Nomura Securities Co., the world's largest securities firm, said Wednesday that it agreed to pay $100 million to acquire a 20% stake in Wasserstein, Perella & Co., an aggressive investment banking firm that was formed just six months ago.
The new link would give Nomura, Japan's leading securities house, an entree into the highly profitable U.S. mergers and acquisitions business. It also will provide Wasserstein Perella with a big injection of capital, a significant step in the firm's goal of raising an estimated $1 billion to finance leveraged buyouts and friendly takeovers.
Wasserstein Perella was created in February when the two stars of First Boston Corp.'s mergers and acquisitions department defected to go into business for themselves. Bruce Wasserstein and Joseph Perella had been largely responsible for making First Boston one of the United States' two largest mergers and acquisitions firms.
Since then, despite the new firm's modest capitalization, its founders' reputation helped it get important roles in big recent takeover battles and friendly acquisitions. Wasserstein Perella is helping Macmillan Inc. defend itself against two hostile bids, and it is involved in the restructuring of St. Louis-based Interco Inc. It also recently has represented Campeau Corp., Henley Group and Beatrice Foods.
In a statement, Nomura said "it is obvious that Wasserstein Perella is destined to be an international M&A; powerhouse and this association will enhance our capabilities to serve our clients in the M&A; business."
At a press conference in Tokyo, Bruce Wasserstein said: "The relationship adds a vital dimension of global clout and capital strength" to his company.
A source close to Nomura said New York-based Wasserstein Perella first approached Nomura with the suggestion of an investment in exchange for an interest in the firm. The source said Nomura, like other big Japanese securities firms, had been eyeing the U.S. mergers and acquisitions business for some time. He noted that Japanese companies traditionally are conservative and avoid hostile takeovers. But he said many Japanese companies have a lot of cash on hand and feel a need to expand overseas. "Clearly there is a growing need to do friendly expansion through takeovers," he said.
Japanese companies have been stepping up investment in the United States as well as in Western Europe, in part to cash in on the European Community's effort to build a single, unified marketplace by 1992.
The source said there is an understanding that Wasserstein Perella won't use its own capital to back hostile cross-border takeovers between Japan and the United States or Japan and Europe. Still, the use of Japanese capital to finance hostile takeovers within the United States could prove to be controversial.
In an effort to break into the profitable American mergers and acquisitions business, a number of Japanese banks and securities firms in recent months have made investments in U.S. mergers and acquisitions funds. Mitsui & Co., the big Japanese trading company, has invested in one U.S. leveraged buyout fund, and Nikko Securities Co., one of the "big four" Japanese securities firms, reportedly has invested $100 million in an M&A; fund set up by New York-based Blackstone Group.
In late 1986, Sumitomo Bank bought a 12.5% stake in the Goldman, Sachs & Co. investment firm for $500 million. Last year, Nippon Life Insurance Co. bought 13% of the brokerage firm then known as Shearson Lehman Bros. for $530 million, and Yasuda Mutual Life Insurance Co. paid $300 million for 18% of the Paine Webber Group investment firm.
Charles G. Ward III, a spokesman for Wasserstein Perella, said the firm had talked with several other Japanese securities firms before deciding that Nomura "was the right business fit." He said having access to Nomura's Japanese clients will give the firm a special advantage, for example, in finding buyers for American companies that are eager to sell off subsidiaries. Ward said recent transactions show that Japanese concerns "are often able and willing to pay the winning price."
While Wasserstein Perella has enjoyed early success in the mergers and acquisitions advisory business, the firm has had a need for more capital to expand its merchant banking activities. Merchant banks put up their own money to help finance major deals. Ward said the firm will use some of the $100 million from Nomura to invest in a $500-million merchant banking fund, which will be used primarily to finance leveraged buyouts.
Nomura in recent years has made a number of investments in the United States in an effort to offer its Japanese clients a broader range of financial services in this country. The firm entered into a joint venture in 1986 with Babcock & Brown, a San Francisco company involved in leasing and financing, and bought a 50% interest in Eastdil Realty Inc., a New York-based real estate firm.