How an unknown buyout company struck a $ 4.5 billion deal with a new structure
This week, shareholders of Veoneer, a Dutch U.S.-listed auto parts maker, are expected to approve a $ 4.5 billion takeover that pays them a hefty 85% premium over the pre-trading price. -company agreement.
What emerges from the agreement is its structure. The auction for Veoneer was won in October by a New York-based startup called SSW Partners. The company had never executed a transaction, had not raised any dedicated buyout funds and had only maintained a website.
But SSW pitched Big Three on Wall Street as its founders along with a deal in which Qualcomm, the semiconductor company with a market cap of $ 200 billion, guaranteed Veoneer’s shareholders would be paid at a scheduled close. in 2022. The chipmaker isn’t just nice. ; he wants some of the Veoneer business for himself.
SSW is led by Eric Schwartz, Joshua Steiner and Antonio Weiss. Weiss, the most prominent of the three, is a former investment banking director at Lazard who later advised the US Treasury Department in the Obama administration. Steiner was a co-founder of Quadrangle Group, a now defunct private equity firm, while Schwartz is a former Goldman Sachs executive.
The structure of their ongoing deal with Veoneer has caught the attention of the M&A industry. He is reinventing the way large corporations buy pieces of businesses that would otherwise have to be acquired as a whole, deploying the generosity of private capital that flows around the world while minimizing financial disclosures.
Qualcomm found itself in a bind this summer before the SSW deal took shape. The California-based company was interested in Veoneer’s autonomous vehicle software business with which it already had a joint venture. But the Swedish company had agreed in July to sell for $ 3.8 billion to Magna International, a supplier of automotive spare parts.
Making a rival bid for all of Veoneer did not make sense for Qualcomm as it had no interest in the remaining divisions. However, Veoneer preferred to be sold in full.
Qualcomm would then turn to an unknown private capital company: SSW.
The resulting auction exceeded that of Magna. Under a new structure, SSW will acquire “all of Veoneer’s outstanding share capital” and then immediately sell the autonomous vehicle software unit to Qualcomm, according to a statement. Press release describing the operation. SSW is then to “lead the process of finding strong, long-term strategic partners” for Veoneer’s remaining auto parts business, indicating its intention to sell them.
“It’s a strange arrangement for a private equity deal,” said Brian JM Quinn, former corporate lawyer and now professor at Boston College Law School.
Qualcomm approached SSW about a joint acquisition structure months before disclosing the resulting deal in September, according to filings on securities and a person directly familiar with the matter. Even if SSW becomes the acquirer, “Qualcomm and SSW Investors have agreed that Qualcomm will direct and control negotiations with Veoneer,” Veoneer wrote in its proxy statement.
Companies that sell to private buyers almost universally require detailed information and protections to ensure that financing is available and that it is guaranteed to arrive at closing. For example, when KKR and Clayton Dubilier & Rice acquired listed software company Cloudera for $ 5 billion earlier this year, the securities deposits included an 800-word description of the more than 10 banks that provided the $ 2.4 billion. dollars in bridging loans to close the deal. .
Such disclosures are lacking in this case. Instead, Qualcomm is contractually bound to support the agreement with SSW.
Qualcomm has “agreed to take all necessary measures to cause the SSW.” . . have sufficient funds to meet required merger payments when they are due and payable, âaccording to the disclosed merger contract with the US Securities and Exchange Commission. Qualcomm and SSW, however, have not disclosed what each party pays to purchase the respective parts from Veoneer.
SSW takes issue with the idea that this is a typical private equity firm. He didn’t raise a single, dedicated fund with a limited lifespan like debt buyout stores commonly do, said a person directly involved with the business. On the contrary, this person described his organization as âunconstrainedâ, putting money transaction by transaction from a list of investors with a long-term horizon. SSW’s flexibility and lack of formality resembles Warren Buffett’s style.
SSW has not disclosed who is providing its share of the financing for the acquisition. He doesn’t rely on debt financing, according to a person close to the company. SSW declined to comment.
But its founders have historic ties to major global investors. Weiss has worked closely during his career in investment banking with Brazilian executives such as Anheuser-Busch InBev and 3G Capital as well as the German conglomerate JAB. Steiner also worked closely with Michael Bloomberg, the media mogul and former New York mayor.
People close to the deal said SSW was approached because the traditional way of disposing of unwanted assets – having the buyer simply sell unwanted units piecemeal – was generally distracting and destroying. the value. A typical private equity partner might not have been as flexible as SSW, these people said.
It remains to be seen whether SSW’s participation arouses the interest of competition authorities. According to the merger proxy file, antitrust issues had been addressed during the summer negotiations. Securities filings said Qualcomm had “prepared to offer ‘regulatory-related closing protection.”
The transaction cannot be closed until it receives positive approvals or avoids formal objections from competition authorities or foreign investment authorities in the United States, China, France, Germany and Italy, according to the merger agreement. The U.S. Federal Trade Commission cleared the deal in November, according to officials from SSW and Veoneer.
Bill Kovacic, an antitrust expert at George Washington University, said that by allowing SSW to find buyers for assets it is not interested in, Qualcomm is attacking “the components of the business that would set back a antitrust authority or other regulator â.
The contract with Veoneer states that if the deal is not reached due to regulatory failure, SSW and Qualcomm are expected to pay a reverse termination fee of $ 225 million. How this would be divided between the two also remains undisclosed.