June 20 (Bloomberg) -- Nuveen Investments Inc., the largest U.S. closed-end fund company, agreed to be acquired by Madison Dearborn Partners LLC for $5.75 billion in the biggest leveraged buyout in the asset-management industry.

Madison Dearborn, which manages more than $14 billion in private-equity funds, will pay $65 a share in cash for Chicago- based Nuveen, 20 percent more than the stock's closing price yesterday. Nuveen said its board hired Goldman Sachs Group Inc. to solicit higher bids for the next month.

Nuveen was attractive because its $53 billion in closed-end fund assets aren't subject to investor withdrawals and firms like Madison Dearborn need a steady source of fee revenue to cover the debt that finances an LBO. Traditional money managers are drawing more interest from buyout bankers as four straight years of stock-market gains boost assets and profits.

``What really attracts private-equity firms is that asset- management firms throw out so much cash,'' Ben Phillips, managing director of New York-based investment bank Putnam Lovell NBF Securities, said in an interview. ``Nuveen has very high asset margins.''

TA Associates, a Boston-based buyout firm, agreed in March to acquire Commerzbank AG's Jupiter fund division for 740 million pounds ($1.48 billion). Last year, Hellman & Friedman LLC bought Gartmore Investment Management Plc.

Prized Assets

Public-market investors prize fund managers, too, because they produce more consistent profits than brokerage and securities firms. Before today's buyout agreement, Nuveen shares traded at about 22 times earnings. That compared with less than 11 for New York-based Goldman, though it lagged behind the average of about 30 times for the five-member Standard and Poor's Midcap Asset Management & Custody Banks Index.

Unlike typical mutual funds, closed-end funds raise a fixed amount of money in public offerings and are traded throughout the day on stock exchanges.

``Closed-end funds would be one of the pillars for a buyer,'' Jeffrey Ptak, an analyst with Morningstar Inc. in Chicago. ``They are not subject to the gyrations of the market, and assets aren't going to run away at the first sign of trouble.''

Nuveen, whose roots stretch back to 1898, reported April 30 that first-quarter net income rose 17 percent and sales gained 23 percent, as institutions doubled their deposits with the company. The company has expanded by offering mutual funds and separately managed accounts for wealthy individuals and institutions. Closed-end funds made up 32 percent of Nuveen's assets, down from 36 percent a year earlier.

Fifth Fund

Shares of Nuveen rose $8.99 to $63.15 in 11:11 a.m. composite trading on the New York Stock Exchange. They had gained 4.4 percent so far this year, beating the 3 percent advance in the 61-member Standard and Poor's Midcap Financials Index.

Madison Dearborn's current $6.5 billion fund is the fifth it has raised since the Chicago-based firm was founded in 1992 by ex-First Chicago Corp. executives. Last month, Madison Dearborn offered to buy computer reseller CDW Corp. for about $7.3 billion, the biggest acquisition it has attempted on its own.

The firm also participated in the $11.3 billion buyout of Univision Communications Inc. in March.

Madison Dearborn's current financial-services investments include Pax Holding Corp., a securities clearing firm based in Chicago. Previously, it owned PayPal Inc., the online payments network; CapitalSource Inc., a commercial-finance company that now trades on the New York Stock Exchange; and PeopleFirst Inc., an auto lender sold to Capital One Financial Corp. in 2001, according to the firm's Web site.

Assumed Debt

In the Nuveen deal, Madison Dearborn will assume $550 million of debt, bringing the total transaction value to $6.3 billion.

The special committee of Nuveen's board that considered the buyout was advised by Goldman and Katten Muchin Rosenman LLP. Goldman and Sandler O'Neill & Partners LP provided fairness opinions. Nuveen got legal advice from Cravath, Swaine & Moore LLP and Winston & Strawn LLP.

Madison Dearborn hired Merrill Lynch & Co. and Kirkland & Ellis LLP.

To contact the reporter on this story: Jason Kelly in Atlanta at jkelly14@bloomberg.net; Sree Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

Last Updated: June 20, 2007 11:17 EDT