Can JC Flowers avoid one-hit wonder status?
J. Christopher Flowers could turn out to be the Falco of private equity. For now, the former Goldman Sachs banker can only claim the investment equivalent of the Austrian pop star’s 1980s smash single “Rock Me Amadeus.” Flowers is cutting new deals with a different groove to escape the dreaded one-hit wonder status. But it won’t be easy.
His first big bet, in Japan’s Shinsei Bank, made Flowers a billionaire. But he followed it up with huge, cringe-worthy acquisitions of Hypo Real Estate and HSH Nordbank in Germany and the Dutch NIBC, deals that either have been wiped out or are limping. Even an attempted remix, a return to Shinsei, has struggled. Given that Flowers focuses exclusively on the financial sector, it may surprise some even to learn he’s still dancing. Then again, investors might have expected if anyone should have had a sense of a storm brewing, it was Flowers.
His eponymous firm is keeping focused on banking and insurance but singing a slightly different tune. Hypo, like so many other banks, became a victim of the wholesale funding market. Now, Flowers has turned his attention to safer-style institutions like Spanish savings banks, British building societies and American thrifts. These are also considerably smaller transactions than his $1 billion-plus investments of yesteryear, partly a reflection that his latest $2.3 billion fund is a third as big as his last.
These deals still look risky. His plan to buy a 450 million euro convertible bond in Banca Civica, unveiled hours before it failed European stress tests, remains in limbo and subject to the quirky politics of Spanish savings banks. The same holds true of a 50 million pound plan to invest in Kent Reliance Building Society, an unproven new structure for British mutuals. It’s also hard to see how a rinky-dink lender in New Jersey, his latest acquisition, will send Flowers scaling the private equity charts.
Flowers may have fortified his ranks with industry veterans, including onetime chiefs of Westpac and Goldman. And for now Flowers can point to a 25 percent internal rate of return, including the Hypo washout. But Flowers still has a lot of work ahead to avoid becoming a financial casualty of the crisis himself.