JPMorgan Divests 50% Stake in OEP to Lexington & AlpInvest

Zacks

Almost after a year of announcing its plan to vend the private equity arm – One Equity Partners (:OEP) – JPMorgan Chase & Co. (JPM) signed a deal to sell 50% stake in the same. Lexington Partners Inc., along with AlpInvest Partners BV, a unit of The Carlyle Group LP (CG), will be buying OEP for an undisclosed amount.

Nonetheless, per the market rumors, Lexington and AlpInvest will likely be paying approximately $2 billion in aggregate for 50% of the portfolio companies currently held by OEP. Notably, the deal is expected to be close by this year-end.

Upon completion, OEP management will form OEP Capital Advisors, L.P. This new, independent firm will manage investments owned by Lexington and AlpInvest, along with those retained by JPMorgan. Further, the two buyers will be raising cash for new buyout fund, while JPMorgan will not be investing in OEP going forward.

OEP founded in 2001, has been part of JPMorgan’s private equity investment portfolio. OEP formed part of the acquisition deal announced by JPMorgan in 2004 to buy Bank One for $58 million. OEP investments in the range of $50-$500 million and has investments in a diverse range of firms.

JPMorgan’s decision to divest OEP primarily stems from the unit’s inconsistent returns and uncertainty regarding its role in the bank. Further, this decision corresponds to the Volcker Rule (a provision of the 2010 Dodd-Frank law), which prohibits a company from investing more than 3% of the private equity funds raised.

Notably, similar to JPMorgan, Bank of America Corp. (BAC) too announced the divesture of BAML Capital Partners, its private equity unit in 2011.

As separately reported by Bloomberg, JPMorgan is mulling over shifting its headquarters within New York as it employs fewer people there. Aimed at cutting costs, the probable plans include leasing office space in World Trade Center or Hudson Yards. However, the plans, still in early stages, have not resulted in any formal decision..

While JPMorgan is still contemplating over moving its headquarters, many banks including Citigroup Inc. (C) and The Bank of New York Mellon Corp. (BK) have already taken the leap.
 
We believe that JPMorgan’s divestiture decision reflects its efforts to concentrate more on the core businesses. Further, shifting headquarters to a new cost-effective location will aid in lowering expenses. Of late, JPMorgan has been divesting several non-core operations with an aim to improve efficiency and control expenses, thereby supporting bottom-line growth.

Currently, JPMorgan carries a Zacks Rank #3 (Hold).

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