Devil in the Details of Chase/J.P. Morgan Merger –

NEW YORK While J.P. Morgan & Co. seemed to make it through last month’s mega-merger announcement with at least some of its corporate identity intact, the new letterhead may be all that’s left of the bank’s private equity business. Indeed, sources familiar with the internal structures of J.P. Morgan Capital Corp. and Chase Capital Partners say the synergies between the two are fragile and that the former will likely have to learn to walk in Chase’s shadow.

Both are pure private equity outfits funded exclusively by their Wall Street parents. The similarities, however, end there.

Chase has largely defined itself in the technology sector, bolstered by its 1999 acquisition of West Coast boutique investment bank Hambrecht & Quist. Approximately 22% of its capital is invested in the media and telecom sectors, while an additional 18% sits in technology and information services. Although the fund has participated in 950 deals in 25 countries since its inception in 1984, it has secured a major East Coast presence by investing alongside a number of affiliates, most notably in recent years with New York’s Flatiron Partners.

While J.P. Morgan has also concentrated its investments heavily in the technology sector, with 25% of its portfolio dedicated to telecommunications, media and technology, the firm has mostly distinguished itself in terms of overseas investing. Approximately 16% of its capital sits in Latin America, another 11% is invested in Europe and an additional 10% of its $646 million under management is invested in Asia. In July, the firm announced the close of a $700 million Latin American private equity fund.

Moreover, J.P. Morgan’s portfolio is more diversified than Chase’s, with 23% in the financial services sector and an additional 16% in consumer and retail plays, and the firm prefers later-stage deals, most often taking equity stakes between $10 million and $50 million.

While one involved source said the two teams are currently setting up meetings to discuss strategy and timing, he added that it was far too early to begin speculating on what the merged private equity outfit would eventually look like.

One wildcard is the possibility that Chase could make another acquisition in its seemingly never ending attempt to expand its reach. “Chase wants to be the biggest player out there, and this doesn’t quite do it,” said one private equity player.

As for the already-announced plans, most analysts believe it will be J.P. Morgan personnel who bear the brunt of the pink slip burden when the acquisition is finalized.

“It’s all to be seen in the execution. The devil is in the details,” said one market player.

Still, J.P. Morgan insiders are spinning a positive tale.

“With our fund launched [in Latin America] and our historical place over there, we’ll have a good place in the combined organization,” one banker said.

One investor with specific knowledge of J.P. Morgan’s internal workings, however, speculated that the shake-out would begin as soon as the Latin American fund is fully invested.

“The emerging growth business that Chase has created through Chase H&Q is going to be more important to J.P. Morgan Chase that the things Morgan’s working on [alone], even if they have to keep the Latin American commitment outstanding,” the source said. “There’s going to be blood all over the Street and Morgan’s the loser in my book. There’s very similar folks running it and then Chase will have to pay out a lot of money to keep them in their seats.”

If nothing else, the merger will create one of the private equity market’s largest players. Moreover, it should help bolster Chase’s announced intentions to raise a $5 billion global fund from outside investors.

“What I’ve seen over the past year is continued globalizations, and it’s not a trend that’s a flash in the pan,” said Flatiron General Partner Jerry Colona. “This just increases Chase’s ability to do these kind of things.”

Both Chase and J.P. Morgan declined the opportunity to comment on this story.