Banks, they love buyouts too

Gone are the days when investment banks sat on the sidelines of the private-equity boom.


NEW YORK (Fortune) -- Gone are the days when investment banks sat on the sidelines of the private-equity boom, content to let their M&A divisions collect advisory fees on deals. In 2006 they put their own money to work on some of the most ambitious buyouts of the year, including the $22 billion Kinder Morgan (Charts) deal, the $8 billion Aramark deal, and the HCA deal.

The banks are discovering, though, that there's a fine line between competing hard for a lucrative buyout and annoying one of their clients. The pure private-equity shops are valuable customers, since they generate billions of dollars in fees to borrow debt to finance their takeovers. To avoid locking horns with buyout-hungry clients, J.P. Morgan (Charts) spun off J.P. Morgan Partners, last year.

Other banks have proved adept at managing the competing agendas - often co-investing on deals rather than taking the lead, or focusing their energies abroad. Here's a rundown on four of the major players.

Bear Stearns

Bear's (Charts) most recent fund from 2006 is worth $2.7 billion, with investments in smaller finance and insurance companies. But the bank's private-equity arm (officially called BSMB, short for "Bear Stearns Merchant Banking") has taken an interest in all kinds of investments - from designer jeans (Bear has a 50% stake in the brand Seven for all Mankind) to a 95-year-old packaging company in Michigan.

Goldman Sachs

One of the earliest banks to get into the private-equity industry, Goldman (Charts) could make our list of the top ten private-equity firms simply by the sheer size of its fund. Its newest one is closing in on $19 billion. The GS Capital Partners V fund stands at $8.5 billion, giving Goldman the heft to pull off major deals like Raytheon, Aramark, and Kinder Morgan.

Merrill Lynch

Merrill (Charts) has been involved with private equity since the mid- '80s, but recently the bank's Global Private equity unit has become a profit machine. And it's no wonder, given the bank's involvement in the HCA deal. Let us count the ways: advising the buyout group for a reported $75 million in fees, taking a $1.5 billion equity stake in the group itself, and underwriting $22 billion in bank loans and bonds to finance the deal.

Lehman Brothers

Lehman (Charts) launched its private-equity group in 1984 and now manages $13 billion in five asset classes: merchant banking, venture capital, real estate, credit-related investments, and private funds. Deals like its 2006 funding of Talgo, the Spanish train manufacturer, are typical of Lehman's middle-market focus. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.