The RFP that management eventually sent to three finalists (from the eight candidates initially identified) left open the possibility that the private equity partner would demand a controlling stake — a nod to prevailing wisdom that it's rare in an MBO for management to have control to begin with, conceded Mr. Tilles.
But Hellman & Friedman "just understood" where DIAL's management was coming from, he said.
The San Francisco-based private equity house won the bidding on the strength of its flexibility and "creativity at meeting the requirements that we had" in gaining control and ultimate ownership, said Mr. Gilmore.
Hellman & Friedman agreed to take a "large minority stake" that wasn't so big that DIAL's management team couldn't "buy us out over time," said Matthew Barger, a managing partner at the private equity firm. "If the pie is big, there's plenty for everybody."
No details of the deal were disclosed, but Mr. Gilmore said the partnership with Hellman & Friedman gives the management team "the potential to ratchet up" its stake in the company "if we meet certain targets in year four onward."
Casey, Quirk & Acito's Mr. Quirk said such arrangements could become the rule, rather than the exception. Hellman & Friedman are "very smart investors," and the announced deal has "terrific alignment" of their interests and management's interests. In fact, he said, private equity firms might become leery of financing a management team that doesn't have a majority stake.
"We prefer to have our partners own more equity than we own…it's the ultimate in alignment," said Hellman & Friedman's Mr. Barger.
Mr. Tilles said management felt ownership and control was crucial to taking the company's success — DIAL's assets under management surged from $2 billion when Lincoln acquired parent Delaware Investments in 1995 to roughly $19 billion today — to the next level.
Lincoln had put in place a plan that gave management exposure to 14% of DIAL's equity, but with 19 directors and senior portfolio managers in their 40s, and a next generation of investment professionals in their 30s and 20s that "we want to keep and motivate," management felt it needed access to a bigger chunk of the equity.
Officials at DIAL, Delaware and Lincoln all said the decision to sever the ownership ties was an amicable one, and, pending approvals from various boards and shareholders, the newly independent firm will continue to manage money for Delaware and Lincoln on a subadvisory basis.
But some industry watchers say the $200 million price tag for a fast-growing, highly thought-of company such as Dial leaves room to conclude there were some sharp-edged negotiations going on beneath the surface.
The investment banker, who didn't wish to be named, called that price tag "a bargain basement price" for DIAL.
A lot of factors might have come into play, such as contractual obligations and non-compete clauses, and the ability of DIAL to inherit its performance record in its new corporate guise, but it appears "there was a game of guts poker" and management won, he said.
The New York-based president of another major asset management house agreed: The price paid for DIAL could easily have been two or three times $200 million, he said. But some industry players said $200 million isn't necessarily beyond the pale.