The New York-based investment bank saw its CEO Stanley O’Neal resign at the end of October as a result of the credit crises slamming the sub-prime mortgage market. But Merrill Lynch began shopping Merrill Lynch Commercial Finance Corp. over the summer and recently narrowed the field of potential buyers to four bidders. Also in the running are a U.S.-based LBO firm and a European investment bank, according to sources. Merrill Lynch isn’t expected to complete the deal until the bank’s board of directors has installed a new CEO.
A Merrill Lynch spokesperson declined to comment, citing a policy of not responding to market rumors.
It’s unclear what prompted Merrill Lynch to sell its five-year-old commercial finance unit, which underwrites senior loans and holds them on its books. The group is run out of Chicago by Daniel Marszalek, a managing director and former Heller Financial president, who was recruited to launch Merrill Lynch’s operation in 2002 as a competitor to GE.
Should GE win the auction, the firm is expected to combine the Merrill Lynch group with Chicago-based
GE has used two recent acquisitions to become such a major player in the senior loan market. In 2001, it bought Chicago-based Heller Financial for $5.3 billion and followed up in 2005 with the purchase of Antares, also based in Chicago, for an undisclosed sum. GE did not immediately respond to a request for comment.
For its part, New York-based Cerberus Capital Management is likely eager to attach the business to its burgeoning financial services arm centered around GMAC Corp., said several sources. Cerberus Capital also operates a mid-market debt arranger, Dymas Capital, and a mid-market lender, Ableco Finance. Cerberus Capital could not be reached for comment.
Merrill Lynch Commercial Finance, which employs 147 people, completed 148 transactions valued at more than $5.2 billion in 2005, according to an overview posted on the division’s website. The company has not made 2006 full-year data available.
For cash-flow-based loans, Merrill Lynch Commercial Finance claims to be able to underwrite as much as $200 million in debt and hold up to $45 million on its books, according to its website. The group also underwrites and holds asset-backed loans, junior secured debt and mezzanine capital and will co-invest alongside equity sponsors.
The sale of Merrill Lynch’s mid-market lending arm could be the start of a wave of consolidation and shut-downs in the senior loan market. Credit syndication has by and large dried up, making it more difficult for firms whose business plans are based on underwriting loans rather than holding them on their own balance sheets.
Such firms are not generating the fee income necessary to stay in business, sources said.