Duke Street Capital, the London-based European private equity firm, has agreed to sell Duke Street Capital Debt Management (DSCDM) to David L. Babson & Company Inc, a US diversified investment manager.
Financial terms of the transaction, which is subject to regulatory approval, have not been disclosed, although sources close to the transaction say that Duke Street will receive at least €60 million ($73.8 million) from the sale.
DSCDM was set up in 2000 as a wholly owned institutional debt fund manager specialising in collateralised debt obligations (CDOs) backed by European senior loans, mezzanine loans and buyout-related high yield bonds. The group currently manages €1.6 billion and is raising its third CDO fund.
Edmund Truell, Duke Street’s chief executive, said in an interview the firm had taken the view nine months ago that DSCDM’s substantial capital requirements had become too large to be funded from its parent’s balance sheet going forward. Unlike private equity vehicles, CDO fund managers typically use their own capital to purchase and “warehouse” about half the underlying assets of a new fund prior to raising capital from third parties.
Truell declined to comment on the financial aspects of the deal with Babson, though he did say Duke Street would continue to own “a share of the performance” of DSCDM going forward.
He also said Duke Street intended to reinvest proceeds from the sale in its core private equity business, in part by committing a significant amount of capital to its next buyout fund, which is expected to launch some time next year.
The firm, which manages €2 billion in private equity, is currently investing Duke Street Capital V, a European mid-market buyout fund which according to Truell is just over 50 percent committed at this stage.
Commenting on the firm’s plans for the future, Truell said Duke Street was looking to leverage its expertise in the specialist financial services sector, in part acquired while owning DSCDM, in its approach to making private equity investments.
“We probably know more about securitising pools of capital for example than most people in private equity”, he said. He and Marco Herbst, an associate who joined Duke Street in 2000 after spending time in debt capital markets working for Merrill Lynch, would be part of the firm’s financial services “hunting pack”, he added.
Under the agreement with Babson, DSCDM’s chief executive Ian Hazelton and his team of 17 will continue to manage the business.
Babson, based in Cambridge and Springfield, Massachusetts, has around $82 billion under management, including $6.5 billion in leveraged loans. DSCDM will be the group’s first European-based subsidiary.