Veoneer
I have in the past mused about the idea of a market maker for mergers and acquisitions. 1 Like, you run a public company, you want to sell it, you go to an investment bank for advice. “We think you could sell your company for $10 billion to $12 billion,” the bank tells you, “with a well-run auction process in which we contact a dozen or so potential strategic and financial buyers. To maximize value we might want to separate out your crown-jewel widgets business and sell it separately to a strategic acquirer, while selling the non-core sprockets and gizmos lines to other buyers. We could have a signed deal in three months if we work every weekend.” “I don’t have time for all that stuff,” you reply. “Why don’t you just pay me $10 billion right now, and you take the company, and then you go figure out how to split up the company and find buyers and maximize price? If you get $12 billion for it then hey super you’re up $2 billion but that’s not my problem, just give me my money now.”
Investment banks mostly don’t do this, but I guess there’s no reason why they couldn’t. Take some inventory risk on some companies in order to facilitate liquidity for the sellers of those companies, and in exchange get, you know, orders of magnitude bigger fees than they’d get for basic M&A advice, plus potential huge upside (or downside) if the companies’ value goes up (or down). Of course when I write it out you can see the reasons that they don’t. Big investment banks are public companies who want stable recurring revenue, not a bunch of huge lumpy gains and losses from owning companies briefly. Smaller investment banks don’t have the capital to go around buying multibillion-dollar companies from their clients to flip them. Still it might be a useful service if someone could provide it.
I know, arguably private equity is in the business of providing it, but not really. PE funds operate on a different time scale. They have multi-year holding periods and operating expertise; their goal is not so much to bridge buyers and sellers of companies by holding inventory (of companies) for a bit and collecting a spread for their service, but to pick good companies whose value will go up. 2 They are not market makers but proprietary buy-and-hold investors. This week shareholders of Veoneer, a Swedish auto parts maker listed in the US, are expected to approve a $4.5bn takeover that pays them a lofty 85 per cent premium to the company’s pre-deal trading price.
What stands out about the deal is its structure. The auction for Veoneer was won in October by a start-up New York investment firm called SSW Partners. The firm had never executed a transaction, had raised no dedicated buyout fund and maintained only a bare-bones website. …
The structure of their pending agreement with Veoneer has drawn the attention of the mergers and acquisitions industry. It reimagines how big corporations buy pieces of companies that would otherwise need to be acquired as a whole, deploying the bounty of private capital sloshing around the world while keeping financial disclosures to a minimum.
Qualcomm found itself in a jam this summer before the SSW arrangement took shape. The California company was interested in Veoneer’s autonomous vehicle software business with which it already had a joint venture. But the Sweden-based company had in July agreed to sell itself for $3.8bn to Magna International, a car parts supplier.
Making a rival bid for all of Veoneer made little sense to Qualcomm as it had no interest in the remaining divisions. Yet Veoneer preferred to be sold in full.
Qualcomm would then turn to an unknown private capital firm: SSW.
The resulting bid bested Magna’s. Under a novel structure, SSW will acquire “all the outstanding capital stock of Veoneer,” and then immediately sell the autonomous vehicle software unit to Qualcomm, according to a press release describing the transaction. SSW is to then “lead the process of finding strong, long-term strategic partners” for Veoneer’s remaining auto parts businesses, indicating its intention sell them. SSW is three big-name banker types (Eric Schwartz, formerly of Goldman; Joshua Steiner, formerly of Quadrangle Group, who also serves as a senior advisor at Bloomberg L.P. , where he was previously Head of Industry Verticals; and Antonio Weiss, formerly of Lazard) who will buy Veoneer, hand over the autonomous-vehicle business to Qualcomm, and keep the rest themselves to run a sales process. […]
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