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Deal Junkie Franci Blassberg
Franci Blassberg, a private equity lawyer at New York law firm Debevoise & Plimpton has been a deal junkie for nearly three decades closing roughly 100 deals.
Franci Blassberg, a private equity lawyer at New York law firm Debevoise & Plimpton has been a deal junkie for nearly three decades closing roughly 100 deals. She helped negotiate the media-hyped $15 billion Hertz buyout that closed on Dec. 21. Blassberg, 52, who also happens to be an avid skier she spent Spring Break in Telluride, Colo. with her family spoke with InstitutionalInvestor.coms Kate McGregor about being a deal lawyer, the future of p.e. and the art of negotiating a complex financing package. This is an excerpt of their conversation.
InstitutionalInvestor.com: What's the appeal of private equity?
Franci Blassberg: In 1977 when I started practicing law, private equity as an industry or asset class didnt exist at all. There were a few investment organizations doing what we now call private equity, at that time called leveraged buyouts and later known as financial sponsor transaction. It was really a pretty novel thing at that time and I didn't really intentionally go into it. I just happened to work on a number of transactions where people were investing capital and borrowing money to help them finance the transaction.
Initially I started working for the lenders in those days, almost solely institutional investors, big insurance companies actually. This was before the banks got into the business in a major way. Then, later, I started to represent some of the investment firms that were doing the transactions.
II.com: Have you stayed in this area throughout your entire career?
FB: Years ago I used to do aircraft finance work, and I represented - and still do - public companies in acquisitions and in sales of businesses. [Private equity] is not all I've ever done, it just makes up the largest component of what I've done for a number of years in partbecause of its dramatic growth.
It's a terrifically interesting area because you're working with entrepreneurial organizations, helping them create and build businesses. You're working on the entire lifecycle of an investment; you help them buy the business, structure it, finance it, negotiate the transaction and hopefully represent them while they're the owners of the business. Eventually the goal in the private equity world is to monetize the investment either through a sale or a public offering or a recapitalization or whatever it is. It's a constant flow of deal activity, and that's very exciting for a deal lawyer or a deal junkie or whatever I happen to be.
II.com: What was your most recent transaction?
FB: The sale of Equinox Fitness to the Related Companies. That was also a private equity business that we had bought for some clients in 2000 and then sold to the Related Companies this year. [The deal closed in January.]
II.com: What exactly is your role when negotiating a deal?
FB: Different organizations use their lawyers differently. In another environment, I'd be considered a business lawyer. That's a term we don't use in New York. We are legal advisors who look at the entire transaction and help facilitate it, help structure it, and advise on strategy, on allocation of risk on financing on all sorts of things based on our understanding of the legal environment and the marketplace. That's the role I like to play.
II.com: You've been recognized for the Hertz deal because of the complex financing package you put together.
FB: I'm very fortunate to have been recognized for the transaction. But to be truthful, that deal was done by a large team of Debevoise lawyers. The reason the deal got a lot of attention, to be frank, was its pure size. It was the largest buyout since RJR Nabisco in 1989 and that's something people take notice of. It was also a very large divestiture transaction involving a very visible industry.
The financing package was complex, but it was something that evolved from the particular circumstances of the transaction and the type of assets in the business and the creativity of a lot of people both at the consortium that led the transaction (Clayton, Dubilier & Rice, Merrill Lynch & Co. and The Carlyle Group) and their banking advisors.
It was really a joint effort on many levels.
II.com: You said recently that private equity has changed. How?
FB: Hertz came on the heels of two high-profile transactions in the first half of 2005: the SunGard transaction and the Neiman Marcus deal. Until that time, it had been fairly accepted practice that in private equity transactions there would be a financing condition so that if the sponsor of the transaction could not obtain the debt financing it would not be obligated to close the transaction. Neiman Marcus and SunGard were public transactions. There was a constituency of public stockholders and they were large transactions, although not as large as Hertz.
In those transactions there were not traditional financing conditions. So going into this transaction we knew that. We knew that Ford was very interested in the certainty of closing. Based on those two factors we had to determine whether or not we could design a financing package which we felt was certain enough that we did not need the financing condition in the contract, and we needed to design a liquidated damage provision or termination fee so that if we couldn't get the financing - for some reason - we would not be liable to do the deal but only for some finite amount of money.
II.com: With large deals becoming more prevalent in the market, where to you see private equity going?
FB: I'm glad you asked that question. My view is that large transactions are still different from everyday private equity transactions, in that while it's not a slam dunk to get a financing condition in a transaction, it really depends on the transaction. I don't think we'll see all private equity transactions going forward without financing conditions, but I don't think we'll see all of them having financing conditions either.
For it to be absolutely a given that you would get a financing condition, that's no longer the case. Negotiation is deal by deal. It depends on what other people are willing to offer in an auction context. Sometimes sellers will trade price for certainty. It's just another issue to be discussed and negotiated. It's also important to note that the financing market we werein was very robust when some of these deals were done. [The markets] not always going to be in good shape. In that situation, people will be far less likely to take out the financing condition. So it will be market driven as well.
II.com: You have worked on roughly 100 deals. What has been your most challenging?
FB: Two stand out in my mind. One was the 1991 acquisition of a business now known as Lexmark from IBM. It was a private equity transaction in the days before it was called private equity. It was challenging because we were carving out a business from IBM which really didn't exist as an independent unit, and which really operated on some level in 106 countries. To be honest at that time I didn't know there were 106 countries.
It was a very challenging transaction and it was done over quite a protracted period of time. The other one that sticks out in my mind is the Hertz transaction. Different challenges almost 15 years apart, interestingly enough.
II.com: Which one helped establish you as a deal lawyer?
FB: I think we're all a product of our cumulative experience.
II.com: The one you're most proud of?
FB: Again, I would have to say Lexmark and Hertz.
II.com: Are you working on any deals right now?
FB: I had some interesting meetings today (laughs) about selling an interesting business to a large public company, but I can't say anything else.