Amid reports of investment banks downsizing their funds or completely spinning off their private equity groups, Bear Stearns Merchant Banking decided to head off in a different direction.
On August 7, the firm announced the formation of Bear Growth Capital Partners, in an effort to cash in on the lower end of the middle market buyout sector, focusing on companies valued between $10 million and $100 million.
“Prior to Bear raising its current $1.5 billion fund [Bear Stearns Merchant Banking Partners II] in May 2001, a large part of the firm’s investment history included smaller deals,” says Paul Lattanzio, who joined Bear as a senior managing director and will head up the Bear Growth unit. “But with the size of the new fund, they couldn’t continue to allocate sufficient time and resources to those deals, which left a hole in the small and middle market.”
Lattanzio began talking with John Howard, a senior managing director and head of the Bear Merchant Banking Group, last summer and spent more than six months refining a business strategy.
Howard then presented the idea to Bear Stearns senior management and received the green light.
“John trusts me and knows my track record,” says Lattanzio. “And John sold the firm on the idea.”
According to Lattanzio, Bear has allocated $50 million per year, but “if we are seeing an abundance of good deals, capital will not be an issue.” He also said the new unit could eventually pursue outside funding.
Lattanzio previously served as managing director at TD Capital, the merchant banking division of The Toronto Dominion Bank. Prior to that, he co-founded NMS Capital Management LLC, a NationsBanc Montgomery Services private equity fund, and spent 13 years with Bankers Trust Co.
For now, the team will remain small, with Lattanzio being joined by vice president and former colleague Joe Scharfenberger, associate Andrew Person and upon adding another associate, will likely remain a four-person team “for the next 14 to 15 months,” Lattanzio says.
Bear is stepping up its private equity activity at a time when other banks are downsizing or getting out of the business entirely. But Lattanzio says that historically, Bear Stearns has been successful in private equity.
“Plus, we have 10,000 people and our goal is to make as many of them business partners as we can,” Lattanzio says, as he pointed to Bear’s list of high-net worth individuals as “fertile ground for deal flow and investments.”
This story originally appeared in Buyouts, a related publication.