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Dealmaker Steven Klinsky quietly hits home runs away from ’80s limelight

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Dealmaker Steven Klinsky quietly hits home runs away from ’80s limelight

Dealmaker Steven Klinsky had a front-row seat to the most operatic takeover drama Wall Street has ever seen, the knives-out multibillion-dollar battle for control of RJR Nabisco.

From that 1980s contest he learned a formative lesson: stay far away from the highly leveraged takeovers orchestrated by swashbuckling debt junkies. The results have been a quiet success.

His New Mountain Capital has focused on building up mid-sized companies in predictable industries using modest amounts of debt. Returns have been robust and investors are rewarding the results, with the New York-based group raising $15.4bn for its seventh buyout fund, exceeding a $12bn target set last year — and bucking a recent trend of poor industry-wide fundraising.

New Mountain joins private equity groups such as CVC Capital Partners, Clayton, Dubilier & Rice, Warburg Pincus and EQT that have exceeded their fund targets at a time when many rivals have fallen short of their goals.

It is part of a rare successful streak of the past few years among buyout groups that steered away from pursuing peak-valuation deals during the frenzied markets of 2021 and instead consistently returned cash to investors.

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“I preach against the old private equity model of 40 years ago where people think you borrow as much as you can, go play golf, and see if it all worked out in five years,” Klinsky said in an interview with the Financial Times.

The group is known for its ability to build small businesses in sectors including healthcare services, software and manufacturing into industry leaders by pushing their products into new markets, or by identifying acquisitions.

“New Mountain’s judicious use of leverage and its focus on building businesses in faster-growing parts of the economy have insulated the firm from the brunt of the Federal Reserve’s interest rate hikes,” said Maxwell Snyder, vice-president of alternatives at NewEdge Wealth, an investor in its funds.

Fundraising for the private equity industry slowed dramatically in 2022 when interest rates rose quickly and public stock valuations fell, causing large investors to become overexposed to private assets and pull back from investing in new funds.

The industry’s challenges have been exacerbated by a slowdown in dealmaking and initial public offering activity that has made it hard for PE groups to exit their investments even as public markets reach new highs. In 2023, buyout firms distributed the lowest amount of cash versus what they called from investors since the 2008 financial crisis, according to Bain & Co.

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New Mountain, however, has returned more capital than it has invested in recent years. Since January 2021, the firm has sold more than 20 companies, returning well over $10bn in cash to its investors because of successful deals such as Signify Health, a healthcare IT company.

Its 2017-era buyout fund returned 1.16 times what investors had committed by the end of 2023, making it the rare fund from that year to have returned a surplus of cash to investors, according to documents published by public pension funds. When including the fund’s remaining unsold investments, it has generated a 2.4 times gain.

New Mountain’s assets under management have more than doubled to $55bn since 2018, when Klinsky sold a minority stake in the group to Blackstone that cemented his billionaire status. The investment allowed him and his partners to invest $1.4bn into their new fund. It has also given them the financial heft to remain private and resist seeking a tie-up with a larger asset manager, Klinsky added.

As a partner in his early 30s at Forstmann Little, an early pioneer of the $4tn private equity industry, Klinsky became a top lieutenant to Ted Forstmann as the prolific financier studied a bid for RJR Nabisco. It was the seminal deal of the go-go 1980s, later chronicled in the book Barbarians at the Gate.

Klinsky had a memorable bit part in the saga.

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Ross Johnson, the chief executive of RJR, had approached Forstmann about teaming up as a “white knight” to counter a takeover effort led by KKR. After hearing Johnson’s pitch, Forstmann consulted Klinsky, a trusted number cruncher, to see whether it was workable. “I think he’s totally insane,” Klinsky is quoted as saying in the book.

Forstmann never bid on RJR, which was sold to KKR for $29bn, but quickly became an emblem of the private equity industry’s hubris as it struggled under the crippling weight of its takeover debt.

When he left Forstmann Little in 1999 to create his own private equity outfit, Klinsky decided on a different approach.

Many of the companies New Mountain buys are family-owned businesses that have never made an acquisition or built operations outside of the US. In many deals, New Mountain forges novel corporate strategies.

The style has helped the firm earn large windfalls at a time when many rivals are contending with an industry reckoning.

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In 2017 New Mountain made a push into so-called “value-added care”, with companies focused on preventive health measures to lower costs. It acquired and merged two small companies in the sector for less than $500mn and renamed the group Signify Health. Last year, New Mountain sold the company to CVS for $8bn.

It also had success in technology investments. Klinsky’s firm acquired a small logistics software company called RedPrairie in 2010 for $550mn. Under new management, the company plotted acquisitions and built artificial intelligence tools that propelled it into a leader in identifying supply chain bottlenecks. In 2021, it sold the rebranded company, Blue Yonder, to Panasonic for $8bn, generating more than $5bn for its investors and employees at the company.

Another big windfall has been Avantor, a pharmaceutical chemicals company that New Mountain acquired from Mallinckrodt for less than $300mn in 2010. Klinsky’s firm pushed Avantor into specialised chemicals that earn higher margins. In 2019, it listed Avantor, which now trades at a $15bn valuation. New Mountain has earned gains exceeding $3bn, according to the FT’s calculations.

Klinsky said he prefers investing in these midsized companies partially because they offer many more growth opportunities for his 200-plus dealmakers and consultants to pursue.

“[A] $500mn company could be a leader in an important niche industry, but there are so many things that the management hasn’t done yet . . . If you are a $10bn company, you probably have done almost everything smart there is to do,” he said. Such businesses are easier to sell to corporate buyers and other buyout firms, he added.

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Though private equity is under pressure from the slowdown in dealmaking, Klinsky does not see a coming industry washout. He said the sector has become more professional with less-cavalier capital structures.

“I don’t see a hard landing or crisis in private equity,” he said. “The companies are much less leveraged than they were in the old days. In 1981, a buyout had 19 parts debt and just one part equity. So people threw away the keys on bad deals.”

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US Supreme Court says Donald Trump immune for ‘official acts’ as president

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US Supreme Court says Donald Trump immune for ‘official acts’ as president

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The US Supreme Court has ruled that Donald Trump has broad immunity from criminal prosecution for his actions as president in a decision likely to delay his trial on charges of trying to overturn the 2020 election.

The landmark decision on Monday shields Trump for “official” acts. Lower courts will now have to draw the boundaries between a president’s personal and official acts.

The potentially time-consuming process reduces the likelihood of any verdict in the election interference case before November’s vote, in a win for Trump, the presumptive Republican nominee.

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If elected, Trump could instruct the DoJ to drop the case. In a social media post, he wrote: “BIG WIN FOR OUR CONSTITUTION AND DEMOCRACY. PROUD TO BE AN AMERICAN!”

The positive decision for Trump comes as the campaign of his opponent, President Joe Biden, reels from a disastrous performance at a debate between the candidates last week.

In a 6-3 vote, the Supreme Court held that a former president has absolute immunity from actions taken to exercise his “core constitutional powers” and “is entitled to at least presumptive immunity from prosecution for all his official acts”.

“The president enjoys no immunity for his unofficial acts, and not everything the president does is official. The president is not above the law,” Chief Justice John Roberts wrote for the majority. “But Congress may not criminalise the president’s conduct in carrying out the responsibilities of the executive branch under the constitution. And the system of separated powers designed by the framers has always demanded an energetic, independent executive.”

In a scathing dissent, Justice Sonia Sotomayor wrote that the majority’s decision “reshapes the institution of the presidency” and “makes a mockery of the principle, foundational to our constitution and system of government, that no man is above the law”.

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The court’s majority “invents immunity through brute force” and “in effect, completely insulate[s] presidents from criminal liability”, Sotomayor added. “With fear for our democracy, I dissent.”  

Biden later on Monday quoted Sotomayor, saying: “So should the American people dissent. I dissent.”

The decision “almost certainly means that there are virtually no limits on what a president can do”, Biden said. “This is a fundamentally new principle” and the court’s latest “attack” on a “wide range of long-established legal principles”. The ruling all but quashing chances of Trump facing trial before November was a “terrible disservice to the people in this nation”, he added.

Trump’s lawyers had argued for a broad interpretation of immunity, saying presidents may only be indicted if previously impeached and convicted by Congress for similar crimes — even in some of the most extreme circumstances — to allow them to do their jobs without fear of politically motivated prosecutions. The DoJ argued that doing so could embolden presidents to flout the law with impunity.

Roberts noted that lower courts had not determined which of Trump’s alleged conduct “should be categorised as official and which unofficial”. That process “raises multiple unprecedented and momentous questions about the powers of the president and the limits of his authority under the constitution”, he added.

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Trump’s discussions with the acting US attorney-general counted as an “official relationship”, for instance, but other incidents, such as Trump’s comments to the public as well as interactions with then vice-president Mike Pence or state officials, “present more difficult questions”, Roberts added.

The court had previously ruled on presidential immunity from civil liability, but this is the first time it has made a determination with respect to criminal cases.

A federal appeals court in February unanimously ruled that Trump was not entitled to immunity in the case. The Supreme Court decided later that month to hear Trump’s appeal, with oral arguments in late April, in effect bringing proceedings in the trial case to a halt for months.

Monday’s decision will not affect Trump’s criminal case in New York state court, where he was convicted of 34 felony counts of falsifying business records, in connection with “hush money” payments to porn actress Stormy Daniels in a bid to throw out damaging stories about him in the lead-up to the 2016 general election. Trump is set to be sentenced in that case on July 11.

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The former president has also been charged in Georgia state court in a racketeering case related to the 2020 election and in a separate federal indictment accusing him of mishandling classified documents. But these proceedings have yet to go to trial amid legal wrangling between Trump and US prosecutors.

A senior Biden campaign adviser said the ruling “doesn’t change the facts, so let’s be very clear about what happened on January 6: Donald Trump snapped after he lost the 2020 election and encouraged a mob to overthrow the results of a free and fair election”.

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Biden says Supreme Court's immunity ruling 'undermines the rule of law'

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Biden says Supreme Court's immunity ruling 'undermines the rule of law'

President Biden gives remarks on the Supreme Court’s immunity decision at the White House on July 1.

Andrew Harnik/Getty Images/Getty Images North America


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Andrew Harnik/Getty Images/Getty Images North America

President Biden called the Supreme Court’s decision to grant his predecessor, Republican Donald Trump, broad immunity from prosecution “a dangerous precedent” that “undermines the rule of law.”

“Today’s decision almost certainly means that there are virtually no limits on what the president can do,” Biden said. “The power of the office will no longer be constrained by the law, even including the Supreme Court of the United States. The only limits will be self-imposed by the president alone.”

Biden’s remarks from the White House came hours after the court’s 6-3 decision along ideological lines that a former president has absolutely immunity for his core constitutional powers– and is entitled to a presumption of immunity for his official acts, but lack immunity for unofficial acts. The court sent the case back to the trial judge to determine which, if any of Trump actions, were part of his official duties and thus were protected from prosecution.

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Biden said the court’s decision puts “virtually no limits on what a president can do,” and all but ensures Trump won’t be tried for his role in the effort to undermine the transfer of power.

“Now the American people will have to do what the court should have been willing to do, but will not…render a judgment about Donald Trump’s behavior,” Biden said.

Biden, who is under pressure from his fellow Democrats to withdraw from his race after his performance in last week’s presidential debate, took no questions. He spoke clearly and calmly during the statement.

But since that debate, he’s held several events in the hope to assuage his supporters that he is up to the job. Last Friday, a day after the debate, Biden held a rally in Raleigh, N.C., where he attempted to persuade supporters that he could still do the job. And, more crucially, he spent the weekend doing damage control, telling donors and others that he understood their concern.

“I didn’t have a great night,” he told supporters gathered at the home of New Jersey Gov. Phil Murphy on Saturday night. “But I’m going to be fighting harder and going to need you with me to get it done.”

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US Supreme Court provides new reason to fear a Trumpian return

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US Supreme Court provides new reason to fear a Trumpian return

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At any other time, and with any other president, Monday’s landmark decision by the US Supreme Court vastly expanding presidential powers would generate little more than scholarly hand-wringing. 

Indeed, the 6-3 majority’s ruling that a sitting president should have “absolute immunity” from criminal prosecution from actions he takes when exercising “his core constitutional powers” has a certain pragmatic logic to it.

Since the 1990s, American political leaders have increasingly attempted to criminalise policy differences, be it Democrats seeking to prosecute George W Bush for war crimes in Iraq or Republicans launching impeachment proceedings against Joe Biden’s homeland security secretary for a surge in illegal border crossings.

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New Deal-era Supreme Court Justice Robert Jackson once said that the US Constitution is not a suicide pact, and an American president should not fear that an action sincerely taken to provide for the common defence, or to insure domestic tranquility, or to promote the general welfare, will later be picked over by federal prosecutors and land them in jail.

The founding fathers built checks into the federal system, but having the justice department setting up shop outside the Oval Office to adjudicate presidential decision-making — even those that fail spectacularly — wasn’t one of them.

The problem is that Donald Trump is not any other president, and we are living in an era that could see a man who has vowed to use the power of the US government to take revenge against his political enemies, and rule as a dictator for at least a day, returned to office in a little more than six months.

Nobody puts the threat posed by Trump under the court’s latest decision better than Justice Sonia Sotomayor, who wrote a stinging dissent for the three-judge minority: 

The president of the United States is the most powerful person in the country, and possibly the world. When he uses his official powers in any way, under the majority’s reasoning, he now will be insulated from criminal prosecution. Orders the Navy’s Seal Team 6 to assassinate a political rival? Immune. Organises a military coup to hold onto power? Immune. Takes a bribe in exchange for a pardon? Immune. Immune, immune, immune.

If the presidential actions under review were taken by, say, Richard Nixon (the only president ever to resign in scandal) or Bill Clinton (the first president to be impeached in more than a century), Sotomayor’s litany would seem absurd. For all of Nixon’s ethical failings, instigating a coup would not cross his mind. Clinton’s shortcomings were libidinous, not martial.

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Even the harshest critics of Bush, whose motives for invading Iraq have been suspect in certain corners since the day he first turned his eye on Baghdad, have been hard-pressed to find anything more than spectacularly bad judgment in his march to war.

But Trump? Can anyone who has watched his behaviour since the 2020 presidential election — or remembers his supporters clambering up the walls of the US Capitol, repeating his cries that the result be overturned — think anything on Sotomayor’s list is beyond his imagination?

Chief Justice John Roberts belittles Sotomayor’s fears, writing in his majority opinion that the liberal justices “strike a tone of chilling doom that is wholly disproportionate to what the court actually does today”. 

Writes longtime political analyst Susan Glasser: “Roberts has a lot riding on this assessment.” Indeed he does, and let’s hope that Roberts is right. But the fact that Sotomayor’s warning was even recorded in an official court dissent tells volumes about the fears that now grip American officialdom.

peter.spiegel@ft.com

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