This week, shareholders of Veoneer, a Dutch manufacturer of auto parts listed in the US, are expected to approve a $4.5 billion acquisition that will pay them a lofty 85 percent premium to the company’s pre-deal trading price.
What stands out about the deal is the structure. The auction for Veoneer was won in October by SSW Partners, a start-up New York investment firm. The company had never transacted, had not raised a special buyout fund, and only had a bare-bones website.
But SSW had three Wall Street grands as founders, along with a settlement in which Qualcomm, the $200 billion market cap semiconductor company, has guaranteed Veoneer shareholders to be paid in a closing expected in 2022. The chipmaker is not only friendly; it wants some of the Veoneer business for itself.
SSW is led by Eric Schwartz, Joshua Steiner and Antonio Weiss. Weiss, the most prominent of the three, is a former head of investment banking at Lazard, who advised the US Treasury Department in the Obama administration. Steiner co-founded Quadrangle Group, a now-defunct private equity firm, while Schwartz is a former Goldman Sachs executive.
The structure of their ongoing agreement with Veoneer has caught the attention of the M&A industry. It rethinks how large corporations buy bits of companies that would otherwise have to be acquired as a whole, harnessing the plethora of private capital sloshing around the world, while minimizing financial disclosures.
Qualcomm was in jail this summer before the SSW scheme took shape. The California company was interested in Veoneer’s autonomous vehicle software company, with which it already had a joint venture. But the Sweden-based company had agreed in July to sell itself for $3.8 billion to auto parts supplier Magna International.
Making a rival bid for all of Veoneer made little sense to Qualcomm as it had no interest in the remaining divisions. Still, Veoneer preferred to be sold entirely.
Qualcomm would then turn to an unknown private equity firm: SSW.
The resulting bid defeated Magna’s. Under a new structure, SSW will acquire “all of Veoneer’s outstanding capital stock” and then immediately sell the autonomous vehicle software unit to Qualcomm, according to a press release detailing the transaction. SSW will then “lead the process of finding strong, long-term strategic partners” for Veoneer’s remaining auto parts business, signaling its intention to sell them.
“It’s a strange arrangement for a private equity deal,” said Brian JM Quinn, a former corporate lawyer and now a professor at Boston College Law School.
Qualcomm approached SSW about a joint acquisition structure months before the resulting deal was announced in September, according to the filings of securities and a person directly familiar with the matter. Even if SSW became the acquirer, “Qualcomm and SSW Investors agreed that Qualcomm would lead and control negotiations with Veoneer,” Veoneer wrote in its proxy statement.
Businesses selling to private buyers demand detailed information and protections almost everywhere to ensure financing is available and guaranteed to be closed. For example, when KKR and Clayton Dubilier & Rice earlier this year acquired publicly traded software company Cloudera for $5 billion, the securities filings contained an 800-word description of the more than 10 banks that provided the $2.4 billion in bridging loans to close the deal.
Such explanations are lacking in this case. Instead, Qualcomm is contractually obligated to back the deal with SSW.
Qualcomm has agreed to take all necessary steps to make SSW . . . to have sufficient funds available to meet the required merger payments as they fall due,” the merger contract stated with the U.S. Securities and Exchange Commission. However, Qualcomm and SSW have not disclosed what each party will pay to purchase the respective pieces of Veoneer.
SSW disputes the idea that it is a typical private equity firm. It has not raised any specific finite-lived fund, as is commonly done by leveraged buyout stores, said a person directly involved with the company. This individual previously described his organization as “casual,” putting money-by-deal to the work of a range of investors with a long-term horizon. The flexibility and lack of formality of SSW resemble Warren Buffett’s style.
SSW has not disclosed who is providing its share of the acquisition financing. It does not rely on debt financing, according to a person close to the company. SSW declined to comment.
But the founders have historical ties to major international investors. In his investment banking career, Weiss has worked closely with the likes of the Brazilian executives behind Anheuser-Busch InBev and 3G Capital, as well as German conglomerate JAB. Steiner has also worked closely with Michael Bloomberg, the media mogul and former mayor of New York.
Those close to the deal said SSW was approached because the traditional way of disposing of unwanted assets — simply letting the buyer sell unwanted units piecemeal — was usually distracting and destroyed value. A typical private equity partner may not have been as flexible as SSW, these folks said.
Whether SSW’s involvement arouses interest from competition authorities remains to be seen. According to the merger proxy submission, concerns about competition authorities had been raised during the summer negotiations. According to the filings, Qualcomm had “made preparations to offer ‘regulatory-related shutdown protection'”.
Under the merger agreement, the transaction cannot be completed until confirmatory approvals have been received or formal objections from competition or foreign investment authorities in the US, China, France, Germany and Italy have been avoided. Representatives from both SSW and Veoneer said the US Federal Trade Commission approved the deal in November.
Bill Kovacic, an antitrust expert at George Washington University, said that by allowing SSW to find buyers for assets it is not interested in, Qualcomm “addresses components of the company that would cause an antitrust authority or other regulator to flinch.” “.
The contract with Veoneer states that if the deal doesn’t close due to regulatory failure, SSW and Qualcomm will owe a $225 million reverse termination fee. Exactly how that would be distributed among the couple is also not disclosed.