Club deal

A club deal, in finance, refers to a leveraged buyout or other private equity investment that involves two or more private equity firms. It can also be referred as consortium or syndicated investment.

In a club deal, the investor group of private equity firms pools its assets together and makes the acquisition collectively. The practice has allowed private equity to purchase larger and more expensive companies than each firm could acquire through its own private equity funds. By syndicating the equity ownership across a group of investment firms, each firm reduces its concentration and is able to maintain the diversification of its portfolio of investments.

In the US, syndicated investment began as early as 1870 with a Pennsylvania Railroad offering. In the 1920s several syndicates existed for the purchase and sale of securities.

From 1984 to 2007, an average of 63% of US venture capital firm investments were syndicated according to a 2010 study, rising up to 77% in 2000.

In the US, the years from 2000 to 2010 have been called “the conspiratorial era.” The years from 2003 until 2007 were also described as "the era of club deals", since the 2006 antitrust investigation of the Department of Justice prompted a decrease;As of 2014^[update] though, the Department has not brought charges. In 2007, private plaintiffs filed a first class action law suit against 13 private equity firms for conspiring in club deals to keep buyout prices down, followed by two more in the ensuing years, which the court consolidated and scaled down against 11 equity firms. In June 2014, Bain Capital Partners, LLC and Goldman Sachs settled for a combined $121 million after more than six years of litigation. An unnamed Goldman executive was quoted as saying “club etiquette” had prevailed in the $17.6 billion takeover of Freescale Semiconductor. End of July Blackstone, Kohlberg Kravis Roberts, and TPG Capital settled for a combined $325 million, as published only in August. In September 2014 a judge will decide whether the plaintiffs can be considered a class whether to approve the settlements. The Carlyle group is the only hold out that has not settled yet.

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