Perhaps the biggest surprise of last year’s LBO market was not a supersized fund, a busted auction or even the record amount of sponsored deal activity. Instead, it was the emergence of a new financier.
UBS, which just four years ago was unranked in Thomson’s U.S. leveraged loan league tables, finished 2003 as the third-most active bank for both leveraged loans and high-yield debt for new buyout financings, finishing behind only JP Morgan and CSFB.
“UBS has become a bigger player on the lending side because they have refocused their energies and attentions on the area,” says a GP who did a couple of deals with the UBS last year. “I think they have done a great job.”
Despite starting 2003 in 11th place, by the end of the year, the bank had led or co-led buyout financings for such heavy hitters as Apollo Management, Bain Capital, The Blackstone Group, Texas Pacific Group and The Cypress Group. Unlike some of the prior league table jumps that were caused by mergers, in this case the reason for the change was simply hard work.
How They Got Here
To be sure, the turnaround didn’t happen overnight. It started in early 2001, when UBS hired Ken Moelis from Donaldson, Lufkin & Jenrette. Moelis then brought a number of players aboard from his old stomping grounds, including Warren Woo, who now heads the bank’s U.S. financial-sponsors group. Prior to the management change, UBS had an inefficient financial sponsors group with too many people covering too many sponsors. “We made a serious effort in the sponsor group to downsize coverage, but increase the quality and go after clients where we can have an impact,” says Woo. “We worked on building relationships where we could become their key bankers. We wanted to become the first bank they called; we wanted to be their go-to lender.”
Last year the strategy started to pay off, as the bank was the lead or co-lender on 19 deals, many of them for blue-chip buyers. UBS was the lender on Texas Pacific Group’s Kraton Polymers deal, Bain Capital’s Bombardier and Keystone deals, and Thomas H. Lee Partners’ Simmons and Michael Foods deal. In May 2003, UBS acted as joint head arranger for the $1 billion asset-based facility for W.L. Ross -owned International Steel Group. In July 2003, UBS led the syndication of a $231 million senior credit facility to finance the acquisition of the Meow Mix Co. by Cypress Group.
Additionally, UBS financed buyouts for a number of other middle market buyout firms including Parthenon Capital, Fremont Partners, Saunders Karp & Megrue and Behrman Capital.
“They came from nowhere to suddenly lead all these buyout financings,” says a loan-syndicate head from a rival lender. “They clearly have a new play sheet.”
While Woo is understandably proud of the firm’s work to get those deals, he concedes there was a bit of luck helping UBS’s rapid ascension. “When the market took off we were ready for it, and we built ourselves up one client at a time. Two Thousand Two was a good year for us, we were doing it, but 2003 was better. It was the result of our hard work paying off and the return of the market.”
Going forward, Woo expects to be called on again. “We have maximized our chances of being part of all the transactions that occur through the life cycle of the private equity firm owning that company,” he says.
“This has all been so exciting,” he continues. “We are doing deals with firms we never worked with before like TPG, Bain and Carlyle. We are on tracks with these firms now as long as the market continues to be strong. “