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With high-yield debt markets drought-dry, scraping together any leveraged buyout was a challenge last year. So for Jonathan Schaffzin of New York’s Cahill Gordon & Reindel, lawyering last year’s largest LBO, the acquisition of MascoTech Inc. by Heartland Industrial Partners for $2.2 billion, required unusual creativity. Heartland was a brand-new fund, and MascoTech was its first deal. Says Schaffzin: “We had to use every trick in the book to get this one through.” Heartland sprang onto the scene in early 2000, when David Stockman, budget director in the Reagan administration and formerly a senior player at The Blackstone Group, a private equity firm, galvanized investors around his idea for a fund focusing on the industrial sector. Stockman runs Heartland with Daniel Tredwell and Timothy Leuliette, formerly of Chase Securities Inc. and Penske Corporation, respectively. With the acquisition of MascoTech, a metal manufacturer for the automotive industry, the fund laid the foundation for its metals “platform,” a group of related companies. Schaffzin, 40, has been at Cahill since 1987 and a partner since 1994. He says he chose the firm because of its broad general corporate practice, which discourages specialization: “It’s very hard to find a job at a big law firm where you can mix and match as you see fit.” Schaffzin says Cahill’s interdisciplinary approach has allowed him to gravitate naturally toward private equity work without having to commit himself solely to the practice. Through working on the leverage-finance side of buyout transactions, representing the commercial and investment bankers in these deals, Schaffzin built the expertise and cultivated the relationships necessary to work for the LBO funds. Heartland grew out of just such a connection. Schaffzin had worked with Tredwell on the leverage-finance end of Chase deals, some of which were Stockman’s Blackstone buyouts. Given the history, Schaffzin gladly responded to Tredwell’s request for some friendly advice. “I got a call from Dan [Tredwell], and he and David [Stockman] wanted to speak about issues related to companies they wanted to acquire,” says Schaffzin. Little did Schaffzin know that for MascoTech, Tredwell had carefully plucked Cahill from the octet of outside counsel with whom he regularly worked at Chase. The friendly call that came in early spring had mushroomed into a major legal undertaking by August, with the MascoTech LBO fully under way. “They quickly proved themselves indispensable,” says Tredwell of Schaffzin and his team. It was a complicated deal: Selling Masco Corporation, as MascoTech was formerly called, meant untangling a skein of ownership — by the chief stockholders, by former employees, and by the public. “The team at Cahill did a tremendous job of navigating through the legal issues associated with those layers,” says Tredwell. And then there was the problem of lining up funding for the deal. To sidestep the high-yield debt markets, the fund structured the deal primarily as a mix of equity and bank financing. The first hurdle to clear in this effort was the securing of senior bank debt. To do this, Cahill negotiated and arranged a $100 million subordinated loan commitment from Masco Corporation and earmarked revolving credit for repayment of other corporate debt. These precautions helped ease banks’ concerns about loan default. Also sticky for Schaffzin and the Cahill lawyers was overseeing the sale of the company’s nonoperating assets. As MascoTech sold investments that Heartland did not want, such as a 12 percent holding in Delco Remy International, Inc., a distributor and manufacturer of starters and alternators, Cahill integrated these sales into the overall structure of the deal. And when MascoTech’s investment in Saturn Electronics & Engineering Inc. could not be sold, Cahill factored the future sale and distribution of profits into the equation. “With public companies, contingent payments like this happen one in 100 — maybe one in 500 — times,” says W. Leslie Duffy, a senior partner at Cahill who works with Schaffzin on the Heartland account. Duffy, who has been at Cahill for 36 years, says the firm views Heartland as an important client. For MascoTech, which accounted for a healthy chunk of the firm’s private equity work last year, Cahill unleashed about a dozen associates and a half-dozen partners. Now 12 to 15 associates and six partners handle assorted Heartland matters. And the deals keep coming. Since MascoTech, Heartland has kept Cahill busy by adding the $350 million Simpson Industries Inc. and the $150 million Global Metal Technologies Inc. acquisitions into the MascoTech metals group. Cahill also handled Heartland’s $1.3 billion acquisition of Collins & Aikman Corporation, an automotive supplier, and represents the fund in its $1.2 billion bid for Springs Industries Inc., a maker of bedroom and bathroom products. Now MascoTech and the others show promise as future Cahill clients. “As Heartland acquires companies,” says Schaffzin, “those companies ask the firm to do other types of work.” Ever staid in its approach, the firm takes things one transaction at a time. “We’ve been very successful pursuing the opportunities in front of us,” says Duffy. Indeed, with friends like Stockman and Tredwell, Schaffzin is building an enviable platform of his own.

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