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Lehman Brothers Merchant Banking
Type Subsidiary
Founded 1986
Headquarters Flag of the United States.svg New York, New York
Key people Charles Ayres[1]
Industry Private equity
Products Leveraged buyout, Growth capital
Total assets $8 billion
Employees 35+
Parent Lehman Brothers

Lehman Brothers Merchant Banking (LBMB) was the private equity investment arm of Lehman Brothers focused on leveraged buyout and growth capital investments in middle-market companies across a range of industries in the US and Europe. In 2009, as part of the bankruptcy of Lehman, the LBMB business was sold to Reinet Investments, an investment firm owned by South African billionaire Johann Rupert.

The group, which was based in New York City, was founded in 1986. Prior to the bankruptcy of Lehman, LBMB managed four funds with aggregate commitments of $8 billion.

Among the group's most notable investments were Blount, Inc. (NYSEBLT), Crosstex Energy (NASDAQXTEX), Eagle Rock Energy Partners (NASDAQEROC), Flagstone Reinsurance (NYSEFSR), John West Salmon and SRAM Corporation.




Founding and early history

Lehman Brothers Merchant Banking was founded in 1986 in the midst of the 1980s leveraged buyout boom to serve as the private equity arm of Lehman Brothers. LBMB was founded just a year after Lehman's Pete Peterson and Stephen A. Schwarzman left the bank to found The Blackstone Group and at the same time that similar groups were founded at other investment banks including Goldman Sachs Capital Partners, Morgan Stanley Capital Partners and DLJ Merchant Banking Partners.

History of private equity
and venture capital

Early History
(Origins of modern private equity)

The 1980s
(LBO boom)

The 1990s
(LBO bust and the VC bubble)

The 2000s
(Dot-com bubble to the Credit crunch)


Following the departure of the Blackstone founders, Lehman restarted its private equity efforts in the late 1980s raising an investment fund with a new team of professionals led by Jim Stern, Jeff Hughes, Jamie Singleton and David Spalding. LBMB raised its first institutional private equity fund in 1989 with $1.3 billion of capital. Capitalizing on the success of this first fund, in 1994 the four senior managing directors of LBMB left the firm to found The Cypress Group, an independent $3.6 billion private equity firm.

Lehman rebuilt its private equity investment team in the mid-1990s and by 1997 LBMB was in position to raise a new fund. The group raised LBMB's second fund, Lehman Brothers Merchant Banking II, with $2.0 billion of investor commitments.

Lehman Brothers Merchant Banking III is a 2004 vintage fund with $1.2 billion of investor commitments and the group's most recent fund, Lehman Brothers Merchant Banking IV, is a 2007 vintage fund with $3.3 billion in total investor commitments.[2]

Lehman Brothers bankruptcy and LBMB spin out

On September 15, 2008, Lehman Brothers filed for bankruptcy protection. As part of the liquidation process, Lazard was appointed to sell certain interests in Lehman Brothers Merchant Banking and its investment funds held by the bank.[3] At the same time Lehman's estate also attempted to sell two other Lehman private investment units, a venture capital investment group and a real-estate private equity group.[4]

At the time of Lehman's bankruptcy, the group was headed by Charles Ayres who joined Lehman in 2003.[1] Previously, Ayres co-founded MidOcean Partners, which was formed from the private equity assets of Deutsche Bank, where he had served as North American head of private equity.[3]

Among the bidders rumored in the transaction initially included The Blackstone Group, The Carlyle Group and Lexington Partners.[5]

In January 2009, Lehman reportedly reached an agreement to sell certain interests in Lehman Brothers Merchant Banking to South African billionaire, Johann Rupert as part of a spinout of the group from the failed bank into an independent private equity firm.[6] Under the deal, the principals of LBMB would spin out the general partner interest of most recent fund LBMB IV with Rupert's Reinet Investments purchasing Lehman's limited partnership interest in LBMB IV.[4][7]

The announcement of the spinout of Lehman Brothers Merchant Banking came just six weeks after the completion of the spinout of Bear Stearns Merchant Banking from JPMorgan Chase to form Irving Place Capital.

See also


  1. ^ a b New Merchant Bank Head at Lehman . New York Times, April 11, 2003
  2. ^ Source: Preqin data
  3. ^ a b Lehman Brothers Merchant Banking In Limbo. IDD Magazine, September 15, 2008
  4. ^ a b Lehman Brothers Plans Private-Equity Spinoff. Wall Street Journal, January 9, 2009
  5. ^ Johann Rupert buys two Lehman PE funds. the Deal, January 22, 2009
  6. ^ A look inside Lehman Brothers Merchant Banking biz. The Deal, January 9, 2009
  7. ^ Reinet To Back Management Buyout Of Elements Of The Former Lehman Brothers Merchant Banking Business Reinet Capital Press Release, January 21, 2009.


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