Mergers: The Marriage Brokers

Merger is a magic word in U.S. busi ness, but finding the right mate is harder for a company than for a bachelor.

Frequently an acquisition-minded com pany now turns to one of a growing but still little-known band of middlemen:

the merger brokers. Business has seldom been better for these brokers; the number of mergers is rising, last year jumped to a record 1,797. The brokers — who thought up the largest share of these combinations — have a broad, objective view of the entire economy that enables them to make imaginative matches of companies in disparate industries. The middlemen may be blue-chip commercial bankers or account ants, such as Morgan Guaranty and Price Waterhouse, or management consultants or even public-relations men.

The most vigorous merger makers of all, however, are Wall Street’s celebrated investment bankers.

Chaperons & Referees. Last week’s acquisition of New York’s Ruppert brewing business by Rheingold was conceived by Loeb, Rhoades. Wall Street’s Lehman Bros, works on about 100 possible combinations a year, so far in 1965 has arranged the mergers of U.S. Vitamin with Revlon and of whisky-importing Buckingham Corp. with Schenley. Last year Lehman negotiated some 20 mergers, for which the purchase prices totaled more than $700 million. Goldman, Sachs last year put through more than ten key mergers, including Genesco’s acquisition of the Kress variety-store chain, Transamerica’s purchase of Braniff and Lanvin’s purchase of Charles of the Ritz. Other major deals were brought off by such investment bankers as Morgan Stanley, First Boston, and Kuhn, Loeb.

Once he is engaged by a customer bent on merger, the broker calls upon his pals, partners and researchers—and his own know-how—to draw up a list of companies that can at least be flirted with. Then he telephones or visits the top executives of those companies—doors are always open to the leading bankers—and discreetly sounds them out, never revealing the name of his client until the two firms agree to become serious. When the two begin active courting, the investment bankers act as chaperons, or sometimes referees, help to work out the terms of the deal.

Fat Fees. Their position as powerful insiders gives the bankers rare sensitivity about which companies are in a buying or selling mood. Each of the major investment bankers commonly has partners on 50 or more corporate boards, also raises capital and sells financial advice to perhaps 100 important companies and has contacts with hundreds of other firms. These bankers know that such companies as Litton Industries, Textron, I. T. & T. and Genesco are so eager to expand that they have set up staffs of their own to search out possible merger mates. They also know that the cigarette manufacturers want to acquire food, beverage or candy firms as a hedge against the cancer scare; last week, for example, P. Lorillard (Kent, Old Gold) bought out San Francisco’s Golden Nugget Sweets. They are aware that the oil companies yearn to buy into everything from fertilizers to polypropylene toys, and that the food companies are getting together with the beverage firms. National Biscuit, for example, has decided that things might go better with Coca-Cola; last week officials of the two companies disclosed that they have been informally talking merger.

The bankers who bring off mergers stand to collect handsome fees: about 1 % of the purchase price on a huge deal or 3% on a medium-sized one. To earn this the broker contributes copiously of his savvy, research and time. The merger talks between American Home Products and Ekco Products (pots and pans) dragged on for five years, but were well worth the effort for the merger broker. On that $163 million deal, Lehman Bros, collected $916,000.