IN THE PUBLIC GLARE

Life as a listed private equity firm leaves you exposed to some unwelcome publicity – as 3i discovered when talk of it being a bid target surfaced in February.

A leading London-based GP related to Private Equity International a discussion that took place at a recent gathering of industry professionals. The chat revolved around which FTSE 100 targets would likely be in the sights of private equity firms given their increased financial firepower these days. The first “target” volunteered was media group Pearson. The second, apparently jokingly – was 3i.

Last month, the industry found itself discussing whether such a proposition should in fact be taken seriously. As rumours swirled that 3i had rejected a £6 billion (€8.8 billion; $10.4 billion) takeover approach from a “European rival” (a report that first appeared in the UK's The Guardian newspaper), the LSE-listed firm's share price took off on a sharp upward trajectory from which, at the time of this issue going to press, it had fallen only slightly almost a week later.

But while the rumour appeared to have staying power, did it have substance? Industry professionals canvassed by PEI struggled to think of any groups that would have the necessary heft to put together such a bid. 3i officially declined to comment, though sources close to the firm insisted the rumour was hot air that had in all likelihood been fanned by hedge funds in the pursuit of ill-gotten gains.

Nonetheless, the focus on the issue underlined the fact that being listed has its drawbacks as well as its advantages. For one thing, you really are vulnerable to a possible takeover (as Helsinki-quoted CapMan discovered in February when it received an approach from listed Belgian rival GIMV). Add to this the fact that far-fetched takeover rumours are bound to swirl, particularly in an environment such as that currently prevailing on the London stock market, where conjecture regarding possible bids is running rampant.

Ironically, last month also saw reports emerging that four unnamed private equity firms were currently considering a listing. Market sources say one of these is Partners Group, the Swiss alternative investment specialist that stands to become the first private equity funds of funds manager to be quoted – though the firm has declined to comment. If the sources are correct, Partners may find “no comment” becoming its standard response in future should rumours start to fly.

EDMOND DE ROTHSCHILD VC FUND RAISES €165M
Paris-based Edmond de Rothschild Investment Partners has held a first and final close of venture capital fund Winch Capital on €165 million ($198 million), just above its original target of €150 million set when the firm began marketing the fund four months ago. The fund will make venture capital investments in French companies generating a turnover of between €15 million and €150 million. Formerly known as LCF Rothschild Venture Partners, the firm currently manages over €200 million in funds dedicated to the information technology and life sciences sectors in Europe, with a specific focus on France, Germany, Belgium, the Netherlands and Switzerland.

SWITZERLAND'S CGS RAISES CHF150M FOR BUY AND BUILDS
Pföffikon, Switzerland-based private equity firm CGS Management has commenced marketing for its second mid-market buyout fund, CGS Private Equity Partnership II (CGS II). The fund will pursue a buy-and-build strategy with the aim of forming three to five large groups from up to 15 investee companies based in Switzerland and German-speaking countries. Lars Niggemann, associate partner at CGS Management, said that CGS II has a target size of CHF150 million (€97 million; $116 million), two-and-a-half times the size of its predecessor, which closed in 1999 on CHF60 million.

SGAM HOLDS €80M FIRST CLOSE OF CEE FUND
Société Générale Asset Management Alternative Investments (SGAM AI), the private equity arm of French financial services group Société Générale, has held an €80 million ($96 million) first closing of a Central and Eastern European-focused fund. The SGAM Eastern Europe fund received commitments from The European Bank for Reconstruction and Development (EBRD) and Société Générale prior to its first closing. William Watson, chief investment officer for private equity Eastern and Central Europe at SGAM, said the fund has a target of €150 million, which is expected to be reached by the end of the year. It will take control positions in companies with an enterprise value between €30 million and €100 million.

GIMV, CAPMAN MERGER TALKS END
Listed Belgian private equity firm GIMV has announced that it has terminated discussions regarding a possible merger with Finland's CapMan. GIMV said in a statement that “preliminary discussions have taken place which did not lead to any agreement. Although … it was suggested in the Belgian press that a transaction would still materialise, discussions have actually been discontinued”. A report in the Belgian press said GIMV was planning a €250 million ($299 million) offer for Helsinki-based CapMan. CapMan also released a statement saying GIMV had approached large shareholders of CapMan to discuss the possibility of combining the two firms into a European private equity entity but that preliminary discussions had not led to a conclusion and had been terminated.

POND III REACHES $145M TARGET
Surrey, UK and Silicon Valley-based Pond Venture Partners has held a $145 million (€121 million) final close of its third fund. The firm said new investors in the final closing for Pond III included US pension fund California State Teachers' Retirement System (CalSTRS) and Swiss alternative asset investment consultancy Capital Dynamics. Other institutional investors in the new vehicle include HarbourVest Partners, AlpInvest Partners, The Wellcome Trust and the European Investment Fund. Charles Irving, a managing partner in the UK office of Pond Ventures, said the new fund will make investments in seed and A-round technology start-ups in Europe.

3I COMMITS TO RUSSIAN FUND
3i has invested $20 million (€16.8 million) in Quadriga Capital Russia Private Equity Fund II, a Russia-focused growth capital fund managed by Quadriga Capital. 3i is currently the largest investor in the vehicle, which has also received commitments from The European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC). According to Reinhard Kohleick, managing director at St. Petersburg, Russia-based Quadriga Capital, Fund II has exceeded its original target of $120 million, set when the firm began marketing the vehicle in January 2005. Ere Kariola, 3i's managing director in Helsinki, Finland, said that 3i has no current plans to set up operations in Russia but did not rule out the possibility.

ALPHA CLOSES FUND 5 AT €750M
Franco-German private equity house Alpha Group has held a first and final close of its seventh fund, Alpha Private Equity Fund 5 (APEF 5), at €750 million ($890 million). Patricia Desquesnes, investor relations manager at Alpha, said the fund was raised in three months and did not involve the services of a placement agent. Alpha said that 90 percent of commitments to APEF 5 came from investors in the firm's previous funds. In terms of regional split, 58 percent of commitments came from European investors, 37 percent from the US and the remaining five percent from other countries. The latter came predominantly from Australia, said Desquesnes. Alpha also announced it will partner with Italian private equity firm Magenta Investimenti for co-investments in Italy.

EQVITEC ANNOUNCES €130M FIRST CLOSING
Nordic private equity firm Eqvitec Partners has raised €130 million ($154 million) at the first closing of Eqvitec Technology Fund III, just below the hard cap of its predecessor, which closed on €133.5 million in 2001. Juha Mikkola, senior partner at Eqvitec Partners, said Fund III's original final target was €130 million, but this has been increased as part of a strategy to widen the firm's international investor base. Mikkola said half of the commitments to Fund III's first closing came from international investors and the other half from Finnish limited partners. Fund III will make investments of €1 million to €10 million in 25 to 30 technology companies in Finland, Sweden, Norway and Denmark.

CORPFIN PICKS UP SPANISH LPS FOR FUND III
Madrid, Spain-based private equity firm Corpfin Capital has reached the halfway stage for its third fund, holding a first close of €100 million ($119 million). Felipe Oriol, president of Corpfin Capital, said that Corpfin Capital III, which the firm began marketing in March 2005, has a target of €200 million and is expected to hold a final close in the next few months. Oriol said that attracting Spanish investors was a key strategy for the new vehicle's fundraising. LPs committing to Fund III include Bankinter, Caja Madrid, insurance firm Caser and the pension funds of the BBVA Group. Oriol said that existing investors in Corpfin's previous funds have also invested in the new vehicle.

SVG DIAMOND II RAISES €500M
SVG Advisers, the fund management business of London-listed private equity fund of funds SVG Capital, has closed a new collateralised fund obligation (CFO) vehicle on €500m ($592 million). The structure comprises €325 million of investment grade bonds and €175 million of preferred equity shares and was designed to attract international fixed income investors keen to gain exposure to private equity. Diamond II issued four tranches of bonds denominated in euros and US dollars, which were rated by three rating agencies in the AAA, AA, A and BBB categories. The fundraising was advised by Key Capital, the Dublin-based corporate finance adviser and placement agent. Diamond II is the successor to SVG Diamond, SVG's first CFO fund closed in September 2004 on €400 million.

DEFAULTS UP AS EUROPEAN MEZZ MARKET DOUBLES
The European mezzanine market totalled a record €10.7 billion ($12.75 billion) in 100 deals in 2005, almost double that of 2004's record €5.8 billion in 68 deals, according to credit ratings agency Fitch Ratings. However, Fitch also reported a record €539 million of mezzanine defaults in 2005, equating to a 3.3 percent annual default rate. Fitch said that while this is smaller than the volume of defaults in the high yield bonds market – which was €713 million – it was nonetheless of concern due to the comparative lower scale and depth of the mezzanine market. Fitch said that, in the long term, mezzanine was likely to be the subordinated debt instrument of choice for sponsors for tranches as large as €500 million, with high yield bond investors increasingly lending to “larger than ever LBOs and crossover corporates”.