Only a few private equity firms are bidding including Blackstone Group, Bain Capital, Apollo Global Management and Carlyle Group. However, sources say, they are not a small minority of the bidders. Goldman Sachs & Co. and J.P Morgan & Co. are running the sale.
Management consultants and other sources say Northwestern executives are wading through preliminary indications of interest. Filing such an indication typically entitles bidders access to additional information that they would need in order to make formal indications of interest. The formal indications generally contain a range of offer prices for the company that is for sale under various scenarios.
Northwestern Mutual executives are permitting bids from only the few big private equity firms that can write the entire equity check themselves. Industry insiders say it would total $1.5 billion of equity plus debt and mezzanine financing for the anticipated $3 billion transaction.
Private equity firms are looking at Russell Investments, which managed $257 billion as of Dec. 31, as a portfolio company investment, rather than an add-on to their own businesses. That's what Carlyle did when it acquired Los Angeles money manager TCW Group two years ago.
Kate Stouffer, spokeswoman for Russell Investments, declined to comment beyond supplying Russell data.
Executives at Carlyle, Bain, Apollo and Blackstone all declined to comment. Michael DuVally, Goldman Sachs spokesman and Tasha Pelio, JP Morgan spokeswoman declined comment.
Although the Russell sale has been the center of rumors for months, Northwestern Mutual officials waited until January to acknowledge they were considering a sale.
“Northwestern Mutual believes this is a good time to evaluate strategic alternatives (for Russell), including a sale that could produce attractive returns for the company's policy owners,” Northwestern Mutual officials said in a news release at the time.
A normal process
In a way, Northwestern Mutual is going through a version of a typical auction process, said one management consultant who declined to be identified. “In most auctions, the bankers cast a wide net and then narrow the field based on price and fit,” the consultant said.
Northwestern Mutual is restricting the bidding only to those firms that have already invested time and energy in getting to know the Russell Investments, an industry insider said.
What's more, allowing more than three or four firms to bidwould not add anything to the ultimate deal, sources said. Private equity firms all have the same cost of capital and so their bids will be very similar, another industry source said.
It's a different story for non-private equity buyers. A so-called strategic buyer could have a lower cost of capital but would be buying Russell to combine businesses or replace existing management. Regulations in the U.S. and abroad would make it close to impossible for a bank or broker to buy Russell. However, sources said, that Northwestern has rejected strategic buyers.
Northwestern Mutual may prefer holding company buyers such as Berkshire Hathaway Inc., Marsh & McLennan Cos. or Japan'sOrix Corp.
Marsh & McLennan could be looking to add a money management firm with global reach since it was forced to sell Putnam Investments in 2007, on the cusp of the worldwide global crisis, sources say.
The history of Russell
This article originally appeared in the March 17, 2014 print issue as, "Parent playing hard to get with Russell suitors".