Europe – February 2003

Europe 2003-02-01 Staff Writer <strong>Europe<br> Deals & Exits</strong><br> <sec level="2"><strong>Klesch buys Dynegy's European unit</strong><br> UK distressed specialist Klesch & Company has bought Dynegy's entire European broadband unit as the st

Deals & Exits

Klesch buys Dynegy’s European unit
UK distressed specialist Klesch & Company has bought Dynegy’s entire European broadband unit as the struggling US telecoms company exits the European market. Terms of the deal were not disclosed. “We believe that the European telecommunications arena may be bottoming out,” said Gary Klesch, chairman of Klesch & Company. “Going forward, the sector has the potential to create value for those who are able to restructure to meet current demand.”

KKR, TexPac keen on Safeway
(KKR) is pursuing Safeway, the sought-after UK supermarket chain. It joins trade buyers Wm Morrison, J Sainsbury, Tesco and Wal-Mart, as well as fellow financial buyer Texas Pacific – which has expressed an initial interest in the 480-store chain – in a bidding war likely to push the price for the company to over £3bn. KKR is being advised by Credit Suisse First Boston which had previously been advising Safeway on the original offer from Wm Morrison. Most analysts believe that Safeway, the UK’s fourth-largest supermarket chain, will go to a trade buyer, although this could change if the UK competition commission deems a trade purchase as anti-competitive.

Hg Capital completes Dutch deal
UK and Germany-based private equity firm Hg Capital has acquired Dutch contract research company Pharma Bio-Research in a €90m transaction. Pharma Bio-Research operates three clinical facilities in Holland. The company conducts early-phase trials for pharmaceutical and biotechnology firms. The company has revenues of €40m per year. “The provision of outsourcing services to the pharmaceutical industry is one of the key areas of investment focus for Hg Capital’s investment team,” said Lindsay Dibden, a director at Hg Capital, said in the statement. “PBR fits our investment philosophy perfectly; it is well positioned in a high-growth niche of pharmaceutical outsourcing services, has a strong reputation in its industry and has built an exceptional track record under its current management.”

Eurazeo leads buyout of Fiat business
A consortium of French buyers, including Eurazeo, Pragma-Capital, and UI, have entered into exclusive negotiations to acquire truck-rental company Fraikin from Iveco, a unit of troubled Italian car giant Fiat. Fraikin has estimated sales for the year 2002 in excess of €570m and an estimated pro-forma EBITDA of around €250m. The terms of the transaction have not been disclosed, but the deal is valued at between €500m and €1bn. Fraikin owns 34,000 trucks in France, which it leases with management and maintenance contracts.

Alchemy firms up for Riverdeep
Alchemy Partners, the UK turnaround specialist led by Jon Moulton, has announced a formal offer for Ireland-based educational software company Riverdeep Group valuing the business at just over $376m. Alchemy has joined forces with Barry O’Callaghan and Patrick McDonagh, CEO and non-executive director respectively of Riverdeep Group to form Hertal, the bid acquisition vehicle. Senior and mezzanine debt financing will be provided by Barclays Bank and Royal Bank of Scotland.

Bridgepoint leads ATM MBO
Bridgepoint Capital, the UK-based European mid-market investor, has provided capital for a management buyout at Euronet Services (UK) in a transaction worth €32.5m. Euronet was founded in 1998 and has been a member of LINK since 2001. The business has 20 employees and operates over 700 internal ATMs installed in sites such as convenience stores, leisure outlets, post offices, clubs and pubs.

“There is significant potential for Euronet to benefit from the strategic withdrawal from ATM provision of the smaller UK banks and building societies who are likely to dispose of all or part of their estates in the short to medium term,” said Andrew Burgess, director at Bridgepoint. Senior debt for the acquisition was provided by Royal Bank of Scotland.

Permira pays £712m for Little Chef, Travelodge
UK private equity firm Permira has bought Travelodge and Little Chef, the hotel and roadside restaurant businesses currently owned by UK foodservices group Compass, for £712m. Travelodge is the UK’s second-largest budget hotel company with over 12,000 rooms located in roadside and urban locations in the UK. Little Chef is a UK roadside restaurant business with 368 outlets on trunk roads, in addition to outlets on Compass Group’s Moto sites. Financing for the transaction is being provided by CIBC and Royal Bank of Scotland.

CSFB takes €270m stake in Safilo
CSFB Private Equity has invested €270m in eyeglass distributor Safilo in return for a minority stake in the company. The investment coincides with Safilo announcing a €940m refinancing of existing debt, which it incurred in 2001 as part of a privatisation led by the founders of the company, the Tabacchi family. Safilo designs, manufactures, and distributes luxury eyewear under license. The company had revenues of €845m in 2001. The refinancing of the debt was led by CSFB Private Equity’s parent company Credit Suisse First Boston, who also acted as financial adviser to the transactions. San Paolo IMI and Unicredit Banca Mobiliare also took part in the debt refinancing.

Transalliance exit for 3i
3i has sold its stake in full load and bulk traffic road transport group Transalliance to management in a secondary buyout led by chief executive Philip Michel. The exit provides 3i with an 80 per cent IRR on its investment. As part of the deal, SNBV Participations, a division of financial services group CIC, also sold a 7 per cent position in Transalliance. 3i backed the original €46m management buyout of Transalliance from the French government in December 2000, with a €7m equity investment. According to Richard Campin, who is responsible for 3i’s French buyout activity, structure and quality of the business have improved considerably since the buyout: “Non-core subsidiaries were sold, truck financing was changed from debt to finance leases and considerable de-gearing took place,” he said.

Funds & Buyside

Capvent launches capital protected product
Swiss-based fund of funds manager Capital Venture Partners has launched a structured product based on private equity investments that protects capital to a desired level. The firm is working with an unnamed bank to make a market for the product. The product will offer capital protection at 90 per cent or 100 per cent, and the term of the investment is six, seven and a half, or ten years, depending on investor preference.

The product will be based on a portfolio primary and secondary private equity fund investments. The product is designed for sophisticated private equity investors who see a need for reducing the possibility of event risk in private equity, according to Varun Sood, co-founder and managing general partner at Capvent. “There was a demand for this from our clients who want to stay in the asset class, but did not want to take event risk, like war,” Sood said.

Barlage, Knoth fundraising fails
Economic uncertainty and a tough fundraising climate have proven insurmountable for Barlage, Knoth & Cie, the first-time private equity fund manager, which launched from its Munich base early in 2002. Barlage had scheduled a first close for its debut fund for the end of 2002 with a finalclose target of €175m in 2003. But the management team abandoned fundraising when it fell short of its first-close target by €20m and concluded it was unlikely to make up the money in the current environment.

Frank Hock, managing director of Barlage, Knoth & Cie, said: “At the end of the year we had some commitments but were short of the minimum for our first closing and there was no comfort that we would get it.” The fund had landed cornerstone investments in May 2002 from HypoVereinsbank, which committed 20 per cent, and Klaus Murmann, a former president of the Federal Association of German Employers. Barlage, Knoth & Cie’s executives are now in talks with Hans Albrecht, one of their founders, discussing ways they may work together with Albrecht’s Nordwind, a private equity fund with a similar investment focus.

Activa Capital pursues €150m target
Paris-based private equity house Activa Capital has secured limited partner commitments totalling €90m for the first close of its fund targeting midmarket opportunities in France. Hermes Investment Management has provided a 25 per cent cornerstone commitment to the fund, which is hoping to close on €150m later this year. The fund will look to invest in “growth buyouts,” smaller mid-market corporate spinoffs with a value of between €15m and €75m, a sector which Activa partner Charles Diehl believes is set for major activity in the coming year. “Growth buyouts are attractive because IRR is created through growing the business, not by leveraging the deal.”

Family invests €495m in Englefield debut fund
Englefield Capital, the private equity house set up last year by former Warburg Pincus partner Dominic Shorthouse, has closed its first fund on €660m. €495m was invested by the Brenninkmeijer family, which controls the C&A retail business, through Bregal, a holding company. At the time of the launch of The Englefield Fund last May, the firm set a target of €450m.

Englefield will primarily focus on investments in the UK, France and Germany. It will look to make equity investments of €20m to €50m in mid-market companies with enterprise values of €50m to €400m. Englefield’s other founding partners comprise Etienne de Villiers, Eric Walters, Adam Barron and Edmund Lazarus, who have a mixed background of private equity and operational experience.

Charterhouse holds second close
UK-based buyout firm Charterhouse Development Capital has held a second close for its latest fund, Charterhouse Capital Partners VII, at over €2bn – the largest amount raised by a European private equity fund launched in 2002. The fund, advised by Salomon Smith Barney, held a first close in August last year at €1.4bn and is aiming to hold a final close in April of this year with a target total of €3bn. In August 2002 Charterhouse acquired Coral Eurobet, the UK bookmaker, for £860m in a secondary purchase from Morgan Grenfell Private Equity. That month the firm also played a lead role in the €1.9bn takeover of TDF from France Telecom.

Nordic IT fund bucks market trend
Sweden-based IT Provider, a venture capital firm specialising in Nordic information, communications and technology companies, has bucked the difficult fundraising market trend for technology-focussed venture funds, holding a first close at €130m. Investors in the fund include Swedish National Pension Funds Three and Six, ATP Private Equity and the European Investment Fund. The firm hopes to raise €200m by mid-2003. “Many financial institutions are still considering their allocation to private equity,” said Gösta Johannesson, partner at the Stockholm based firm. “It is a tough environment, but some investors realise the time is right to commit to the sector.”

Indigo Capital closes fund IV at €475m
Indigo Capital, the UK mezzanine investor specialising in backing mid-market buyouts across Western Europe, has benefited from continuing appetite for mezzanine product among investors by closing its fourth fund almost 20 per cent above its original target of €400m.

The fund proved a success with investors from its launch and held a first close at €242m in late October. According to Indigo director Kevin Murphy, investor demand was such that the firm could have easily exceeded the final close total. “We informed potential investors of our intention to cap the fund at €475m which meant that investors were quick to come on board for the final close.”

Pantheon closes third Europe fund
Global private equity firm Pantheon Ventures has closed its third fund, Pantheon Europe Fund III on €470m. The vehicle will invest within the framework of the group’s current threeyear regional European fund programme, which is expected to total some €2bn. Senior partner Rhoddy Swire said the fund had attracted a ‘significant number’ of new investors, with commitments coming from Europe, North America, Asia and Australia.

Strong first close for Lead Equities
Austrian private equity firm Lead Equities has held a first close on its Lead Equities I fund at €40m, the amount originally targeted for the fund’s final close. The fund will look to invest between €1.5m and €10m in later-stage companies with an enterprise value of between €10m and €100m. The majority of the capital for Lead Equities I was provided by major Austrian financial institutions, including Investkredit, Generali Insurance Holdings and Hypo Alpe-Adria.


Doughty Hanson expands into France
Doughty Hanson, the European private equity house currently at the early stages of raising its fourth buyout fund, targeting €3bn, has indicated its enthusiasm for French buyouts by hiring Yann Duchesne to lead the firm’s new Paris office. Duchesne, a well-known figure in French business, is joining Doughty Hanson as a senior principal and managing director for France and will build up a team of professionals over the next few months to develop the firm’s activities in France. He joins the firm from McKinsey, where for the past four years he has been managing director of its French operations.

The opening of the Paris office continues the firm’s strategy, which began twelve years ago with the opening of a Frankfurt office, of expanding beyond its UK base into Europe and the Americas. The firm also has office in Stockholm, Milan, Munich, Prague and New York.

RBS continues to build in Germany
Royal Bank of Scotland has further expanded its German leveraged operations, appointing Stuart Hewer as associate director of the Frankfurt-based leveraged finance team. Hewer will be responsible for arranging and overseeing LBO transactions and will report to RBS leveraged finance director Gerd Bieding. He joins RBS from Bank of Scotland’s structured finance division, where he arranged the debt financing for five German LBO transactions during a three-year spell.

Candover grows European team further
UK-based buyout firm Candover has further expanded its European team with the appointment of John Arney as director. He joins the firm from JP Morgan Partners, the private equity unit of investment bank JP Morgan Chase, where he was a director specialising in the media and communications, support services, leisure and chemical industries. Prior to that Arney worked at private equity house 3i and PricewaterhouseCoopers, where he qualified as a chartered accountant. Reporting to managing directors Colin Buffin and Marek Gumienny, Arney, based in London, will be responsible for leading buyouts in the media, support services and chemicals sectors and will join the board of Candover Partners.

Reorganisation at TTP Ventures
TTP Ventures, the UK venture capital firm that invests in the technology sector, has appointed Gerry Fitzsimons as chief executive to replace David Connell who will become executive chairman, taking over from current non-executive chairman, David Parnell. Fitzsimons, who joined the investment team at TTP Ventures in January 2001, has been involved in the business since its formation in 1998 acting as the firm’s external legal adviser. In his new role, he will assume responsibility for investor relations and transactional issues on both existing and new investments. Connell, one of the original founders of TTP Ventures, will work with portfolio companies to accelerate business development.