Credit Suisse director Michael Klein is mobilizing billions with a controversial, opaque finance niche that is going mainstream.
Reclusive dealmaker Michael Klein is pushing his boutique advisory firm into merchant banking and hedge fund territory: he recently filed plans to raise $1 billion with a so-called blank-check finance vehicle, according to the «Financial Times» (behind paywall).
Once relegated to a corner of Wall Street, the blank-check playbook is to create a shell company, seek a public listing for it, and then use the money raised through the listing to merge with an actual business. The potentially lucrative special purpose acquisition companies, or Spacs, are a controversial trend emerging as in the U.S. equity market, especially in the wake of the coronavirus crisis.
Churchillian Aura
Potent financial sponsors like Klein are betting on cashing in on their name and reputation for huge returns, the pink paper reported. Klein, who joined the Swiss bank's board two years ago, raised $2.5 billion in the last two years with other Spacs named after Winston Churchill, whom he reportedly reveres.
The 56-year-old American banker is an influential adviser to Saudi Arabia's sovereign wealth fund, the Public Investment Fund (PIF). He has advised on the initial public offering of Saudi Aramco as well as, previously, the takeover of petro-chemicals firm Sabic by Aramco in 2018.
Controversial Fees, Opacity
On Wall Street, Spacs have attracted deep pockets, raising $13.5 billion thus far this year, the «FT» reported. They are also controversial in their opaque set-up, huge fees, and tendency to attract short-term shareholders versus long-term investors.
Klein forceful Spacs push means he is drifting from advice-giving into territory that was until recently dominated by big hedge funds like Apollo. Banks like Goldman Sachs are instrumental in bringing the vehicles to the market; in fact, Credit Suisse employs the banker who led the first underwriting of a Spac in 2005, Niron Stabinsky (he is a managing director in New York).
Landmark U.S. Deal
For Klein, who took home 450,000 Swiss francs ($479,000) during his most recent one-year term on Credit Suisse's board, Spacs represent big money. Vehicles sponsored by Klein's firm were behind an $11 billion deal for Multiplan, a landmark deal reached earlier this month.
Klein's partners on the Multiplan deal include prominent U.S. executives like ex-Ford CEO Alan Mulally and Apple's former chief designer Jony Ive. The banker told the «FT» he isn't a short-term buyout speculator: «We are very long-term investors. We don't have a fund. We're investing for decades,» the outlet reported.
