The Top 50 U.S. Dealmakers

Private equity may be getting pummeled on the US presidential election campaign trail, but the deal scene is boiling. Forbes ranks the biggest players not just by their war chests—and reputations—but also by the ultimate criterion: Successful exits delivered for investors

By Forbes India
Published: Nov 1, 2012

AT THE TOP OF THEIR GAME
For Forbes’ first-ever rankings of private equity professionals, we used four overarching, equally weighted criteria: Strength of the firm overall, results of recent exits, performance of the individual within that firm and overall individual reputation. The firm strength was based on the amount of funds raised over the past five years, as calculated by Private Equity International, and the percentage of a firm’s funds in the top quartile of its peers, as supplied by marketing research firm Preqin. The number and value of exits, since 2010, came via PitchBook, as well as S&P Cap IQ, which also provided exit multiples. That latter database, along with proprietary reporting, indicated which partners were associated with which deals, and we also looked at how much partners at publicly traded firms made, based on SEC data. Finally, recognising that many figureheads help generate deal flow through their name and contacts, we factored in a more subjective quality we’ll call reputation. We consulted many private equity professionals in putting this list together, notably Mei-Mei Tuan with Notch Partners, a Millburn, New Jersey private equity recruiting consultant.

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 The deal of The Century
Big US private equity firms like Carlyle, TPG and Blackstone may have billions more in assets, but Nordic Capital, a relatively small ($7.5 billion in assets) firm from Stockholm, can claim one of the biggest killings in PE history. Along with New York-based Avista Capital Partners, Nordic Capital turned a $2.6 billion investment in a Norwegian pharma firm into an estimated profit of $10 billion and counting.

Nordic first invested in Nycomed in 1999 when it was a “small, regional pharma company that wasn’t actually attractive to any buyers,” says Kristoffer Melinder, a former UN officer in Bosnia and JP Morgan banker who joined Nordic in 1998.

Melinder and partner Toni Weitzberg, a former top executive at Pharmacia, installed new management, hired hundreds of agents (who increased sales) and sold the revamped operation to a syndicate that included DLJ Merchant Banking and Blackstone for $1.2 billion in 2002. Nordic bought back a 50 percent interest in Nycomed three years later, after it was clear the company could replicate the strategy outside Europe.

Sales exploded, with revenue in Russia climbing from $8 million in 1999 to $800 million last year. That’s when Japanese pharma manufacturer Takeda agreed to pay $13.6 billion for Nycomed, leaving aside its Fougera division in the US, which Nordic and Avista sold for another $1.5 billion in July of this year.

Melinder says Nordic’s focus on running businesses, instead of engineering their finances, explains the handsome payoff. —DF

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FUELLING THE FRACKING BOOM

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Image: Getty Images

Heavy capital needs, steady cash flows, and rising asset values are the stuff leveraged buyout artists dream of. That’s one reason the private equity gang has recently been piling into oil and gas deals, specifically those associated with the hydraulic-fracturing boom now in full swing in North America.

One deal that opened up the floodgate of big money interest in fracking was KKR’s $312 million investment in June 2009 for 33 percent of East Resources, a Pennsylvania oil and gas exploration firm founded by Terrence Pegula. The company had accumulated more than 650,000 acres in the Marcellus shale formation in Appalachia. The KKR cash infusion helped East Resources increase the pace of horizontal wells being drilled, and in May 2010, KKR and Pegula were able to flip the firm to Royal Dutch Shell for $4.7 billion. The deal made Pegula a multi-billionaire and netted KKR over $1 billion, for a 371 percent return in under a year.

Up until this deal KKR had concentrated on financing electric utilities. However, rising energy prices and the viability of fracking for natural gas changed the deal metrics. A conventional vertical well might cost $1 million to build; wells to tap into shale horizontally cost $8 million to build, a steep price for an oil and gas entrepreneur. Enter private equity.

Soon after East Resources, KKR invested $400 million in June 2010 for a 40 percent stake in Houston’s Hilcorp Resources, which was drilling in the Eagle Ford shale formation in south Texas. The KKR money prompted Hilcorp to add four more horizontal rigs, bringing its total to six and allowing it to drill over 40 horizontal wells. A year later Hilcorp was sold to Marathon Oil for $3.5 billion. KKR collected $1.4 billion of the proceeds.

These energy deals, plus others, have catapulted KKR’s Marc Lipschultz, 43, to near the top of Forbes’ ranking. They may have also set him up as the heir apparent at mighty KKR. Lipschultz joined KKR in 1995 after a stint in M&A at Goldman Sachs. “Energy is an extremely complex industry, and it is always consuming capital,” Lipschultz says. “So there’s a natural marriage between what it does and the thing that we ultimately provide.”

In June, the Lipschultz team closed KKR’s first-ever natural resources fund at $1.25 billion, bringing the fund’s total capital for natural resources to $1.6 billion. Rival Blackstone Group recently raised $2.5 billion for energy investments, and Goldman Sachs is currently raising a $2 billion fund.

“The shale revolution is to energy what the internet was to technology,” says Lipschultz. “It was significant, fast and disruptive.” —Halah Touryalai

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(This article is excerpted from the latest Forbes India 09 November, 2012 issue which is now available at news stands and book stores. You can buy our tablet version from Magzter.com)

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