If there is a countercyclical relationship between buyouts and venture, then now could begin a period for VC specialists in Europe to look forward to. With the outlook for European buyouts uncertain, limited partners might well decide to spend more time on their venture portfolios and even increase their allocations to early-stage technology.
Any fund investor currently mulling such a move will have been impressed by news in January that European venture groups Index Ventures and Balderton Capital, along with Silicon Valley's Benchmark Capital, have sold MySQL, an open source data business, to IT firm Sun Microsystems for a cool $1 billion.
When announcing the sale of the Swedish company, its venture investors did not reveal how much profit they made on the deal. However, given that the company received a mere $19.5 million in a B-round in 2003, it seems safe to conclude that for the venture groups, the return on investment was rather good.
For Index, which is beginning to build a standing as Europe's answer to Sequoia Capital, it was the second time in recent years that it featured in a billion-dollar exit. The Geneva-based firm was also one of the backers of Skype, the voice-over-internet telephony service, which was sold to eBay for $2.6 billion in 2006.
Given these homeruns, it is no surprise that Index has big plans not just for its venture capital business. The firm's €300 million venture fund, which closed in February 2005, is nearing full investment and will soon be followed up with a successor fund. In the meantime, Index will be busy with a new business line it has just added: in January, it closed Europe's first ever growth capital fund raised by a venture group on €400 million.
To help manage the oversubscribed fund, Index has hired Dominique Vidal, previously chief executive of Yahoo! Europe, who shares the firm's belief that Europe is ripe for growth capital funds targeting technology and life science companies. He said: “More [European early-stage] companies have reached profitability and are now targets for acquisition.”
It's a model US venture firms such as Sequoia, Redpoint and Draper Fisher Jurvetson have already tested successfully by managing growth capital funds alongside their venture pools. Index must now prove that the strategy is viable in Europe too. If it succeeds, it will send yet another sign to limited partners that European venture deserves to be taken seriously.
vestar loses equity in swiss restructuring
US buyout firm Vestar Capital Partners, which bought Nybron Flooring International in 2005 in a secondary buyout from Nordic Capital, has lost its investment under the terms of a debt restructuring. Holders of about €300 million ($433 million) of senior debt will exchange around €115 million of debt for 90 percent of the preferred shares of the restructured company, Nybron, a Swiss floor maker, said. The move saves the company from insolvency. Nybron, which breached bank covenants last year, had suffered from increased competition from China. The preferred shares have been valued at €85 million, the company said. Senior lenders will retain €185 million of debt. The second lien and mezzanine lenders, holders of about €75 million of debt, will each get 5 percent of the preferred shares, Nybron said. AXA and European Capital were both mezzanine lenders to the business. Blackstone Group, the US-based firm, and law firm Allen & Overy advised senior debt holders, while Houlihan Lokey Howard & Zukin and Bingham McCutchen represented mezzanine holders.
SWEDISH FIRM COMPLETES RECAP
Segulah has recapitalised Dacke, a hydraulics business, with Skr2 billion ($317 million; €213 million) of loans in a club deal put together by local bank Nordbank, the Nordic buyout firm said in a statement. Nordbank, Nordic financial services company Nordea, Danish bank FIH, Danish financial services company Nykredit and Nordic bank Straumur provided senior debt financing, while Nordbank and Straumur provided second-lien financing. Dacke supplies hydraulics to the offshore, wind power and material handling industries. Segulah acquired Dacke for an undisclosed sum in 2005. The hydraulics company employs 1,500 people across the Nordic region, the Baltics and China. It had sales of Skr3.4 billion with EBITDA of more than Skr300 million in 2007. Since the liquidity crisis in global credit markets began last summer, recapitalisations after only two years have become relatively rare.
LOAN GUARANTEE FOR NORTHERN ROCK
The UK government plans to securitise and guarantee more than £20 billion ($39 billion; €26.9 billion) in loans to struggling UK bank Northern Rock in an attempt to find a private sector sale.
US bank Goldman Sachs prepared the securisation plans for the government. The loans would be issued to market backed by a mixed pool of Northern Rock's assets.
The government said: “Any losses to the asset pool would first be borne by Northern Rock to protect the taxpayer.”
The government aims to benefit from any private sector “upside returns”, it said.
A consortium led by UK billionaire Richard Branson, which includes US distressed investor WL Ross, has bid for the bank, as has investment firm Olivant. Buyout firms JC Flowers and Cerberus Capital Management are reconsidering bids for the bank given the funding package.
Should no bid meet the government, the FSA and the Bank of England's criteria for finacial stability and the protection of consumers the government will bring forward plans to nationalise Northern Rock.
GERMAN GROWTH DEAL FOR COGNETAS
Cognetas, a European mid-market investment firm, has bought German metal moulding company Gebruder Gienanth-Eisenberg from family holding company Fink for an undisclosed sum. Gienanth was founded in 1735 and is a producer of engine blocks for medium to large diesel and gas engines as well as clutch and transmission systems in the automotive industry. It also sells products used in various sectors including power generation, mining and the oil and gas industry. The company had revenues of approximately €150 million ($220.7 million) in 2007. Andreas Kraemer, a principal at Cognetas, said: “The company has been on a growth path during the last couple of years under the current management and we want to support them in that.” This would involve developing the company's existing sites and helping it grow internationally, he said.
BALDERTON GAMBLES ON MOBILE BETTING
Balderton Capital, the venture capital firm behind social network Bebo, software developer Codemasters and European sports pay-tv broadcaster Setanta, has invested in betNOW, a start-up mobile betting service, in its first round of funding. The investment will be used to launch the service in the UK and accelerate product development, with the goal of establishing betNOW as the UK's leading mobile betting service. The service allows customers to text their bet. The customer then receives an offer text containing relevant betting options, which they can select to place their bet. Bets are charged to the user's phone bill and winnings can be collected at any of the UK's 14,000 post offices. Robert Urwin, Mike McCartney and Malcolm Slater founded the company behind betNOW in 2005.