Madison Dearborn to exit Nuveen Investments in $6.25bn deal

June 2014 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Private equity firm Madison Dearborn Partners LLP (Madison) is to exit fund manager Nuveen Investments in a deal worth $6.25bn. The firm is selling Nuveen to the Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF), an insurer and asset manager focusing on workers at non-profit organisations.

The deal is expected to lift New York-based TIAA-CREF, which specialises in serving the academic and non-profit sectors, into the top ranks of US mutual fund firms.

TIAA-CREF anticipates the closure of the deal to be completed by the end of the year, subject to approval from existing Nuveen clients and various antitrust regulators and the customary closing conditions. Following around four months of negotiations, the boards of directors at both TIAA-CREF and Nuveen unanimously approved the transaction in late April. At the time of writing TIAA-CREF has not specified how it intends to fund the transaction.

The sale of Nuveen will see Madison finally break even on its investment in Nuveen, which it acquired in 2007 for around $5.8bn. Chicago-based Madison used around $2.7bn of its own money to finance the acquisition of Nuveen and borrowed the rest, according to regulatory filings. The acquisition of Nuveen was completed using funds from Madison’s fifth fund, the biggest fund the firm had ever raised at $6.5bn. The firm also utilised its fifth fund in order to complete its $7.3bn acquisition of CDW Corp in 2007. Despite its best efforts, Madison has struggled to exit its mega-deals since the onset of the financial crisis. In order to divest the companies, Madison had reportedly considered a number of options before agreeing to the sale to TIAA-CREF, including registering Nuveen for an IPO. Madison did successfully take CDW public in 2013, raising around $395m. In light of the struggles the firm has endured following its fifth fund deals, Madison has subsequently returned to making smaller acquisitions.

Once Nuveen was taken private in one of Madison’s biggest ever investments, it was saddled with significant levels of debt, a burden which has weighed heavily on the company’s earnings ever since. Within a year of the transaction being completed, Nuveen’s borrowing costs rose significantly as the financial crisis set in. The company eventually refinanced most of its buyout debt, which now stands at $4.5bn. Under the terms of Madison’s exit, that debt will now be absorbed by TIAA-CREF.

“We are delighted to partner with TIAA-CREF, which stands among the most highly respected financial institutions and possesses an unparalleled pedigree in retirement services and investment management,” said John Amboian, CEO of Nuveen Investments. “The clients of Nuveen, and each of our investment affiliates, will benefit from TIAA-CREF’s support of our multi-boutique approach and from the continuity of our client services, our brands and our professionals, whose interests will remain strongly aligned with our long-term success. Nuveen and TIAA-CREF share similar values and the same high standards of service and we are excited about the opportunity to further serve our clients.”

Once completed, the acquisition of Nuveen will be TIAA-CREF’s largest ever purchase and will take the assets managed by New York-based TIAA-CREF to about $800bn. “For nearly a hundred years, we have been wise financial stewards for those who make a difference in the world in the academic and non-profit communities,” said TIAA-CREF CEO, Roger Ferguson. “This transaction reinforces our position as a leading diversified financial services organisation with a broad mix of product offerings to serve clients today and those in retirement for decades to come.” Mr Amboian will remain in his role as CEO of Nuveen while the rest of the company’s leadership will be retained once the deal has closed.

Richard Summerfield