Bloomberg calls yesterday’s collapse of Lehman Brothers and purchase of Merrill Lynch "the biggest reshaping of the financial industry since the Great Depression." And the bike trade is right in the thick of it.
In August, SRAM founder Stan Day announced that SRAM had struck a new equity partnership with Lehman Brothers Merchant Banking (LBMB), one of the seven asset classes of Lehman Brothers’ global private equity business. The deal – LBMB was to secure 40 percent of SRAM’s equity – was expected to close some time this month.
It was one of the last brokered deals from LBMB before the collapse of its parent company.
LBMB is part of the Lehman Brothers empire but, on the plus side, it’s likely to be cherry picked by another investment vehicle. This is because it’s not part of the mortgage-backed securities side of the business, the loss maker which has brought about the collapse of the company. LBMB has $30 billion in assets under management.
It’s not known whether the deal with SRAM was to be an up-front cash injection in return for equity or whether the funds were to be injected over a length of time.
A statement from Lehman Brothers Holdings Inc. said the business "intends to file a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. None of the broker-dealer subsidiaries or other subsidiaries of LBHI will be included in the Chapter 11 filing and all of the broker-dealers will continue to operate."
LBHI is in "advanced discussions with a number of potential purchasers to sell its Investment Management Division."
The equity sale was the first in SRAM’s history and as well as provide money for R&D and buy-outs of other bike companies the LBMB stake was also to provide $2m a year for bicycle advocacy programmes.
Stan Day, CEO and founder of SRAM, said:
"Today’s Lehman Brother Headlines are awkward and we have had several calls about how this may affect the investment in SRAM by their affiliate Lehman Brothers Merchant Banking (LBMB).
"SRAM is financially sound and completely capable of moving forward without the LBMB investment. The investment was targeted to be completed during the first week of October. The bank syndication is complete and the capital calls have been sent to LBMB’s Limited Partners. The transaction itself has not been closed.
"The selection of Lehman Brothers Merchant Banking to be our strategic financial partner was based on the quality of the people working at LBMB and their vision for the future. That choice has been reinforced over the almost two months since that decision was made through working with the LBMB partners. The LBMB partners did not cause the problems that have created the problems at Lehman Brothers. They LBMB partners have been caught in an unexpected crossfire.
"In theory Lehman Brother’s filing Chapter 11 shouldn’t impair the ability of LBMB to complete the transaction. They are separate but related entities. Certainly the headlines loom large and there may be a practical pause.
"The most important point is that this effort was a long term strategic choice by SRAM. We wanted to add an experienced professional investor to our shareholder base. If the transaction doesn’t occur there is absolutely no disruption to our operations. We will simply move forward and reconsider finding a new strategic financial partner at some point in the future. 30 day lead time, inspiring product innovation and consistent quality are still what our customers should expect from SRAM.
"We will certainly know more within a few days."