Europe – April 2003

Europe 2003-04-01 Staff Writer <strong>Europe<br> Deals & Exits</strong><br> <sec level="2"><strong>Investment up while fundraising slows</strong><br> European private equity investment reached its second highest annual level last year, according to data

Deals & Exits

Investment up while fundraising slows
European private equity investment reached its second highest annual level last year, according to data published by the European Venture Capital Association and PricewaterhouseCoopers.

A total of €27.2bn was invested in European private equity and venture capital transactions last year, after 2000 this was the second highest ever investment level. However, the situation was less positive for fundraising with only €19.4bn raised compared with the previous year when €38.2bn was committed to funds.

The fact that investment totals were €8bn higher than the total volume of capital raised last year is being heralded as a positive note for the industry, although Keith Arundale, European venture capital leader at PricewaterhouseCoopers, pointed out that there remained a €30bn overhang in funds still to be invested.

Kelda confirms Terra Firma talks
Terra Firma, the private equity firm headed by Guy Hands, has confirmed that it has entered into negotiations with UK utilities company Kelda over plans to acquire Kelda’s 45 per cent stake in UK landfill operator Waste Recycling Group. The two groups have entered into an eight week exclusivity agreement over an offer for Kelda’s holding at a price of 285 pence per share. Including approximately £300m of debt, the proposed deal values Waste Recycling at around £640m.

WRG confirmed in early January that it was in talks with an unnamed company, rumoured to be a financial buyer, over an offer for the company. Reports at the time suggested that London-based private equity house Candover was the mystery bidder.

ABN Amro, Dunedin back UK aerospace unit
ABN Amro Capital and Dunedin Capital Partners have joined forces to back Gardner Aerospace, a UK-based aerospace components manufacturer, in a transaction aimed to secure the future of the company. ABN AMRO Capital is contributing £8.4m equity to the deal, with Dunedin providing a further £7.3m. Banking facilities for the transaction are being provided by Lloyds TSB Commercial Finance.

Gardner Aerospace is a unit of L Gardner Group, which has been in the hands of the receivers since the beginning of the year. According to ABN Amro Capital managing director Ian Taylor, the company has suffered from high levels of debt as well as a downturn in the global market: “The company made a series of acquisitions in the 1990s and struggled to bring the various companies together. This deal should provide the business with the financial stability it needs to complete its improvement programme.”

Innova Capital backs Polish GTECH deal
Innova Capital, the Polish venture capital firm, has joined forces with US-based lottery systems company GTECH Holdings in a deal to acquire PolCard, a debit and credit card transaction services business based in Poland. Innova and GTECH will pay $62m for the business, which includes $2m of debt, to travel services business Orbis and a consortium of Polish banks. The Polish private equity firm, led by Steven Buckley, invested around $20m in the deal from its Innova/3 and Innova98 funds.

JP Morgan Partners buys M&H Plastics
Partners has acquired UK plastics manufacturer M&H Plastics. M&H Plastics makes bottles, caps, and flexible tubes for the cosmetic and toiletry markets. The company employs in excess of 600 people. Bank of Scotland Structured Finance provided the debt for the transaction.

Candover buys Halliburton unit for €123m
European private equity firm Candover is to pay €123m to acquire Wellstream, a manufacturer of flexible pipe applications for the offshore deepwater oil and gas sector based in the UK and US. Candover is acquiring the business from US oil and gas services group Halliburton, which is selling the business as plans to divest non-strategic assets. Candover will invest €70m of equity, with senior debt and mezzanine finance worth €71m being arranged and underwritten by Bank of Scotland Corporate Banking. The incoming management team will take an equity stake in the business.

Cerberus leads Italian sportswear buyout
New York-based distressed investment specialist Cerberus Capital Management has acquired Fila Holding, the Italian manufacturer of footwear and apparel for sport and leisurewear, from Holding di Partecipazioni Industriali (HdP) as an add-on acquisition to portfolio company Sport Brands International in a $351m transaction. The deal is expected to close by the end of June, subject to customary conditions. Cerberus, through Sport Brands, will also assume all financial debt incurred by Fila since January 1, and of all of Fila’s trade debt. As of December 31, 2002, Fila’s consolidated financial debt was €295m.

Advent backs Danish retail expansion
Advent International, the London-based private equity firm, has led the buyout of ILVA, a family-owned furniture retailer based in Denmark. Financial details for the transaction have not been disclosed, although the price is thought to be close to €90m for the business, which has an annualised turnover of around €95m. Debt for the transaction was provided by Bank of Scotland.

WestLB acquires Odeon cinema chain
German investment bank WestLB has confirmed that it is to buy UK cinema chain Odeon from private equity house Cinven in a transaction worth £431m. Acting via its principal finance unit headed by Robin Saunders, WestLB is investing alongside a consortium comprising Entertainment Film Group, the UK-based independent film distribution company, and private property group Rotch.

Odeon, Britain’s largest cinema operator, has 75 sites nationwide, including its flagship cinema at Leicester Square in London and employs approximately 4,300 people. Cinven director Richard Munton described the deal as a successful exit for the private equity firm. Cinven, advised on the sale by UBS Warburg and Morgan Stanley, indicated that it had doubled its money in the three years it has held Odeon.

Carlyle expands European real estate portfolio
US private equity firm Carlyle Group has acquired a portfolio of 36 commercial properties in Italy from the Italian finance ministry in the firm’s largest single real estate transaction. Carlyle is paying €230m for the assets, which cover a total of 290,000 square metres. The buildings are located on the outskirts of Milan and Rome as well as in the centre of Bari, Genoa, Naples and Reggio Emilia.

The sale of the portfolio is the penultimate lot put up for auction by Italy’s Ministry of Economy and Finance as part of a €1.5bn three-year disposal programme. “The portfolio fits our strategy to acquire commercial buildings in off-prime business districts across France, Italy and Germany,” said Eric Sasson, a managing director of Carlyle Group, who heads up the firm’s European real estate team.

Soros deal completes Bayer divestments
Soros Private Equity, the private equity business controlled by Hungarian financier George Soros, has bought PolymerLatex, the German-based latex products joint venture of Bayer and Degussa in a deal worth €235m. Set up in 1996 by Degussa and Bayer, the joint venture produces latex products in the paper, moulded foam and speciality applications fields, and is one of the leading latex suppliers in Europe. In 2001, PolymerLatex generated sales of €344m in with 2001 and employs 730 people across five sites in Europe.

Soros was introduced to the deal by Commerzbank Securities. Matthew Roeser, London-based head of Commerzbank’s financial sponsors group, commented that close relationships with Bayer and Degussa allowed the bank to advise on a solution that suited both vendors in terms of timing and price. As well as providing M&A advice, Commerzbank also acted as sole mandated lead arranger of the senior debt facilities supporting the transaction.

Investindustrial backs Italian wine consolidation
Investindustrial, the Milan-based private equity house formerly known as 21 Invest, has announced plans to lead consolidation in the Italian wine industry following a €100m commitment to Ruffino, one of Italy’s major Chianti producers. Investindustrial will invest up to €100m for a 40 per cent stake in Ruffino, making it the single largest shareholder in the business. The majority of the company, which was established in 1877, will remain under the control of various Folonari family members.

“It is rare to have the opportunity to invest in a large and prestigious wine producer in Italy,” said Andrea Bonomi, chairman of Investindustrial. “Ruffino represents a strong base for a buy and build in the wine industry.” Landmark Partners, an investor in Investindustrial, co-invested in the transaction. Financing for the transaction was provided by Banca Popolare di Milano and IntesaBci.

€3.2bn of mezzanine invested in 2002
2002 was the second best year on record for Europe’s mezzanine providers, according to a survey carried out by Initiative Europe. A total of €3.2bn of mezzanine financing was deployed in European transactions last year. Although 24 per cent down on the previous year, total volume was boosted by a strong second half, when €2.2bn was provided to help fund European buyouts, comparable with the 2001 high water mark of €2.4bn invested in the first half of the year.

“During 2002, we saw a number of significant developments in the European mezzanine market,” said Rory Brooks, director at Mezzanine Management. “Many of the larger buyouts in Europe are now being financed with significant mezzanine tranches, which reflects both the maturity of the mezzanine market and an increase in the availability of mezzanine for investment.”

Financial Training exit for Royal Bank PE
Royal Bank Private Equity, the private equity unit of the Royal Bank of Scotland which is part of the bank’s Principal Finance unit, has made a successful exit of its interest in Financial Training Company, an accountancy and financial services training business based in the UK. The firm is being acquired by US financial services training business Kaplan, which has agreed to pay £55m ($90m) for the business which had reported revenues last year of £34m and operating income of £6.6m.

Royal Bank Private Equity supported the original MBO of FTC in May 2001, backing managing director William Macpherson in the acquisition from Dutch publishing firm Wolters Kluwer Group. RBPE provided £13m of equity, with most of the balance provided in loans from Dresdner Kleinwort Wasserstein.

Electra doubles money on pubs
The Electra European Fund, a mid-market buyout fund closed in 2001 on €1bn and managed by Electra Partners Europe, has completed its first exit.

A 78 per cent interest in Tom Cobleigh, the Midlands-based UK pub operator, has been sold to Spirit Group, a privately owned business, in a transaction valuing the business at approximately £100m.

Electra invested £28m of equity when it first acquired the stake in the pub operator in September 2000. Post-acquisition Electra installed a new management team, which turned Tom Cobleigh’s estate of 110 pubs into two separated businesses, one managing pubs aimed at families and another concentrating on community pubs. Pubs not suited to either business were either transferred to the tenanted estate or sold. The exit constitutes an internal rate of return of approximately 30 per cent for Electra. The firm has been advised on the deal by Close Brothers, the independent corporate finance advisor, and law firm Clifford Chance.

Barclays PE buys jewellery business
Barclays Private Equity has completed its second deal of the year, backing management in the buyout of DCK Concessions, a jewellery and fashion accessory company which operates through 1,900 concessions in high street fashion retail chains in the UK. Barclays has taken a 32 per cent stake in the business and has provided the debt element for the transaction via its leveraged finance unit. Alan Witzenfeld, who co-founded DCK in 1992, will remain as CEO. Barclays Private Equity has appointed Frank Dee, currently a non-executive director of Speedy Hire, Leeds and Holbeck Building Society and Marr Foods, as nonexecutive chairman.

Funds & Buyside

UK pension funds plan private equity move
Two major UK companies have announced plans to allocate up to five per cent of their assets to private equity in the light of the ongoing slump in the public markets. UK supermarket chain J Sainsbury and the UK unit of consumer products group Kimberly Clark are to propose the introduction of a private equity allocation to their investment committees as both companies seek to bridge the gap created by the steep fall in share prices.

Terra Firma reduces fundraising target
Terra Firma Capital Partners, the UK-based private equity firm headed by Guy Hands, is struggling to hit the €3bn target provisionally set for the firm’s first independent fund as a result of investors’ growing reticence to commit to funds in the current environment. Hands was quoted by Bloomberg as saying that the war in Iraq was having a major impact on fundraising, adding that any figure above €2bn would be an “incredible achievement” in the current conditions.

Part’com seeks spinout backing
Part’Com, the European venture capital unit of CDC Ixis Private Equity specialising in communications, media and IT investments, has held talks with German insurer Ergo, part of the Munich Re group of insurers, over plans to secure independence from its French parent. As part of this move, Part’Com plans to raise a fund with capital of between €200m and €300m, which would be backed both by Ergo and CDC Ixis Private Equity.

Part’Com initially held talks with Capital Z, the private equity manager specialising in backing first time private equity fund managers. In Europe, Capital Z has sponsored funds run by AtriA Capital Partenaires and Swiss firm Leman Capital among others. The two groups reached agreement on a deal, only for talks to break down over investment policy.

Permira to launch third Europe fund
European buyout firm Permira is planning to launch Permira Europe III, to succeed its second buyout fund which closed on €3.5bn in May 2000. According to a source close to the firm, Permira Europe III is unlikely to significantly exceed the previous fund. “They’re a sensible bunch at Permira and won’t raise more than they feel they need to do the deals that interest them,” commented a source close to the fundraising process.

Swiss Life extends PEH credit facility
Private Equity Holding (PEH), the ailing listed private equity investment management firm based in Switzerland, has resolved its short-term liquidity crisis following Swiss Life’s decision to defer repayment of a SFr325m (€220m) credit facility. In a statement, PEH said the extended facility, originally due to expire on March 10, would provide the company “with the necessary time to find a solution for its financing needs which is in the interest of the company and its shareholders.”

Greenpark Capital fund hits $200m target
Greenpark Capital, the London-based private equity firm set up in 2000, has held a final close of its debut fund targeting secondaries opportunities, hitting the fund’s original target of $200m. Greenpark International Investors I has secured commitments from a broad range of institutions including insurance companies, state-owned investment boards, asset managers, foundations and family offices. The majority of the invested institutions have not been disclosed, but limited partners in the fund include Hanover Re and Friends Provident. Marleen Groen, chief executive of Greenpark Capital, said: “We are delighted with the spread of investors that we have attracted to our first fund, and this is a real endorsement of the reputation that the firm has gained amongst major international investors.” Greenpark, which is sponsored by Swiss asset manager RMF, used two placement agents, Nick Beteiligungen in Frankfurt and Denning & Co in the US.

Access to manage new ABN Amro FoFs
Access Capital Partners, the French fund of funds firm headed by Dominique Peninon, has been selected to manage two new funds of funds being launched by ABN Amro. AA Advisors, the multi-manager arm of the ABN Amro Group in France is planning to raise two distinct funds for the bank’s high net worth clients.

The two funds will have a combined target of €75m, and will focus on two separate areas. AA Advisors Private Capital will commit 75 per cent of its capital to growth and buyout funds and 25 per cent to venture capital funds. The second fund, AA Advisors Private Capital Plus, will be split equally between growth and buyout funds and venture capital funds.

HSBC sells PE unit to management
HSBC Private Equity has become the latest captive private equity manager to separate from its banking parent, following a management buyout of the business led by current chief executive Chris Masterson. Masterson and management have taken an 80 per cent stake in the business, which will be renamed Montagu Private Equity, with the bank retaining a near 20 per cent stake. Financial terms for the deal have not been disclosed.

Simultaneously, Montagu Capital, the former HSBC Ventures unit set up in 1992, has had a first close on the Montagu Capital Fund, following a £25m cornerstone commitment from HSBC. The Montagu Capital Fund is targeted at the micro-mid cap market, and will invest in UK business with less than £50m of enterprise value. The fund is targeted at £125m.

Fourth Level to fund Irish start-ups
Irish financial services firm Dolmen Securities is backing Fourth Level Ventures, a new venture capital manager to invest in university spin-off companies across the country and internationally. Fourth Level Ventures has so far raised €12m, including a €4.2m contribution from Enterprise Ireland’s National Development Programme as well as an investment from German insurer Munich Re, which has provided €8m. The firm is hoping to raise a total of €50m, which will be spread across two separate funds.

Lake Capital closes business services fund
Lake Capital, a transatlantic private equity fund manager, has held a final close of its first standalone fund to target the business services sector. The firm has raised a total of $500m, attracting a broad range of North American and European investors, including pension funds, financial institutions and university endowments.

It is the first time that Lake Capital, set up by Terence Graunke and Paul Yovovich in Chicago five years ago, and which concentrates on buy-and-build strategies, has raised a stand-alone fund. “This is the first time we have bundled up the fundraising process,” said Julian Hanson-Smith, principal at the firm and head of its London office. “Previously we would seek to raise capital on a per platform basis, raising up to $125m each time.”

NM Rothschild acquires ABN Amro mezz portfolio
As part of its ongoing efforts to wind down its mezzanine operations, ABN Amro Capital has disposed of a portfolio of mezzanine investments, selling them to UK investment banking group NM Rothschild. The firms declined to comment on the size or value of the portfolio. The investments were originally made by its ABN AMRO Causeway Mezzanine Partnership, an institutionally subscribed fund advised by ABN AMRO Capital which closed in 1998, and include both UK and continental European interests.

Kennet completes Broadview spinout
Kennet Venture Partners, the European venture capital unit of M&A advisor Broadview International, has secured independence from its parent company after the firm’s three managing directors agreed to lead a buyout. Michael Elias, David Carratt and Javier Rojas will take an equal share in the new business, which invests in early-stage networking and data communications, software and IT services. The firm advises and manages $280m in two funds and has eleven investment professionals based at offices in London and Silicon Valley. Kennet Capital was established in 1997 as a joint venture between Broadview and private equity firm Electra Partners. The transaction comes about less than three years after Kennet became a wholly owned unit of Broadview, after it acquired Electra’s interest in the business in late 2000.

Elias said the firm was looking forward to completing its first deals post-independence. “We are more comfortable with the market now than we have been for the past 24 months. We have been very cautious during this time. The market now is comparable to that of the early 1990s.” Investors in the two Kennet funds, including Harbourvest, Bank of America, Swiss Re, Swiss Life, and Allianz, have said they support the demerger.


Candover brings in IR director
European private equity firm Candover has named Piers Dennison as its first dedicated investor relations director. Dennison will be responsible for co-ordinating Candover’s fund raising activities with third parties, and for managing relationships with existing and potential limited partners in the Candover funds. Dennison joins Candover from Boston Consulting Group, where he was a management consultant specialising in retail and telecommunications.

“The size of Candover’s funds has increased from around €400m in 1994 to over €2.7bn for the recently raised 2001 Fund which has 110 investors,” said Colin Buffin, managing director at Candover. “Our priority is to maintain strong relationships with our current investors, as well as to identify new limited partners for future Candover funds.”

Dummett emerges at Merrill Lynch
Christian Dummett, the former head of UK bank Abbey National’s private equity unit who left the bank last year, has been appointed head of Merrill Lynch’s placement team in London. Merrill Lynch is currently co-ordinating fundraising for Doughty Hanson, the London-based firm which is hoping to raise a €3bn buyout fund. Other Merrill clients include Terra Firma Capital Partners, Intermediate Capital, TDR Capital and Charterhouse Group International.

Kevin Albert, global head of Merrill’s private equity fundraising team in New York, is planning to re-build the team after nine professionals quit the bank to join Lazard, itself currently in the process of building a third-party placement team. The team at Merrill currently comprises 17 professionals, which Albert hopes to increase to 25 by mid-April.

Permira to open Stockholm office
Permira, the London-based pan-European private equity fund manager, has announced plans to open an office in Stockholm to step up its presence in the Nordic region. Kurt Björklund, who has been a partner at Permira since 1996, is to head up the office. Björklund will be working alongside Ole Oftedal, who joins Permira as industrial partner. Oftedal has run Swedish tour operator Fritidsresor and Adcore, a management consultancy.

Axa Private Equity builds in Germany
Axa Private Equity has bucked the recent trend of private equity firms withdrawing from the German market by announcing plans to expand its German office to incorporate direct investment activities. The firm is looking to allocate around €100m of its AXA Private Equity II fund to German investments. Stefan Illenberger, who runs the German operations, said the firm will look to make two investments this year, with one expected imminently. The firm is also planning to make investments in both venture capital and growth and expansion capital funds. Illenberger leads a team of eight, including Helmut Pitsch, previously a managing partner of Centennium Capital Partners, who will be responsible for the firm’s direct investments.

Lehman expands European leveraged team
US investment bank Lehman Brothers has expanded its leveraged finance team, appointing James Greenwood as co-head of the European unit. Greenwood joins the firm as managing director and will work alongside Charles Pitts-Tucker and report to Peter Combe, co-head of Global Financial Sponsors. During his career, Greenwood has led transactions working with firms such as Permira, Charterhouse Development Capital, Electra, Cinven and BC Partners.

Crescendo names new London GP
US venture capital firm Crescendo Ventures has made a promotion within its European team of general partners with the appointment of Ian Jenks at the firm’s London offices. Jenks has worked with Crescendo as a venture partner since 1997 and has been involved in various technology industries and emerging growth companies for most of his career. He has held general management roles at Ingersol Engineers and later at Uniphase, where he served as president of the company’s laser and fibre optics group. During his time at Uniphase, he was responsible for the acquisitions of both IBM’s laser group and Philips’ Opto-Electronics division.

Matrix Private Equity appoints new MD
Matrix Private Equity, the private equity unit of the UK financial services group, has named Helen Sinclair as its new managing director. Helen joined Matrix in 2000 as a director to set up the firm’s private equity group. Prior to this, she worked as an investment executive at 3i at the firm’s London offices between 1991 and 1998. She replaces former managing director Mark Burgess who is leaving the UK to work overseas.