Wilbur Ross Thinks Bigger
By Maria Bartiromo
If you have ever been to a yard sale, spied a dusty artifact with a "$1 or best offer" tag on it, recognized its value, plunked down a buck, and then sold it on eBay (EBAY ) for 100 times that, you have a small idea of what it's like to be Wilbur Ross. The 68-year-old billionaire bottom-fisher on July 23 agreed to sell his private-equity vehicle, WL Ross & Co., to Amvescap (AVZ )for some $375 million. Shortly after the deal -- the first significant combination of a conventional money manager with a private-equity investor -- was announced, I talked with Ross.
Why do this deal now? And what does it say about the state of capital markets when a $3.5 billion buyout fund is too small to compete?
As you know, we have been very active in a number of countries, pushing into China, India, and Vietnam. Amvescap has a particularly strong presence in China. Second, we are entering an era of megadeals. It used to be that a few billion made you a large [private-equity] fund. Now it's 10 or 15 or 20 billion dollars before you are a large fund. Five years ago you would have been put in an insane asylum if you said there would be a private-equity deal of the magnitude of the HCA (HCA ) deal. I wouldn't say we are too small, but we want to be able to ramp up scale quite a bit in the future.
Some might say you're cashing out. And they'd want to know what you see that others don't.
Well, this plan is over five years. And I have no intention of retiring even at the end of the five years. It's not so much cashing out as it is giving the firm we started six years ago a permanent life and setting the stage for an eventual succession.
The Amvescap deal will dramatically increase your resources. How will you put that money to work?
We have $3.5 billion, and they have $2.3 billion...the areas that we are going into most heavily are textiles, automotive parts, and reinsurance. We are looking at the reinsurance of reinsurance companies. Even though it's likely that the frequency and severity of big storms will be greater than they have been in prior years, the increase in premiums more than offsets the risk. It's a bit of a departure from our normal industrial business.
Last time we spoke you said you are looking for acquisitions in China and India in the low-tech sectors. Why these areas?
The most powerful economic force in the world today is globalization, and globalization mainly means one thing: rising standards of living in the developing world and commodity consumption. More clothing, more energy, more transportation. The stats are amazing. In India, there are 6 cars per 1,000 people of driving age. There are 8 per 1,000 in China. In America, it's 750 cars per 1,000. In other important areas of consumption, there are the same staggering ratios. What intrigues me about China is that the numbers are so big.
What might take the punch bowl away?
The only [threat] specific to private equity is irrational behavior of an extreme scale -- people paying crazy multiples. But these [private-equity] people -- Henry Kravis, Steve Schwartzman, David Bonderman -- are not wild men. So there's not much danger of that.
You describe the deal with Amvescap as a milestone.
It's a sign of the coming of age of the industry. We will see more deals of this sort, and we will see some firms doing IPOs.
Does the deal reflect a peak in the business?
Time will tell. But I don't think it necessarily does. A lot of firms have to think about succession. This deal eliminates the necessity for our next tier of management to raise a bundle of cash to buy out my stake. I have a big earn-out, so that takes care of me. There are plenty of people running these firms in their 60s, and at some point there has to be a transition to the next generation. So while someone might think he is a master of the universe, he is mortal.
Maria Bartiromo is the host of CNBC's Closing Bell