Centre Lane restructures 5 Perseus funds

The deal, orchestrated by Cogent, will let Perseus finally wind down operations.

Mid-market private equity firm Centre Lane Partners has taken over Perseus Capital's five remaining funds, according to three sources familiar with the matter.

The five funds include the $102 million Perseus Capital (1997 vintage); $222 million Perseus 2000; $340 million Perseus Market Opportunity Fund (2002 vintage); $153 million Perseus 2000 Expansion (2004 vintage) and $602 million Perseus VII (2006 vintage).

Washington DC-based Perseus hired Cogent Partners at the end of 2013 and the advisor began a formal two-round process in the first quarter of 2014 that lasted six months, a source told Secondaries Investor. 

Perseus, Centre Lane and Cogent declined to comment.

LPs could either liquidate their interests in any of the five funds – at a discount of roughly 85 percent to 90 percent of net asset value, one LP said – or roll their stakes into new vehicles.

LPs could also have declined the offer all together, but an overwhelming majority were said to have been in favour.

Roughly 11 portfolio companies remained across the five funds. Perseus Capital, the oldest fund, had one remaining investment, Perseus Books. The publishing company was established by the firm's founder, the late Frank Pearl. Centre Lane purchased Perseus Books outright from the firm, which had tried to sell it several times last year. As of May, Perseus Books was the firm's second largest remaining portfolio company, valued at $70 million.

The remaining investments, the bulk of which came from Perseus' Fund VII, were divided into new vehicles so LPs could select which specific companies they wanted to continue to back. It could not be determined at press time how Centre Lane chose to group the assets into the new funds.

The new vehicles were filed with the US Securities and Exchange Commission on 31 December. They are known as CLP 2014-A, CLP 2014-B and CLP 2014-LT.

One of Fund VII's later investments was German environmental product company Twintec. Perseus invested in the company in 2012 and owned a 57 percent stake as of last April. Perseus managing director Michael Miller is a member of Twintec's supervisory board, but will resign on 5 February, according to a statement from the company. Centre Lane managing director Quinn Morgan will assume his position.

It's unclear which companies were originally part of Perseus 2000 and Perseus Market Opportunity Fund, but the latter was generating a -10.2 net internal rate of return and a 0.6x investment multiple as of 30 June, according to CalPERS' performance data.

Perseus 2000 Expansion was raised to make follow-on investments in growth equity and turnaround situations. It still owns men's clothing manufacturer Haggar Corporation, which was valued at $100 million last May, making it the largest of the remaining investments. Perseus 2000 Expansion was generating a -16.9 percent net IRR and a 0.4x investment multiple as of 30 June, CalPERS revealed.

The deal with Centre Lane was a long time coming. Aside from Perseus' fund performance, the firm struggled after unexpectedly losing its founder to lung cancer in May 2012. Months after Pearl's death, a number of banks and Perseus itself filed claims against Pearl's estate. Allegations emerged that Pearl had fraudulently moved assets to a trust for his wife, in order to avoid creditors, and Perseus reportedly sued Pearl's estate for claims related to his investments in Perseus funds.

In 2012 and early 2013 the firm reportedly attempted to restructure the funds in an uncompetitive process with NewGlobe Partners, before it was acquired by ICG. NewGlobe offered to pay $240 million for 100 percent of the interests in all five funds, which represented a 60 percent discount to the portfolio's NAV, according to media reports.

As of this month Perseus has begun winding down operations.

The firm declined to comment but sources have said chairman Ken Socha and a few other executives still remain, while most others have departed.