Europe – November 2002

Deals & Exits

What next for Legrand?
KKR’s acquisition of Legrand, Europe’s largest ever LBO, has taken a new turn after a European court dismissed the Competition Commission’s rejection of Schneider Electric’s acquisition of Legrand two years ago which obliged Schneider to sell the French engineering business.

KKR and Wendel Investissements bought the company for €3.6bn plus the assumption of €1.6bn of debt in July this year. Now the European Court of First Instance, the court of appeal for decisions made by the European Competition Commission, has said that the original deal only posed competition issues within Legrand’s domestic French market and should not have been rejected in its entirety. The court has also dismissed the veto of the merger of Tetra Laval and Sidel, adding further to the Commission’s humilitation.

The ruling also states that the Commission infringed Schneider’s defence rights to allow the company‘to propose solutions to the problems identified and to make its defence known before the Commission adopts a final decision.’ According to a court spokesperson, the Commission must now decide whether to accept or commence new proceedings against the merger. The Commission could also be subject to a fine from the court, although Elaine Gibson Bolton, competition partner at SJ Berwin, said a direct claim for compensation by Schneider was unlikely. What is more certain is that the credibility of the Competition Commission, headed by Mario Monti, has been further undermined.

At the time of going to print, Schneider had yet to make a statement over its response to the ruling, saying only that it noted the verdict ‘with satisfaction’ and that it will examine the consequences of the ruling in due course. When completing the sale to Wendel Investissements and KKR, a proviso was inserted into the deal that Schneider could withdraw from the deal subject to a €180m payment to the purchasers.

KKR has so far declined to comment on the ruling. The firm has been active in the European market over the last year, recently acquiring several industrial assets from Siemens for €1.7bn and this month was reported to be in the process of finalising the acquisition of parts of Siemens’ network management interests in France, Italy and the UK. It is also rumoured to be looking at Dutch retailer Vendex [see other story].

KAP goes to Cinven and Candover
UK private equity firms Candover and Cinven have won the race to acquire academic and scientific publisher Kluwer Academic Publishers (KAP), beating competition from trade buyers including US publisher John Wiley and UK-based Taylor & Francis. Of the total €600m transaction price, Candover and Cinven will each invest €107.5m, with the management team led by KAP CEO, Peter Hendriks, investing alongside them. Senior and mezzanine facilities for the transaction have been arranged and underwritten by Barclays Capital.

The two buyout firms say they plan to build the business into the number two in the publishing sector. The intention is to consolidate the business with one of its European competitors. Cinven and Candover have already been linked to Bertelsmann’s €1bn science publishing unit.

Apax drops Xerium secondary sale
Apax Partners has been forced to cancel plans to sell its US paper manufacturing business, Xerium, after two bidders sharply reduced their offers for the company. Apax was reported to have reached provisional agreement with US private equity firms JP Morgan Partners, which already owns a stake in the company, and Warburg Pincus to sell Xerium for $970m. The consortium subsequently cut its offer by $45m, prompting Apax to shelve the idea of an outright sale.

Apax was originally seeking a price in the region of $1bn to $1.5bn, against the $810m it paid for the business in October 1999. Reports now suggest that Apax will provide the business with further financing, increasing Xerium’s overall debt pile from $450m to $750m.

Mercapital invests in health
Mercapital Servicios Financieros, the Madrid-based private equity house, has committed to an €150m expansion plan for Spanish fitness chain Grupo MSC Wellness. The deal is structured to increase the group’s interest in the business from an initial 32 per cent to 48 per cent over the next five years. The firm is hoping that MSC Wellness will be a major consolidator in the Spanish health and fitness sector.

The sector has been one of the most active for European private equity firms in 2002, both in terms of growth capital investments, divestments and public-to-privates. Nordic Capital recently acquired the Scandinavian assets of US operator 24 Hour Fitness Worldwide. In the UK, Royal Bank Private Equity-owned Cannons recently agreed a £205m price to take upmarket fitness chain Holmes Place private, although Cannons has abandoned its original offer citing poor performance by Holmes Place.

Vivendi achieves partial sale
In a move that brings to an end the auction process to acquire outright the company’s publishing interests, Vivendi Universal has reached agreement with one of the bidding consortia over the sale of its non-US publishing operations. The assets, which comprise Vivendi Publishing’s operations in Europe and Latin America, have been sold to the consortium comprising French publishing house Lagardère and US private equity fund Ripplewood Holdings.

Vivendi has confirmed that the €1.25bn sale would be subject to approval from the anti-trust authorities. In selling only the non-US operations, Vivendi has re-opened the auction for Houghton Mifflin, the company’s US publishing business which it acquired last year for just over €2bn, to new bidders. The two remaining consortia comprise PAI Management, Apax Partners and Blackstone, and Eurazeo, Carlyle and Credit Agricole.

KKR keen to buy in Europe
US private equity firm Kohlberg Kravis Roberts (KKR), currently one of the more active investors in the European buyout market, is rumoured to be considering a move from Dutch nonfood retailer Vendex KBB. The firm, which was last month linked to a possible offer for UK food retailer Big Food Group, is looking at a possible outright bid for the retailer.

Vendex has already been the subject of private equity interest in 2002. In May, CVC paid €394m for six retail divisions, including discount shoe retailer Scapino, as part of Vendex’s plan to simplify its structure and to focus more on DIY following the acquisition of Belgian homecare retailer Brico in March for €505m.

BPE realises with Admiral
Bank of Scotland Corporate Banking and Lloyds TSB Corporate Acquisition have completed an £80m refinancing of Admiral Insurance, a UK-based insurance business currently owned by Barclays Private Equity. The finance package enables Barclays Private Equity to recoup its full investment made as part of a £110m management buyout in 1999. Barclays PE has not disclosed the stake it will retain in the business. The deal will also enable Admiral to pay its post-MBO debt.

Debut deal for IF Investimenti
IF Investimenti, a €112.5m mid-market fund closed in June this year and run by private equity house Industria & Finanza, has completed its first transaction. The fund has acquired a 67 per cent stake in four separate health and sports shoe manufacturers put up for sale by their controlling shareholder, the De Fonseca family.

The four units, run by the same management team, have been rolled into a new vehicle, De Fonseca SpA, in which the family retains a 20 per cent interest, with management and a number of other private investors also participating. Financial details of the transaction have not been disclosed. In 2001, the assets generated turnover of €37m, with 5 per cent growth forecast for the current fiscal year.

Industria & Finanza is sponsored by Iniziativa Piemonte, a holding company, Ersel Finanziaria and Mittel. The firm is targeting investments in the Italian mid-market, where it is particularly interested in family-owned businesses with turnover between €40m and €75m.

RBDC backs Robinson Healthcare MBO
Royal Bank Development Capital (RBDC), the arm of The Royal Bank of Scotland Equity Finance unit that invests in £2m – £20m businesses, has backed the secondary management buyout of Robinson Healthcare Ltd from 3i and the controlling family. The transaction, valued at £22m, sees RBDC invest in a business that has grown significantly in the last few years and now has annual turnover of £33m. It is one of the UK’s leading manufacturers and distributors of personal care and animal healthcare products. The management buyout team was led by Terry Watson, who was appointed executive chairman of the company fifteen months ago. Bank of Scotland provided senior debt and working capital facilities.


Barlage’s debut fund avoids tax uncertainty
Barlage, Knoth & Cie has launched a €175m midmarket buyout fund to invest primarily in underperforming German Mittelstand companies operating in electrical engineering, automotive supply and mechanical engineering. Instead of setting up the new fund as a limited partnership, the firm is using a German stock corporation (AG) structure. Under the scheme, investors can buy shares in initially up to three separate AGs serving as acquisition vehicles for the fund.

The fund structure is designed to eliminate any uncertainty for investors over whether or not the German tax authorities will proceed with plans to tax private equity managers making majority investments no longer as asset managers but as operational companies, a move that if triggered would result in significant taxrelated consequences for the managers and their investors. The uncertain tax status of limited partnerships in Germany has long been a concern for investors.

According to the firm, other AG private equity vehicles pursue a holding investment approach, whereas its own “multiple AG” approach allows it to use each AG as a pure play in the business area of its core investment. None of the AGs will engage in unrelated diversification and instead assume the identity of the core acquisition.

Frank Hock, a managing director at the firm, commented: “From a taxation point of view, investing in our concept is like investing in Daimler Benz or Siemens shares. Investors get better terms on carry and fees, the product is more transparent than limited partnerships, and it will be easier to access by foreign investors.”

Rains steps in at Morley
Following the departure in August of the recently hired Philip Manduca, Morley Fund Management has announced that Peter Rains, the firm’s head of fixed income investment, will also now be head of alternative investments too. Morley appointed Manduca in May 2002 as it sought to increase its involvement in alternative asset classes, but the former head of asset management at Dexia BIL left shortly afterwards to set up his own hedge fund. The firm is a long standing investor in private equity, having made commitments since 1987 under the guidance of head of private equity, Sue Scollan. Rains will now report to deputy Malcolm Le May, who is head of the company’s European Division, as well as to his existing line manager Gerald Holtham, who is Morley’s chief investment officer. Rains has also become a member of Morley’s European management committee. The company’s alternative investment division, which includes both hedge and private equity funds as well as investment trusts, has over €3.2bn in assets under management. Le May said at the time of Manduca’s appointment: “The growth opportunities presented for having a robust alternative investment business is amply illustrated by the fact that this asset class still only occupies some 2 per cent of total global funds under management.” Morley, which manages a total of €166bn in assets, is part of the CGNU Group.

NIB Capital makes new commitments
NIB Capital, the private equity division of Dutch bank NIB and one of Europe’s largest investors in private equity, has announced a further round of commitments spanning Europe, US and Asia. Among the biggest commitments was a €100m investment in Guy Hands’ Terra Firma Partners fund, which is close to holding a €1bn first close on the €3bn buyout vehicle it is currently raising.

NIB has also made a €100m commitment to the worldwide secondaries fund currently being raised by US house Lexington Partners, as well as smaller commitments to Olympus Capital Asia, which will invest primarily in South Korea and Japan (€50m) and Jordan Company’s Resolute Fund, an LBO fund targeting US opportunities.

NIB Capital, which has funds under management in excess of €14bn, also recently awarded a mandate to Grove Street Advisors. US investment advisory will be given €100m to invest in emerging venture funds in the US.


Chequers Capital closes first fund
The French mid-market fund launched by Paris-based private equity firm Chequers Capital has closed on €300m, considerably above the original €200m target. Many of the Chequers team, led by managing partner Denis Metzger, were formerly with buyout firm Charterhouse SA, but set up their own operation to focus on opportunities in France after buying themselves out last year from HSBC-CCF.

Denis Metzger said: “We found US and European investors very responsive to the concept of a country specific fund that we were promoting. Facing a strong demand for our fund, we were able to select a balanced portfolio of high profile investors that can bring value to our strategy.”

About one-third of the commitments came from French investors including Access Capital Partners, CNP Assurances, CPR Private Equity, Fondinvest Capital, Nobel and Paluel Marmont Finance, whilst the remainder came from across Europe, North America and the Middle East. Some of the leading investors in the fund from outside France included Allianz Private Equity Partners, Commonfund Capital, Frank Russell Private Equity Group, HarbourVest Partners, LGT Capital Partners and Affiliates and clients of Pathway Capital. MVision Private Equity Advisers worked with the firm to raise these further funds and acted as exclusive financial adviser. Chequers will focus on deals ranging from €30m to €200m in size across a range of sectors within France, excluding technology and real estate. Following in the Charterhouse SA tradition, Chequers Capital intends to invest in mainstream, traditional businesses that have solid cashflows. The fund has already made four investments totalling €40m.

Tough market hampers Go Equity fundraising
Go Equity, the Austrian private equity investor, has closed Go Equity II, its second private equity fund. The firm has raised €54m, just over half the original €100m, in what Go Equity director Chris Kennedy described as an ‘extremely challenging’ fundraising environment. Investors in the fund include Gerling Insurance, European Investment Fund, Sal Oppenheim, the Raiffeisen Group and City of Zurich Pension Fund. Despite the lower than projected final close, Kennedy said that the firm was optimistic about opportunities in the Austrian market. “We’ve identified 6,000 businesses in Austria with turnovers of between €5m and €50m. As one of the few players in the sector, we will have access to the best opportunities. Although we’re a generalist fund, we are looking to make investments in automotive supply, synthetic materials and retail and consumer.”

The firm is planning to make 15 to 20 development capital investments with equity commitments ranging between €3m and €5m.

Strong demand for Goldman’s sixth FoF
The private equity group of Goldman Sachs has closed GS Private Equity Partners 2002, its sixth primary fund of funds. Launched a year ago with a target of $750m, the fund received total commitments of $1.2bn from institutional and private investors, with a substantial amount coming from European investors. The bank itself and numerous employees are also invested in the fund.

Goldman will invest the fund in buyout partnerships worldwide, without there being any specific targets for any of the regions. Investment in Europe will be overseen by Marc Boheim, who is also responsible for Goldman’s European coinvestment programme.

Deutsche Beteiligungs confident for fund IV
German private equity house Deutsche Beteiligungs has held a first closing for its latest fund, having raised €120m in a difficult fundraising environment. The fund, the firm’s fourth, is hoping to raise €250m for investment in industrial Mittelstand companies with turnover of between €50m to €500m and based in Germanspeaking countries. The fund is the first raised by the firm to seek commitments outside its traditional shareholder base.

Deutsche Beteiligungs spokesperson Thomas Franke attributed the strong first close to the performance of the firm’s previous funds. “Although many investors are concerned by the weak economy and difficulties over German tax laws, we have managed to close on target because investors like our story.”

The new fund will make investments over the next three to five years, investing between €10m to €60m per investment. “Despite the downturn in the economy, we think it is a good time to be investing a fund,” added Franke. “Multiples have been coming down and there are some interesting deals in the pipeline.”

Franke said the firm is “very confident” of achieving the initial target of €250m and that a second close was scheduled for early 2003. “A number of investors have told us that they are keen to come on board at the second closing, which makes us confident of achieving our €250m some time in mid-2003.”

Former IK man Mix to launch €600m fund
Harald Mix, a co-founder and former senior executive at Stockholm-based LBO house Industri Kapital, is preparing to launch a €600m buyout fund to invest in the mid-market in the Nordic region.

Mix, a pioneer of the Nordic buyout industry with a reputation for taking a banker’s approach to deal making, helped establish Industri Kapital in 1989 and turn it into the region’s largest private equity house by value of deals done. He left the firm a little over a year ago. Mix is believed to be recruiting an investment team to target investments in small to medium-sized companies in Scandinavia, while holding talks with institutional investors to establish market interest in the project.

Stirling Square wins $250m cornerstone
Stirling Square Capital Partners has announced that it has received a $250m commitment to its inaugural fund from global financial services giant Citigroup. The firm, where three of its six partners are ex-Compass Partners, says that it is aiming to invest in companies across Europe that have enterprise values ranging from $50m to $500m.

The firm puts particular emphasis on its ‘strong local European expertise,’ and references Germany, Italy, Scandinavia, the United Kingdom and France as key target markets. Partner Jakob Förschner said: “Citigroup’s commitment will enable us to realise our goal of building local champions into international players. Whilst we intend in due course to raise additional sums from further sources we are actively pursuing investments at present.”

TVM V closes 50 per cent below target
Techno Venture Management, the USGerman venture capital fund, has held a final close on its fifth venture capital fund, TVM V Information Technology, at €128m. The close, which takes the firm’s total fundraising through the €1bn barrier, is way below the original target of €250m for the fund.

“Given the changing environment for venture capital investing, we decided to reduce the targeted fund size rather than shift from our strategy of investing in early-stage German and US companies,” said Friedrich Bornikoel, managing partner at TVM. The TVM V Information Technology fund aims to make between 15 and 20 investments in early stage companies over the next three years. As with previous funds, TVM V will target investments both in Europe and the US.

“We are more than satisfied with what we have achieved in this demanding funding environment. We have retained the support of many long-standing investors and we have attracted several new investors,” said Bornikoel. Previous investors in TVM funds include Adveq, Allianz Group, GE Capital and UBS.

$200m Russian fund to target energy
Russian private bank Alfa Bank has announced a partnership with Russian energy investment group Vostok Nafta Investment to launch a private equity fund targeting consolidation opportunities in the oil and natural resources sectors in Russia and neighbouring countries.

Alfa-Eco, an asset management division of Alfa Bank, and Vostok Nafta have contributed a total of $20m to the fund’s first closing, which is subject to minimum further commitments of $30m from third party investors. The fund is targeting a final close of $200m. The fund has been set up to participate in what it sees as the last stages of consolidation in the Russian natural resources industry, which Vostok Nafta Investment chairman Adolf Lundin expects to take place over the next 18 months.


Clarke, Robert join Permira
Private equity firm Permira has announced a number of senior appointments as it prepares for what the firm predicts will be an upturn in the European buyout market. Martin Clarke, until recently a senior executive at PPM Ventures, the private equity arm of Prudential, has joined in London. After leaving the Pru last year, Clarke had considered setting up his own private equity business, but in light of current market conditions decided against launching a fund. “Joining Permira was a logical step, given my background and their appetite for new investment,” he said.

The firm has also hired Philippe Robert as a partner and head of its Paris office. Robert spent his career in investment banking both in Paris and London, initially at BZW. In 1998 he joined DLJ, which became part of CSFB in 2000. He was a managing director at the bank and focused on financing and M&A activities in the telecommunications, financial services and industrial sectors.

SG sets up German leveraged unit
SG, the corporate and investment banking division of French bank Sociéte Générale, has hired former Merrill Lynch managing director Claus Peter to help establish a German leveraged finance operation for the bank. Peter, who previously headed up Merrill’s German leveraged finance business in Frankfurt, will develop the firm’s presence in Germany, reporting to London-based René de Laigue, the bank’s global head of leveraged and acquisition finance. The move by SG follows earlier initiatives in the UK, France and Spain, where the bank has already established leveraged finance operations.

Several European banks have underscored their commitment to the German market, although overall LBO activity, given the size of the country’s economy, has been slow. Recent data from the Centre for Management Buyout Research (CMBOR) showed that German LBO activity in 2001 fell by more than half, from €15.1bn the previous year to €7bn.

This year, SG’s leveraged division has acted on deals including Legal & General Ventures’ sale of UK seafood business Young’s Bluecrest to management for £137m, LGV and Royal Bank Private Equity’s €400m-plus secondary buyout of French casino operator Moliflor Loisirs from PPM Ventures, and 21 Invest’s acquisition of Spanish-based Logic Control in January.

CD&R builds European team
US private equity house Clayton, Dubilier & Rice has made senior appointments to its London office. Christopher Spencer is to join the firm as partner, moving across from rival Candover, where he was involved in setting up the UK firm’s Paris office.

Spencer’s arrival at CD&R follows the appointment of Bruno Deschamps, formerly the President and COO of Ecolab, who joined the firm as an operating partner earlier in October. Last August, Olivier Cognet joined in August from Cisco Systems, where he was Director of Corporate Strategic Business Development.

CD&R opened its London office in 1999 and has since made seven investments in Europe. Its most recent acquisition was the $1bn buyout of Brake Brothers, the UK food supplier.

Duke Street promotes Taylor
Duke Street Capital has installed Peter Taylor in the new position of head of private equity. Promoting Taylor, who used to be in charge of Duke Street’s private equity operations in the UK, is part of an overall restructuring of the firm’s private equity business. Taylor will oversee four newly created country teams operating in the UK, Spain and France, where Duke Street has local offices already, as well as Germany, where an office is to be established soon. Taking over from Taylor as head of UK operation is Tim Lebus. The French team is led by Frédéric Chauffier, the German team by Ervin Schellenberg and the Spanish team by Robert Warfield.