News: Funds – August 2002

GSC closes Europe’s largest mezzanine fund
GSC Partners, the independent private capital investor, has held a final closing for GSC European Mezzanine Fund LP. At €1.065bn, it is the largest dedicated mezzanine fund raised in Europe to date.

According to Christine Vanden Beukel, a London-based managing director of the firm, GSC closed on €765m of committed equity capital in October 2001, and has now signed an additional €300m credit facility to leverage the fund. Lehman Brothers acted as mandated lead arranger for the debt, with Dresdner Kleinwort Wasserstein as lead arranger. Bank of Ireland and Bank of Scotland also participated.

The fund has a deliberately broad mandate to provide subordinated debt and preferred equity to a wide range of mezzanine transactions, said Vanden Beukel: ?We can offer a very broad range of subordinated debt products, which gives us the kind of flexibility that is necessary when it comes to a fund this size.?

To further enhance the flexibility of its investment approach, GSC opted for a relatively low level of gearing for the fund.

The fund has already invested €250m in buyouts including Morgan Grenfell Private Equity’s buyout of UK betting house Coral, Hicks Muse’s investment in Eubisco and Findexa, the directories business acquired by Texas Pacific Group.

GSC’s closing of the new fund comes at a time when interest in mezzanine capital remains strong (see other stories on this page). Research suggests that European mezzanine financing increased 10 per cent and reached €4.2bn in 2001, despite the overall slowdown in the buyout market.

ICG returns with second loan fund
Intermediate Capital Group (ICG), the quoted mezzanine provider and alternative asset manager, has raised €340m from institutional investors to invest in leveraged loans, mezzanine debt and high yield bonds. The equity tranche of the deal comprises €40m.

?With Promus II, we continue to follow our strategy to build a diversified alternative asset management operation around our core mezzanine business. Like our first loan-based product, Promus II has a very conservative structure with a slow ramp-up. I’m very pleased that we have closed the deal at this stage given market conditions,? said Andrew Phillips, a director at ICG.

ICG started fundraising in February of this year, working with JP Morgan to raise €300m. According to Phillips, an unusually large number of commitments came from UK institutions, helping the fund to exceed its initial target.

Mezzanine Management’s CE fund past first closing
Accession Mezzanine Capital, the first ever mezzanine fund to exclusively target investment opportunities in Central Europe, has held a first closing at €76m. The fund is looking to invest in ?old economy? companies with enterprise values of between €50m and €200m. It is specifically targeting deals in Poland, Hungary, Czech Republic, Slovenia and Slovakia, countries it sees as being amongst the next wave of EU entrants, and is looking to invest €5-15m per transaction.

Investments in the fund, which has been in the market since early 2001, have come from institutional investors in Europe and the US, including the EBRD, which in 2001 committed up to €37.5m of the fund’s maximum target of €150m.

Mezzanine Management founder Rory Brooks said that market conditions in Central Europe were more favourable now than they had been for many years.

GI Ventures prepares move into midmarket
GI Ventures, the Munich-based seed and start-up investor, is expanding into the German-speaking buyout market. A €100m fundraising effort is underway, and HypoVereinsbank has made a cornerstone investment in the fund.

Preparing the move into the buyout market, the firm has appointed Peter Schiefer, a former managing director of Goldman Sachs Capital Partners who joins as partner. In addition, Bettina Strube joins as investment manager, having previously worked at venture capitalists Kappa IT Ventures and Berlin Capital Fund.

GI will be looking to invest between €10m and €20m in Mittelstand businesses, aiming to make up to eight investments from the fund. Commenting on the firm’s prospects, new partner Peter Schiefer said GI was expecting to benefit from a cultural change amongst company owners who were becoming increasingly interested in private equity as a funding instrument. ?The Hausbanks are retreating, facing more pressure to price the credit they extend to businesses at a level that actually reflects the risk they take on. As cheap credit dries up, owners realise that an LBO structure may be necessary to take their businesses forward.?

Conscious of Mittelstand owners’ reluctance to sell out completely, GI is prepared to back companies as a minority shareholder, provided it is granted full operational control. According to Schiefer, this part of the proposition is already proving popular with vendors: ?The early indication is that deal flow is very strong. A lot of it is proprietary, so we’ll be able to avoid auctions, pick up investment opportunities quickly and turn deals around quickly.?

GI was set up in 2000 by a team of four to originally help build new businesses predominantly in the TMT sector. Founding partners are Jürgen Diegruber, Ann-Kristin Achleitner, Peter Nietzer and Tim Stemmer.

Teknoinvest launches eighth fund
Teknoinvest, the Scandinavian life sciences and technology venture capital investor based in Norway, has raised €60m at the first closing of its latest fund, Teknoinvest VIII. The fund will pursue its established strategy of investing in life science and technology investments across Scandinavia and the US.

Investors in the fund to date, which is looking to raise a total of €100m, include Norwegian investment firm Argentum Fondsinvesteringer and a number of other institutions and private investors in Norway.

Bjørn Bjorä, general manager and partner at Teknoinvest, said the first closing had seen the firm receive strong interest in Norway and that he was hoping to achieve similar results when the firm looked to raise a further €40m from outside of Norway. ?We have had a good reaction from fund-of-funds managers in Norway. We are confident of success in Western Europe although nothing will be taken for granted.? DnB Markets and Danske Securities are acting as placement agents for the fund. SJ Berwin and Wikborg & Rein are its legal advisors.

ICG going for Asian mezzanine
Hard on the heels of closing its €340m CDO fund (see separate story), Intermediate Capital Group (ICG) has confirmed it is raising a mezzanine fund that will service the buyout markets in Japan, South Korea, Australia and Hong Kong. According to Tom Attwood, a managing director of ICG, the decision to launch the fund was taken after reviewing which part of the world offered the most attractive prospects for the firm. ?Asia has a more recognisable, long-embedded credit culture than other emerging markets,? Attwood said. ?There are big economies with big companies which have divisions that can be sold. There is now a more broadly based M&A community, and a number of private equity houses that we know well such as Carlyle, CVC Capital Partners and Prudential are already there. There is a great opportunity in this market, which reminds me of the state of the UK market in the early 1990s.? He continued: ?The returns from Asian private equity up to 1997 have been dreadful, but this is changing. Back then people were mostly investing in development capital, whereas now it is about buyouts of businesses with proven track records, so it would be unfair to use performance history as an indicator.? The firm is looking to raise up to $150m from both local and international investors and will use its own balance sheet to invest alongside the fund.

Candover closes ahead of target
European buyout firm Candover has closed its Candover 2001 Fund, with total commitments exceeding the original target of €2.5bn by €200m.

The fund has been raised from around 110 investors worldwide, with 65 per cent of these being existing investors. Major investors include CalPERS, the Canada Pension Plan Investment Board, Harbourvest, Swiss Re and funds managed by UBS, Pantheon Ventures and Standard Life.

At €2.7bn, the latest fund is double the size of the firm’s previous fund, Candover 1997, which closed at €1.3bn and is now fully invested, having already completed five exits including the recent €185m disposal of Diamant Boart to Electrolux AB. The 2001 Fund will continue Candover’s strategy of investing in large European buyouts, with up to 50 per cent of the fund earmarked for investment in continental transactions. It will look to make up to five investments per year over a five-year investment period. ?The larger size of this fund merely reflects the increase in opportunities in Europe,? said Candover’s head of investor relations Helen Walsh. ?There is no shift in policy for this fund and our strategy will follow that taken through the 1997 fund.?

AP Fonden 6 and Danske merge life sciences funds
AP Fonden 6 and Danske Bank have merged their life science operations to create Scandinavian Life Science Venture (SLSV), a SKr2bn (€200m) fund that targets life sciences and related investments in Scandinavia. The new fund will comprise 18 investments from AP Fonden 6 and six from MVC with a total value of SKr800m. AP Fonden 6 and Danske Bank will also contribute a further SKr1.2bn, which will be allocated between follow-on investments (SKr400m) and new investments (SKr800m).

Euroventures to raise €150m for Nordic buyouts
Euroventures, the Nordic buyout and expansion capital house, is looking to complete an ongoing fundraising effort in September, aiming to close on €150m for its fifth fund. The firm is looking to invest the fund, its fifth since inception in 1985, in mid-market transactions mainly in Sweden, Finland and Denmark. Up to €15m of equity capital will be available per deal.

New US real estate group to open for business
Michael Medzigian, the former president and CEO of Lazard Freres Real Estate Investors, has joined forces with a number of other US principal investment luminaries to form Watermark Capital Partners, a new real estate private equity investment firm based in Connecticut. Cordell Lietz, formerly senior vice president of Taubman Realty Group, the US shopping center specialist, is part of the founding line-up, as is John Muse, co-founder of US private Hicks Muse Tate & Furst, The fund is expected to raise up to $1bn from investors.

Evergreen closes second Harvest fund
Evergreen Partners, the Israeli private equity firm specialising in early stage technology investments, has closed a new secondary fund, the Harvest Fund II, at $90m. The fund, which achieved a first closing of $75m in May 2001, failed to reach its original target of $100m, although it is considerably larger than its predecessor, Harvest Fund I, which raised $25m. The fund will invest in Israeli-related technology funds and portfolios. Contributors to the fund include investors who backed Harvest Fund I, most notably US secondary specialist Landmark Partners, which has agreed to commit 20 per cent to the fund.

Carlyle closes $170m Asian venture fund
The Carlyle Group announced the final closing of Carlyle Asia Venture Partners II (CAVP II), a $170m venture capital fund that will make investments primarily in China, Taiwan, India, and Korea. Most of the capital has come from new investors. Carlyle expects the fund to be fully invested in about two years. CAVP II is part of the Carlyle Group’s global technology venture practice, which includes sister funds in the US and Europe.

Barclay’s first non-captive fund ahead of target
Barclays Private Equity (BPE), the private equity division of Barclays Capital, has held a first closing at more than €1bn in its first formal fundraising effort since 1989. The fund received over €400m in commitments from third parties, having hoped to secure no more than €250m from external investors at this stage. 16 institutions committed to the fund including Bank of Scotland, Citigroup Private Equity, Standard Life Investments and NIB Private Equity. Barclays contributed €545m to the fund, and UK fund of funds Parallel Ventures, which has had a close relationship with BPE since the mid 1990s, committed €100m.

Carlyle cuts European venture fund
The Carlyle Group is to reduce the size of its €732m Europe Venture Fund by 10 per cent. A spokesperson said that although dealflow remained strong, the fund would be reduced by €82m to ?reflect the downturn in valuations and cash burn.? The fund, which started out as a vehicle dedicated to internet-related investments at the height of the technology boom in 2000, parted company with its original management team in 2001 and decided to undertake a review to determine whether a €700m-plus fund was sustainable in the current climate. The decision was affirmative and the firm added two new members, Gene Greiner and Maurice Martin, to the fund team.

Nordea holds €208m final closing
Nordea Private Equity has completed the final closing of Nordea Thematic Fund of Funds I, its first private equity vehicle. To date, the fund has committed capital to twelve funds, eight of which are US-based with the remainder being European. Nordea says it is aiming to spread its investments across buyout and venture capital funds and has so far allocated two-thirds of the fund to buyouts. The fund, designed to give Nordic investors access to European and US funds, has attracted investors from 14 institutions in the region. Nordea Private Equity was founded in the autumn of 2000 and acts as the private equity arm of Nordea Investment Management, the Nordic investment adviser.