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Big deals can still happen

Opportunism and careful negotiation have allowed CVC to prove that there's still life at the larger end of the market

How will leveraged buyout funds be able to deploy their capital in a world without leverage? Of all the questions being asked about private equity's future direction, this is one of the more pressing. Talk of the need for innovation sounds reasonable but vague. How exactly will this manifest itself? Pan-European buyout firm CVC Capital Partners has come up with one answer through its £3 billion (€3.3 billion; $4.4 billion) agreed purchase of iShares, the UK exchange traded fund platform.

For one thing, the deal is a striking example of opportunism. Given its apparent determination to avoid bolstering its balance sheet with government cash (unlike some of its UK banking rivals), Barclays is in need of liquidity from other sources including the possible sale of assets. Perhaps an indication of its keenness to sell iShares was its provision of £2.1 billion in vendor finance for the deal – negating the need for CVC to try and pull off the unlikely task of assembling a large consortium of banks. Furthermore, Barclays has committed to hold 51 percent of the debt for five years while having an option to syndicate the remaining 49 percent after a year.

The way the deal is structured, meanwhile, provides plenty of incentive for Barclays. It is guaranteed 20 percent of the equity returns delivered by any future exit from iShares should the investment surpass a hurdle rate of return. The contract also contains a so-called “go-shop” clause under which Barclays can solicit other offers for the business until 18 June 2009. However, if either buyer or seller walks away from the deal, the other party is able to claim a substantial break fee.

Some market observers have speculated that the best new deals being struck in the current environment will be those where the seller is distressed rather than the asset. The iShares deal shows that the seller doesn't have to be distressed to nonetheless have a compelling reason to sell. Being alive to very particular circumstances will be one of the keys to the revival of the larger deal market. CVC has helped set the ball rolling.

Beleaguered UK buyout firm Candover has officially suspended investments from its 2008 Fund and agreed to a reduced fee structure with the fund's limited partners. Options may include selling the business, though Candover stressed there can be no certainty over the outcome of any potential takeover discussions. Additionally, the firm said it had agreed with the 2008 Fund's LPs that during a six-month “standstill period”, it will charge fees based on the fund's existing portfolio company, Expro International, rather than on the total commitments made to the fund.

Christine Vanden Beukel has resigned as a senior managing director in GSC Group's London office, according to sources familiar with the matter. She joined the credit-focused alternative asset manager when it spun out from Travelers Group in 1999, and has led the firm's European mezzanine lending and collateralised corporate debt activities. She'd previously worked for Greenwich Street Capital Partners, GSC's predecessor under the Travelers umbrella, since its 1994 founding.

London-based buyout firm Charterhouse Capital Partners said it had closed its ninth buyout fund with €4 billion in commitments. It raised the same amount for Fund VIII, which closed in March 2006. As PEI reported last month, the London-based buyout firm decided to slash the fund's original target by one-third amid tougher fundraising conditions. Other firms that have made similar moves include The Blackstone Group and Madison Dearborn.

London-based Climate Change Capital (CCC) will raise up to €500 million to support medium-sized renewable energy projects in the European Union, according to market sources. The fund will probably invest in areas such as wind, solar, waste-to-heat and biomass, and may make investments alongside industrial partners. CCC declined to comment on fundraising.

Vespa Capital, founded by former members of European mid-market firm Montagu Private Equity, has raised €50 million from a network of private investors. The fund is targeting up to €100 million for investments in the UK and France. Nigel Hammond, previously head of European investment at Montagu, and Matt Lyons, formerly a Montagu director, will run the business in the UK while Denis Leroy, also ex-Montagu, and Valmy Nicolas, previously of French private equity firm Ciclad, will run the French operation.

The UK's buyout market saw £2 billion (€2.1 billion; $2.9 billion) in activity during the first quarter of 2009, a 73 percent decline from the £7.5 billion invested in the same quarter last year, according to the Centre for Management Buyout Research (CMBOR). The data revealed that of the £2 billion invested, two-thirds came from just one deal, the £1.25 billion buyout of on-demand television company NDS Group, by Permira in January.

Danish mid-market buyout firm Polaris Private Equity has garnered €275 million for the first close of its third private equity fund. This is the first time the firm has attracted significant interest from international limited partners as well as domestic Danish institutions, it said. Among the international investors that have committed to the fund are Finnish fund of funds manager Pohjola Private Equity Funds and the private equity investment arm of Alliance Trust.

Merchant Asset Partners, a firm formed in 2007 to take advantage of opportunities arising from the current economic climate, is raising up to £500 million (€536 million; $731 million) from institutions and family offices for its debut vehicle. It expects to hold a first close in autumn this year. The three founders of MAP comprise David Buchler, ex-European chairman of Kroll, the security risk consultancy business; Philip Aaronberg, the founder of corporate finance boutique Alberdale; and Nicholas Lyons, former head of UK & Nordic institutions within JPMorgan Chase's private fund group.

UK Labour party MP Alan Milburn is calling for the amendment of legislation to enable private equity-backed companies to offer all employee share plans approved by Her Majesty's Revenue and Customs. At present, employees working for UK companies owned by private equity firms are, in most cases, unable to participate in such schemes.

Denmark's ATP, one of the largest pension funds in Europe with Dkr400 billion (€54 billion; $73 billion) under management, has made its first ever foray into clean energy with a $400 million commitment to Hudson Clean Energy, a vehicle managed by New Jersey-based firm Hudson Clean Energy Partners. ATP joins Credit Suisse as a limited partner in Hudson's debut fund, which has a target size of $1 billion.

The consolidation of fund managers that industry insiders have predicted has begun in the UK as Bridgepoint prepares to take control of two active funds and the related 10-person investment team from Hermes Private Equity. “It was an opportunity to consolidate an already very good relationship with a key LP and to go into the small buyout space – which is very active these days – with a team and funding,” a Bridgepoint spokesman said.

Hermes, which has committed to Bridgepoint's last three buyout funds, conducted a strategic review of its own businesses that found direct private equity investing no longer a part of its core activities. It will increase its focus instead on its £1.7 billion (€1.9 billion; $2.5 billion) fund of funds platform, led by Susan Flynn. The deal sees a return to his former stamping ground for Hermes Private Equity chief executive Rod Selkirk, previously a Bridgepoint managing director before joining Hermes in 2002.