Buyout bigwigs get one-upped by community banker

December 17, 2010

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It’s not every day that the barons of the buyout industry find themselves on the shorter end of a sweet deal. But that’s arguably the case in the turnaround of BankUnited, a relatively small Florida bank that’s about to return to the public markets. John Kanas, the seasoned Long Island banker who led the deal and runs the bank, is poised to skim off nearly $100 million of the profits his private equity partners will make.

That’s an impressive feat given the caliber of the investors who backed him, a group that includes Carlyle, Blackstone, Wilbur Ross and the LeFrak family. But they won’t be crying, either. All told, Mr. Kanas and BankUnited’s financiers look set to turn a $940 million investment into a cool $2.8 billion or more, thanks to negotiating a bargain price when buying the bank from the Federal Deposit Insurance Corp. in May 2009.

But the best turn on investment accrues to Mr. Kanas. In addition to putting some $23.5 million of his own money into the deal, he convinced the private equity firms to pay out 10 percent of their profits from the deal to BankUnited’s management team.

An updated prospectus for the BankUnited initial public offering values the portion of this payout that is due to Mr. Kanas at around $36 million. But that is based on a low multiple of last year’s book value, or assets less liabilities. The actual value will be determined by the IPO price. Helped by a loss-sharing agreement with the F.D.I.C., BankUnited’s shares are likely to trade at a relatively high multiple.

At a feasible 2.25 times book value as of Sept. 30, BankUnited’s buyers will roughly triple their money, at least on paper. The backers other than Mr. Kanas and his management group put in around $900 million, so they will make around $1.8 billion in profit for their investors and themselves. That means the profit pool for the management crew should amount to around $180 million, with half going to Mr. Kanas.

That’s on top of the return he will make on his personal investment, which in this scenario will rise in value to some $70 million. Tot it all up, and thanks to some smart negotiating Mr. Kanas could make nearly seven times his original investment. Not bad for a community banker.

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