Goldman alums team up to cater to the super-rich

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In today’s newsletter:

• Goldman alums forge the future

• Elliott pushes Philip Morris to raise its Swedish Match bid

• Kanter gets into his first private equity scrap

Goldman grandees 

Two of Goldman Sachs’s most successful investment bankers over the past two decades, Byron Trott and Gregg Lemkau, are joining forces to build a behemoth $50bn investment and advisory firm to cater to the super-rich.

Trott, who heads merchant bank BDT, announced a merger on Thursday with MSD Partners, a $20bn-in-assets alternative investment firm-backed by PC billionaire Michael Dell’s family office.

The deal is aimed at providing tailored advice, private investment products and networking and financing solutions to wealthy families, DD’s James Fontanella-Khan, Antoine Gara and Sujeet Indap report.

The combined company will target two of the big megatrends in finance: the relentless rise of the ultra-rich and the growing importance of private capital in the financial world. (Incidentally, Ardea Partners, another firm co-founded by a star Goldman banker, advised on the merger.)

The deal comes on the very same week that the Goldman chief executive David Solomon has dramatically curtailed his dream of building a retail banking arm inside the storied investment bank.

Solomon’s restructuring is an acknowledgment to critics of his push outside the firm’s strengths in advising the world’s most powerful companies and entrepreneurs.

“It’s just discombobulating a lot of the firm,” one former Goldman banker told the FT of Solomon’s plan to fold the bank’s flailing Marcus consumer operation into a unified asset and wealth management division. “They’re moving the deck chairs but not actually managing the firm — just moving things into different buckets.”

Trott and Lemkau, meanwhile, are building something that looks tailor-made for a firm such as Goldman, which has spun its wheels in mass market lending and asset management through numerous reshapings.

Trott, known on Wall Street as the billionaires’ banker, has the sort of client list that would pair well with MSD’s fast-growing private capital portfolio and deep-rooted technology expertise. Trott boasts close ties to Warren Buffett, the Pritzker hotel dynasty and the heirs of Walmart founder Sam Walton.

BDT may now be veering away from large corporate transactions to focus on its investments business. (One of those is a stake in corporate PR firm Brunswick).

Lemkau was hired by Dell to broaden his family office into a full-service alternative asset investment firm that manages outside assets. The duo are targeting a new generation of wealthy investors minted in the two-decade-long tech boom as well as the heirs of older family businesses.

Their services in many ways can be encapsulated by Dell’s own reinvention.

When the PC billionaire’s computer empire faced obsolescence, Dell teamed up with Silver Lake private equity dealmaker Egon Durban to first take his company private, then buy technology conglomerate EMC Corporation for $67bn.

By tapping increasingly powerful private capital sources, Dell reshaped his empire and grew his fortune by multiples.

In many ways, the Goldman alumni may be in the process of building the very thing Goldman desperately needs to keep pace with the new realities in finance.

Where there’s smoke, there’s fire

Earlier this week, Elliott Management released its latest financial figures from its London office. While the figures only provide a partial and rare snapshot into the performance of Paul Singer’s US-based hedge fund, they do show how lucrative life at Elliott can be.

The London office paid out £137mn in wages and salaries to its 106-person staff last year, up from £113mn in 2020. And for Elliott staff looking for more riches from this year’s performance, there was good news on Thursday.

Tobacco group Philip Morris International caved to pressure from activist funds to increase its offer to buy its smaller rival Swedish Match by about 10 per cent.

The revised deal represents a win for Elliott, which built a 7.25 per cent stake in Swedish Match, after it announced a SKr106 takeover in May.

PMI has now agreed to pay SKr116. Ironically, though, the improved offer won’t hurt PMI too much. The strength of the US dollar since the deal was announced means that all PMI is doing is mostly handing its currency gains to shareholders.

That is not where this saga ends. PMI’s chief executive Jacek Olczak attempted to play hardball on Thursday, saying that the SKr116 was the company’s “best and final price”. 

That means the offer can no longer be adjusted under Swedish rules, leaving shareholders with little hope for sweetener. PMI is now racing to secure acceptances representing at least 90 per cent of Swedish Match shares by the November 4 deadline.

But brokers and investors DD spoke to suggested that it would be incredibly difficult for PMI to cross the 90 per cent threshold, leaving PMI with two choices: walk away or reduce the threshold.

The latter is the safer option, given how badly PMI wants the deal. Doing so, however, would limit its ability to fully control and integrate Swedish Match under Swedish law.

That sets the stage for a messy finale. If PMI walks, there will be huge losses as investors are still holding shares, including at Elliott.

US antitrust chief gets some private equity scalps

For months, Jonathan Kanter, head of the Department of Justice’s antitrust unit, has pledged to crack down on private equity by challenging the industry’s favoured roll-up strategies and unwinding firms’ influence on multiple companies in a single sector.

On Wednesday, he got his first big scalp.

Seven directors have resigned from corporate boards after the DoJ warned them of potential violations of antitrust laws, the FT’s Stephania Palma and DD’s James Fontanella-Khan report.

Among them, was a top executive at private equity giant Thoma Bravo, one of the industry’s largest and most active players.

Seth Boro, a managing partner at Thoma Bravo who oversees the firm’s cyber security practice, stepped down from the board of SolarWinds along with the buyout firm’s two other designees, James Lines and Michael Hoffman.

In a filing, the directors said they resigned last Friday after receiving letters from the DoJ alleging they were in violation of Section 8 of the Clayton Antitrust Act, which prohibits “interlocking directorates”, where directors sit on boards of multiple, competing companies.

Boro is a director on software intelligence platform Dynatrace, which the DoJ said is a competitor to SolarWinds.

“Section 8 is an important, but underenforced, part of our antitrust laws,” Kanter said in a statement. “Competitors sharing officers or directors further concentrates power and creates the opportunity to exchange competitively sensitive information and facilitate co-ordination — all to the detriment of the economy and the American public.”

Thoma now won’t hold influence over SolarWinds, though it owns more than 30 per cent of the company. It adds more headaches for what has turned into one of its messiest deals.

It bought SolarWinds in 2016 for $4.5bn alongside Silver Lake and listed the company two years later. In December 2020, it sold a 5 per cent stake to Canadian pension plan CPPIB, one of its biggest clients, just days before it was subjected to one of the biggest hacks in US history, causing shares to crater.

Silver Lake’s Kenneth Hao and Michael Widmann remain on SolarWinds’ board. Thoma and Silver Lake representatives also are on the board of N-Able, a network security company they carved out of SolarWinds after the hack.

Kanter says there are more private equity scalps coming.

Job moves

• The US arm of crypto exchange Binance has hired former FBI agent BJ Kang as its first head of investigations, per the Wall Street Journal.

• JPMorgan Chase has hired Aaron Iovine, a former executive at now-bankrupt crypto lender Celsius Network, as head of digital assets regulatory policy.

Smart reads

Raising the stakes In Qatar, where homosexuality remains illegal and a conservative government still dictates cultural norms, football and human rights concerns are set to collide on the pitch as the country prepares to host its first World Cup, the FT reports.

Off-camera Fox News chief executive Suzanne Scott helped transform the network into a moneymaking machine. But a defamation suit against the company is putting her winning strategy to the test, the New York Times reports.

Losing game CVC Capital Partners’ £200mn investment in the UK’s biggest rugby competition was billed as a transformative deal for the sport. Then two major clubs went bankrupt. The buyout firm is now calling for the sport to clean up its finances, Bloomberg reports.

News round-up

Ex-New York prosecutor entangled in dispute over lawsuit against Leon Black (FT)

Renault and Nissan close in on deal to save longtime alliance (FT)

Ovo Energy launches eleventh-hour approach for collapsed rival Bulb (FT)

KPMG flunks US overseas audit inspections twice as often as rivals (FT)

EU lawyer deals blow to telecoms dealmaking hopes in Europe (FT)

Blackstone profits hit by rising rates and stock market sell-off (FT)

Fosun divestments near $5bn as debt pressure mounts (FT)

UK banks warn that debt rules jeopardise £62bn of lending (FT)

Tesla chief Elon Musk tries to brush off Wall Street worries about demand (FT + Lex)