s team earned $30.7 million in fees; Deutsche Bank and UBS, lead bankers for Bucyrus, each claimed $21.3 million. — J.A.
7/Pete Meyers & Team/Deutsche Bank
When Canadian drugmaker Valeant Pharmaceuticals International announced its $5.7 billion hostile bid for Frazer, Pennsylvania–based Cephalon, in March, Cephalon management faced a dilemma. Not only did executives believe Valeant’s $73-a-share offer severely undervalued the biopharmaceuticals company, but they knew that J. Michael Pearson, Valeant’s CEO, had disparaged Cephalon’s heavy research investment and advocated big staff reductions.
Rather than caving to Valeant’s entreaties, Cephalon instructed Deutsche Bank, its house investment bank, to solicit other offers. It also hired Bank of America Merrill Lynch to organize its M&A defense. Even by the standards of hostile bids, the two banks faced severe time pressure, bankers on both sides say. Valeant had made a consent solicitation, which would give it the right to replace Cephalon’s board and proceed with the deal. Meanwhile, Cephalon’s bankers reached out to 26 potential strategic partners and five financial sponsors, according to the merger proxy.
Shortly after the Valeant bid was announced, Cephalon CEO Kevin Buchi had a dinner meeting with William Marth, Americas CEO of Teva Pharmaceutical Industries, the world’s top manufacturer of generic drugs, whose U.S. office is located near Cephalon. “Teva was seeking to rebalance its portfolio toward branded pharmaceuticals,” says Credit Suisse’s Thomas Davidson, who led the team that acted as sole financial adviser to Petah Tikva, Israel–headquartered Teva. “In addition, they saw real value in Cephalon’s pipeline.”
A former general in the Israeli army, Teva president and CEO Shlomo Yanai organized a SWAT team of executives to make the merger happen. “I’ve rarely seen decision making occur with this level of organization, efficiency and speed,” recalls New York–based Davidson, former head of the U.S. pharmaceuticals practice at Merrill Lynch.
Bankers from Deutsche and BofA Merrill worked side by side, says Albert Hwang, a New York–based BofA managing director in investment banking who was part of the team led by M&A group managing director Ivan Farman. “I’ve seen cases where co-advisers worked independently and gave two pieces of advice to the board,” Hwang says. “In this case we worked together collaboratively when appropriate.”
On May 2, Cephalon’s board accepted Teva’s all-cash offer of $81.50 a share, which valued Cephalon at nearly $6.4 billion, an 11.6 percent premium over Valeant’s bid. Teva’s Marth credits the banks with unusual dispatch in arranging the deal, which closed on October 14. “None of us in the management group had ever been in a hostile or semihostile situation, so we felt it was very helpful having the bankers there to guide us through the whole process,” he says. Teva kept Cephalon and its extensive pipeline of drugs intact and retained Buchi as head of Teva’s global branded products group.
Led by global co-head of health care investment banking Pete Meyers, Deutsche’s team made $28 million; BofA Merrill received $21 million. Credit Suisse earned $21.7 million from Teva. — Charles Wallace
8/Michael Carter & Team/ Barclays Capital
History’s biggest cross-border software deal is one that Léo Apotheker might rather forget: His decision to pay $10.3 billion for Autonomy Corp. greased his skid out the door as Hewlett-Packard Co.’s chief executive. But for Barclays Capital, serving as HP’s lead financial adviser in the October acquisition of the U.K. enterprise software maker showed it could compete with the likes of JPMorgan Chase as a full-service investment bank, no matter the outcome of its recommendations. Through its winning combination of the former advisory business of Lehman Brothers and BarCap’s financing and risk management clout, the firm earned an estimated $18.1 million.
HP had been a long-standing Lehman client; behind that relationship was Barbara Byrne, a 28-year veteran of the fallen bank who is now a vice chairwoman at BarCap. New York–based Michael Carter, another Lehman alumnus, took over the HP account for BarCap in 2008. When the company approached him in the spring of 2011 to cast an eye over a possible Autonomy merger, the Kentucky native didn’t envision BarCap’s assuming such a big role.
“At that time, the discussion was purely around working as an adviser,” says Carter, 43, BarCap’s global sector head of enterprise, storage and systems, and head of information services, investment banking. “It wasn’t until late July into August, when market volatility was at its height, that we started to look at a broader solution and risk management became an integral part of the transaction.”
U.K. takeover law demanded that Palo Alto, California–based HP have the funds before launching a full offer. But in such a turbulent market, Carter was wary of bringing in a rival bank to help with the financing because he feared a leak would scuttle the deal and clobber HP’s share price. And because it would be paying for Cambridge, England–based Autonomy in U.S. dollars, HP also needed to hedge against the British pound.
So Carter marshaled resources from across the bank. BarCap had bankers working in New York, Palo Alto and London, where U.K. head of M&A Matthew Smith steered HP through British regulations and market practice. The firm underwrote and arranged a $5 billion bridge loan, and its foreign exchange bankers suggested using dollar-sterling call options that minimized earnings volatility while enabling HP to benefit from any decline in the exchange rate between the two currencies.
On August 18, HP announced an offer of £25.50 ($42.11) per share for Autonomy. The price, a 79 percent premium, led to Apotheker’s eventual ouster, but the FTSE 100 index dropped almost 240 points on the same day. Apotheker’s supporters noted that without the big fall, the premium would have been 64 percent, what Google had agreed that week to pay for smartphone maker Motorola Mobility.
Carter believes Apotheker was vindicated. “From the outset we knew that Autonomy was a unique asset and would command a premium price,” he says. “However, the question of price is always balanced with the strategic objective and the value of that business to an acquirer, and we believe that Autonomy is highly complementary to HP.”
Perella Weinberg Partners, which also counseled HP, received $12 million in fees. Six banks earned a total of almost $39 million for advising Autonomy. — D.R.
9/Frank Quattrone & Team/Qatalyst Partners
Frank Quattrone fought federal prosecutors, and he won. The controversial technology rainmaker, who spent several years in and out of court last decade, has quickly returned to form since launching San Francisco–based Qatalyst Partners in 2008. Quattrone’s advisory work in 2011 for National Semiconductor Corp. on its $6.5 billion sale to Texas Instruments earned his boutique investment bank an estimated $28 million.
The deal unfolded quickly, for good reason. Santa Clara, California–based National has a strong analog chip business, but recent earnings have been uneven. Dallas-based TI offers a diversified digital and analog product line backed by an expert sales force. “TI felt it could unlock a lot of growth at National,” says TI spokeswoman Christine Rongone.
In December 2010, TI chairman, president and CEO Richard Templeton met then–National chairman and CEO Donald Macleod, at Templeton’s request. Early the following February, TI offered $22 to $23 per share for National common stock. Macleod immediately called Qatalyst to evaluate the bid. By the end of the month, National and TI had agreed on $25 per share, the final sale price announced in April.
The Qatalyst team consisted of Quattrone and fellow partners George Boutros and Jason DiLullo, plus associates Dennis Aukstik and Alan Bressers. The firm has long relationships with many of its clients. DiLullo, for example, represented National on its 1997 sale of Fairchild Semiconductor International. Recently, Qatalyst advised Motorola Mobility on its $12.5 billion pending sale to Google, NetLogic Microsystems on its $3.7 billion purchase by Broadcom Corp. and Autonomy on its $10.3 billion takeover by Hewlett-Packard in October.
Quattrone started doing tech deals in 1981 at Morgan Stanley, where he met Boutros and DiLullo in the 1990s. The trio moved to Deutsche Bank and then to Credit Suisse First Boston; Quattrone, who left each bank as head of its technology group, helped take marquee names like Amazon.com and Netscape Communications Corp. public.
Quattrone quit banking in 2003 to battle two criminal prosecutions hinging on his order to clear files related to his IPO valuations in the tech bubble. The remaining portion of his case was dismissed in 2007. The mustachioed Quattrone is known for his dramatic negotiating style; to win business he once reportedly sent a mule to a prospective client’s office. These days he’s said to be taking a softer approach.
Goldman Sachs received $11.2 million for advising National, and Morgan Stanley earned $26.3 million as sole adviser to TI. — Jayne Jung
10/Douglas Braunstein & Team/JPMorgan Chase
The sale of HCR ManorCare’s real estate assets was the friendliest of deals. In 2007, Douglas Braunstein, then head of investment banking coverage at JPMorgan Chase, began advising the nursing home operator and its new private equity owner, Carlyle Group, on boosting stakeholder value. Those talks resulted in the $6.1 billion sale of the HCR assets to HCP, the largest U.S. health care real estate investment trust, from which HCR leased them back. The deal, which closed in April with JPMorgan Chase acting as sole adviser to HCR, was the biggest-ever sale-leaseback transaction in the health care industry.
It helped that buyer and seller—and Braunstein, who is now New York–based CFO of JPMorgan Chase—go back a long way. James (Jay) Flaherty III, chairman and CEO of HCP, has known HCR chairman, president and CEO Paul Ormond since the mid-1990s, when he and Braunstein worked for Ormond at Merrill Lynch.
Long Beach, California–based HCP had done its homework too. In 2007 it purchased a $1 billion–face value mezzanine tranche of commercial mortgage-backed securities to help finance Carlyle’s $6.3 billion buyout of Toledo, Ohio–based HCR. Then in 2009 the REIT bought $720 million of the senior tranche of HCR’s mortgage debt. “Because of its debt ownership, HCP would get a seat at the table allowing them to assist with whatever HCR ManorCare decided to do next,” Flaherty says.
Although 50-year-old Braunstein’s team also suggested that HCR could go public through an IPO or as a REIT, the company chose to sell its real estate instead. “In addition to the value HCP paid for ManorCare’s real estate assets, the strategic benefit of having the best-in-class operator and best-in-class REIT will enhance future opportunities for both companies,” says Cory Rapkin, JPMorgan Chase’s New York–based head of health care investment banking.
HCR sold 334 facilities across 30 states to HCP, whose diversified, $18.7 billion portfolio includes hospitals, medical offices, seniors’ housing and life science companies. To further align both parties’ interests, HCP exercised its option to purchase a 9.9 percent equity interest in HCR operations and brought Ormond on as a director.
Other JPMorgan Chase bankers on the deal included Murray McCabe, co-head of real estate and lodging investment banking; Vineet Seth, lead M&A banker and an executive director; and Kevin Willsey, co-head of North American investment banking. The bank earned $37.2 million, while Citigroup, Cohen & Steers, UBS and Wells Fargo & Co.—joint advisers to HCP—received a combined $26 million. — J.J.