The mega-merger between JP Morgan Chase & Co. and Bank One Corp. that shook up the banking and finance world puts the combined $24 billion of assets and 800 portfolio companies of JP Morgan Partners and One Equity Partners under the same roof, creating one of the largest private equity juggernauts in the business.
Both units, which will continue to operate separately for the time being, have been underperformers for their respective companies in the wake of the recession. While there have been acknowledged improvements of late in both portfolios, William Harrison, the chief executive of JP Morgan, said in a presentation to analysts after the merger that the bank will stick to its goal of reducing its private equity holdings to 10% of its total equity from its current level of 15 percent.
“Each firm is attempting to slim down and better diversify its portfolio,” said Sharon Haas, a managing director with Fitch Ratings, which saw no downsides to the merger for either parties. “Down the road, you may see them adopt top-level strategies together, but there’s no real reason why they need to combine operations any time soon. Due to the nature of private equity, they can do fine operating independently.”
Still, decisions will have to be made down the road about things like overall strategy, leadership and personnel.
In recent months, JPMP has done more buyouts and recapitalizations than anything else.
Fund-raising has been another struggle for the firm. It set out to raise $13 billion for a new investment fund four years ago, with a promised $6.25 billion from its parent. That fund now stands at $7.9 billion, with a reported $1.65 billion commitment from parent JP Morgan Chase.
What follows is a quick look at the private equity operation of Bank One, followed by JP Morgan. The proposed merger still must be approved by shareholders and regulators, but could be completed by the middle of the year.
One Equity Partners is the private equity affiliate of Chicago-based Bank One. It invests in venture capital deals, buyout transactions and third-party private equity funds.
Led by Richard Cashin, the firm manages a $3.5 billion portfolio. Bank One tapped Cashin to lead One Equity Partners in June 2001. He took the reins from Geoffrey Stringer, who went into retirement that year.
Cashin is the former president of Citicorp Venture Capital, where he spent 20 years making investments in industrial services, semiconductors, telecom equipment and networks and power-generation equipment. He sits on the board of Fairchild Semiconductor International, IXNet Inc., Last Mile Connections Inc., and he reports directly to James Dimon, Bank One chairman and CEO.
Also in the mix at One Equity Partners’ Detroit office is Jacques Nasser, the ousted CEO of Ford Motor Co. He joined the firm as a senior partner in November 2002 and led the firm’s $255 million buyout of Polaroid Corp. of North Waltham, Mass. and now chairs the company’s board of directors.
One Equity’s Investment team includes about 20 principals and analysts.
While the firm had its share of Internet deals gone sour in the late 1990s-with such investments as Divine Interventures in its portfolio-the firm has concentrated on buyouts of manufacturers and industrial product makers in recent years.
Among its notable investments: One Equity acquired 65% of Polaroid in a management buyout. The former Polaroid, now known as PDC Inc., owns the remaining 35% stake.
In April 2003, One Equity paid $125 million to expand New York-based Moneyline Telerate’s business information services. The company provides real-time information and transaction services for capital and fixed-income markets. Bank One is the company’s majority shareholder.
And One Equity took a 62% stake in Germany’s fourth largest brewer, Brau und Brunnen, from HypoVereinsbank in November.
Among its fund holdings, One Equity is a limited partner in The STAR Fund, a $730 million London-based vehicle established in 2001 to do management buyouts in Western Europe. It also invested in the North Texas Opportunity Fund, a Dallas-based fund formed in 2001 to finance women and minority-owned businesses in economically depressed areas of North Texas. Also, it is a founder of Hispania Capital Partners, a $70 million venture fund in Chicago created to invest in Hispanic-owned businesses.
Jeffrey Walker, the firm’s managing partner, has been with JPMP since its founding in 1984. He’s a member of JP Morgan’s executive committee and is one of the bank’s vice chairmen. He sits on the board of 1-800-Flowers, Gymboree and Six Flags Amusement Parks.
Walker is a holdover from before the merger with Chase. Most of the group’s 20 other U.S. partners, however, came from the now defunct Chase Capital Partners, reflecting a balance of power at the firm that’s tipped in Chase’s favor.
Timothy Purcell oversees the firm’s Latin American private equity group. JPMP also has a team in Asia and another nine partners scattered throughout Europe.
JPMP has more than 950 companies in its portfolio – in every industry, in every geography and at every stage. It is an investor in consumer Internet brands like TheStreet.com, PlanetOut.com and GeoCities.com. Apple Computer is another portfolio company, as are consumer brands like 24 Hour Fitness, Kinko’s and Peet’s Coffee & Tea.
Among its notable deals, JPMP capitalized discount airline JetBlue Corp. through five rounds of financing beginning in 1998 and cashed out at the company’s $158 million IPO in 2002.
Entrepreneur-in-residence, and resident nanotechnology expert, Alan Marty led the firm’s investment in nanomaterials maker Optiva Inc.’s $20 million Series C round in January 2003.
JPMP, and Chase Capital Partners before it, has taken stakes in other private equity funds to drill into specific industries where it has little expertise.
CCP invested $100 million in Sports Capital Partners in 1999. The New York firm was to invest in sports-related deals, but two years after it began operations, it had only seven companies in its portfolio and JPMP sold its stake to the California Public Employees’ Retirement System at a discount.