Europe – March 2003

EuropeDeals & Exits
DB confirms €1.5bn private equity spin-out
After many months of negotiations dating back to last summer, Ted Virtue and Graham Clempson, chairman and European head respectively of DB Capital Partners have completed the management buyout of the late stage private equity portfolio of Deutsche Bank via their new vehicle, MidOcean Partners. They have agreed to pay just over €1.5bn for the business, which consists of 80 investments in large and medium-sized enterprises in Europe and the United States. In Europe, the portfolio includes Center Parcs, United Biscuits, Lecta and Jefferson Smurfit. In the United States, principal investments include Jostens, Prestige Brands, Noveon and Jenny Craig.

NIB Capital leads the group of ten investors backing the buyout. NIB Capital Private Equity will invest a total of €312m in the transaction out of the syndicate’s total investment of €1.2bn. Deutsche Bank will retain an interest of 20 per cent in the portfolio. The remaining nine contributors to MidOcean Partners are the Ontario Teachers’ Pension Plan and CPP Investment Board, HarbourVest Partners, Paul Capital Partners, Bregal, Coller Capital, Northwestern Mutual, The Yucaipa Companies and Presidential Life. Josef Ackermann, chairman of Deutsche Bank’s group executive committee, described the sale as “an important step in reducing the bank’s exposure to private equity.” PEI talks to Ted Virtue about the deal and his plans for the business on page 52 of this issue.

Cologne setback for Terra Firma
Political turmoil in the City of Cologne has forced Terra Firma Partners to abandon what would have been the first transaction funded by Terra Firma Capital Partners II fund. Terra Firma, led by Guy Hands, had signed an initial agreement with the City of Cologne government in mid-December to acquire the city’s 68.8 per cent stake in GAG Immobilien, a property manager listed on the Frankfurt and Düsseldorf stock exchanges, and another 10 per cent of GAG’s equity that is currently owned by Cologne City Savings Bank. The deal was valued at a total of just under €2bn.

The transaction comprised 42,000 publicly-owned flats in Cologne. Terra Firma would have invested €300m of equity, alongside another €300m coming from Landesbank Hessen-Thüringen. The remaining €1.3bn would have been provided through debt. “The deal fell foul of the uncertain political climate in Germany,” said David Pascall, head of Terra Firma’s German operations. “We’re disappointed that the sale to a responsible purchaser has been rejected. The sale seemed to be an ideal solution to the City’s financial plight.”

AXA buys CDC Ixis fund portfolio
Axa Private Equity, the private equity unit of French insurance group Axa, has acquired a portfolio of ten private equity and venture capital private equity partnership investments from French private equity house CDC Ixis Private Equity. Axa is paying €170m for the portfolio, which was put up for sale by CDC last autumn. The deal is yet to be announced by the two firms.

The portfolio comprises ten investments in private equity funds held by CDC Ixis Private Equity, including interests in France Private Equity, a fund managed by Butler Capital Partners, and PAI LBO Fund, the first vehicle managed by PAI Management which is currently investing its third fund. The deal enables CDC Ixis, the private equity unit of the French bank Caisse des Depots et Consignations, to reduce its private equity allocation, brought on by the introduction of Basle II, which requires bank and insurers to reduce their exposure to certain types of risk.

Coller Capital acquires BT venture unit
In its second acquisition of a telecommuncation company’s in-house venture capital group, London-based secondary specialist Coller Capital has teamed with New Venture Partners to acquire British Telecom’s inhouse venture capital unit Brightstar. All parties involved are committing $100m total to the venture, called NVP Brightstar, according to a press release. That money will be used to acquire Brightstar’s current portfolio of companies as well as future investments.

New Venture Partners, which Coller established in December 2001 through a $100m management buyout of Lucent’s New Ventures Group incubator, will oversee the portfolio and manage new investment decisions. British Telecom will maintain a 23 per cent stake in the newly created firm with Coller owning the majority stake. “This is an exciting partnership we were able to form,” Tim Jones, an investment director for Coller Capital, said. “We are accelerating the spin out of these companies as a portfolio solution while British Telecom keeps its stake.”

Goldman funds Morgan Grenfell asset sale
Deutsche Bank-owned Morgan Grenfell Private Equity has sold four portfolio companies to Vision Capital in a deal backed by Goldman Sachs Private Equity Group, which is part of the investment bank’s asset management business. Vision Capital is thought to be paying in the region of €100m for the assets, which include significant investments in three businesses, Deloro Stellite Group, Abrasive Technologies Holding and AB Cerbo Group, and a fourth, smaller investment in Shearings Group. Goldman Sachs in investing in the transaction through its $1.1bn Vintage II fund, a private equity secondaries vehicle.

The transaction follows a similar strategy pursued by Goldman in the US. Last year, also investing via Vintage II, the bank acquired a portfolio of direct company investments from Wachovia, a commercial bank, alongside private equity manager Peachtree Equity Partners. “The deal provides these businesses with active management and new capital which had not been available from Morgan Grenfell’s closed fund,” said Alister Wormsley, a director at Vision Capital. “It is especially significant given the relative lack of liquidity in the European market.”

Eight to bid for Bertelsmann unit
German media group Bertelsmann is to provide eight groups with financial data about its science and business publishing unit Bertelsmann Springer, with private equity firms featuring prominently among the bidding parties. The German company received 14 indicative offers for the business, ranging from €800m to €1.2bn, and has whittled this list down to eight. Private equity bidders for the business include a joint offer from Candover and Cinven. CVC Capital Partners has joined forces with Blackstone Group, whilst Apax Partners has teamed up with UK publisher Taylor & Francis. Soros Private Equity, BC Partners, EQT Partners and Permira have also moved through to the next round of bidding.

Eurazeo takes Eutelsat stake
French private equity house Eurazeo has become the latest European equity sponsor to enter the satellite market, taking France Telecom’s 23 per cent stake in European satellite operator Eutelsat for just under €450m. The transaction brings to an end the protracted talks between the two companies, which were halted last year when the two failed to agree a price, thought to be around €400m. The transaction values France Telecom’s stake at €447m, and Eutelsat’s equity at €1.93bn. France Telecom will reinvest a maximum of €74m for a 20 per cent stake in the holding company created to acquire Eutelsat. The net proceeds of the transaction for France Telecom will total €375m and will be used to reduce the group’s debt.

HSBC Private Equity exits Ampafrance
HSBC Private Equity has sold its baby products manufacturer Ampafrance to Canadian strategic buyer Dorel Industries. Exact terms of the deal were not disclosed although the price is thought to be in the region of $240m. The company had $187m in sales for its fiscal year ended September 30, 2002.

Close Brothers PE buys BP unit
Close Brothers Private Equity, the UK-based midmarket private equity firm, has reached agreement with UK petrochemicals group BP to acquire Fosroc Mining for £32m. CBPE is investing £14.26m – equivalent to 80 per cent of the equity – with the balance of debt funding provided by Barclays Leveraged Finance.

EuropeFunds & Buyside
UBS records SFr1.8bn private equity loss
UBS Capital, the private equity unit of Swiss-based UBS Bank, reported a pretax loss in the final quarter of 2002 of SFr362m (€246m) as the bank continued to write down its private equity portfolio. In the fourth quarter, the division made write downs of SFr389m across the portfolio in all regions although these were partially offset by SFr120m in capital gains from successful divestments. In November, the firm sold Dutch mobility aids manufacturer Welzorg to Industri Kapital. Overall, pre-tax losses in 2002 stood at SFr1.76bn (€1.2bn), an increase of 70 per cent on the SFr1bn that was written off in 2001. UBS head of communications Mark Branson said the bank could not rule out further negative contributions ‘over the next several quarters’.

Martin Currie to launch €300m FoF
UK fund manager Martin Currie has re-inforced its growing commitment to alternative assets with plans for a new fund of funds and a senior appointment at the firm’s private equity division. The Edinburgh-based firm has hired Paul Murray, a founding partner at Deutsche Bank Capital Partners since 2000, as managing director of its enlarged private equity team. The appointment forms part of Martin Currie’s plans to expand its private equity division over the next six months. As a first stage, Martin Currie is marketing a €300m European midmarket fund of funds vehicle. “We are looking to raise around €150m at the first close,” said Ross Leckie, a director at Martin Currie.

4D Global Energy to target oil and gas
4D Global Energy, a French-based oil and gas focused private equity manager backed by Société Générale Asset Management, has held a first close on $60m for a fund targeting the oil and gas industry. The fund, the first of its type in Europe, which has received a $25m commitment from SGAM, hopes to raise $150m by the year-end.

Investors in Viventures fund seek power change
Viventures II, the telecommuications and internetfocused venture capital fund launched by Vivendi Universal in June 2000 and managed by Viventures Partners, is the subject of a power struggle led by unhappy limited partners in the €500m partnership. A group of investors, including Compagnie Nationale à Portefeuille, the investment company of Belgian investor Albert Frere and Californian investment fund Global Asset Capital, are attempting to take control of the fund’s management firm. The fund’s current manager is thought to be against the proposal. Investors are unhappy at Vivendi’s decision, taken last August, to cease all investment into Viventures II, including follow-on investments. Frère and Global Asset Capital are said to have voiced their concerns at Vivendi’s continued management of the fund.

Lazard PE unit retrenches
Two years after launching its international unit, Fonds Partenaires, the French development capital subsidiary of Lazard, the investment bank, is to wind down its overseas operations. Original plans to launch a transatlantic fund for investments in the US and Europe have been shelved following the decline in the US markets.

The business, headed by Gilles Etrillard and Jerome Balladur, will now focus solely on the French market. Plans to expand into Southern Europe have also been axed. Fonds Partenaires’ director of international operations Gilles Laporte, former head of French insurance group Groupama, is to leave the firm. The firm’s Frankfurt-based operations, which had struggled to get a foothold in the tough German market, will also close.

ACT tops European tech VC fundraising
ACT Venture Capital, the Irish technology venture capital firm, defied the depressed fundraising environment for venture capital managers, closing its third technology fund on €170m. ACT 2001 has attracted a diverse range of international investors, including Bank of Ireland Asset Management, JP Morgan Fleming and Merrill Lynch, Partners Group, Access Capital Partners, Extorel, VCM, and the European Investment Fund.

Buyout funds dominate subdued fundraising
A year dominated by the sense of caution amongst institutional investors saw European private equity fundraising fall by over a third in 2002, according to the European Fundraising Review 2003, published by research firm Initiative Europe. It reports that €24bn was raised for investment in Europe in 2002, a fall of 37 per cent on 2001 and 42 per cent fall on the 2000 figure. France was highlighted as Europe’s key private equity market, accounting for 15 per cent of all European fundraising, led by PAI Management, which closed the largest fund ever raised by a French firm at €1.8bn.

WestLB to build buyout business
German bank WestLB looks set to become one of Europe’s largest private equity investors following its decision to allocate £3bn to European buyout opportunities. WestLB chairman Jürgen Sengera has agreed to provide Robin Saunders, head of the bank’s principal finance unit, with a large amount of buyout capital following lengthy negotiations about Saunders’ future within the group. Deals undertaken by Saunders and the team of 25 professionals at the bank’s principal finance unit will be subject to approval by Johannes Ringel, a WestLB board director, as well as the rest of the bank’s board. The bank has also asked Saunders to split the principal-finance and securitisation team into two units.

Pantheon exceeds target for Europe Fund III
Pantheon Europe Fund III (P€uro III), Pantheon Ventures’ latest European fund of funds, has raised €470m, attracting investors from Europe, North America, Asia and Australia. The vehicle will invest alongside other Pantheon clients within the framework of the group’s current three-year regional European fund program, which is expected to total some €2bn.

Pantheon says it will continue to weight its investment strategy towards later-stage and buyout funds, but will also make commitments to venture capital funds and special situations. The firm has recently committed capital to Barclays €1.2bn buyout fund, as well as Indigo Capital’s €475m mezzanine fund.

PolyTechnos closes below target
German venture capital manager PolyTechnos Venture Partners has held a final close of its second fund targeting investment in information technology, communications and life sciences on €130m, below the original €150-180m target. Investors in the fund include Access Capital Partners, Bank of America Equity Partners, Wilshire Associates Europe, two Asian government investment units, Kreditanstalt fuer Wiederaufbau and the European Investment Fund, which said that it committed €18m to the fund. The firm was in upbeat mood: “Now, especially given the economic situation, the time is right to invest in promising technology companies. The market offers great opportunities to invest as valuations have been reduced significantly and there is less capital available from professional VCs,” said Dirk Lupberger, managing partner at PolyTechnos.

Capital Stage abandons nanotech fund
Capital Stage, the Germanlisted technology investment firm, has decided to withdraw from the sponsorship of a recently launched nanotechnology fund, Capital Stage Nanotech Invest. When the fund was launched in March 2002, Capital Stage and a number of strategic partners agreed to commit €20m of a planned €100m total. The fund, which is reported to have so far received around €10m in capital commitments, will continue to be managed by a small Zurich-based team, led by Berndt Samsinger. “We are currently negotiating with a few groups for a new sponsor for the fund and hope to come to a conclusion in a couple of weeks,” he said, citing April as a realistic date for a first closing.

Halley family bets big on Vandevelde
Change Capital Partners, the start-up private equity business launched by Marks and Spencer chairman Luc Vandevelde, has secured access to €1bn of equity capital to invest in private equity transactions. The Halley family, which is the largest shareholder in the Carrefour retailing group, has set aside €700m for coinvestment with the firm’s first-time retail and consumer sector focused private equity fund. This is in addition to the €300m that the family has already committed to the fund as a cornerstone investment. Change Capital will focus on middle market deals up to €150m in value. The private equity firm is thought to be currently reviewing ten opportunities, mainly in the UK and France.

DBG on track for Fund II
DBG Eastern Europe, the private equity house set up with the backing of German private equity firm Deutsche Beteiligungs, has completed a first closing at €67.2m for its second fund targeting later-stage investments in the region. The first close of DBG Eastern Europe II has been completed with the backing of the predecessor fund’s limited partners: Deutsche Bank, EBRD, Mitsubishi Corporation and DEG. The second and final close will concentrate on attracting commitments from new investors.

CD&R shelves plans for German office
Clayton, Dubilier & Rice (CD&R), the blue-chip US buyout firm which has been keen to grow its activities in Europe beyond its London office, is not moving ahead with plans to set up an office in Germany. Benedikt von Schröder, a German national and former investment banker who joined CD&R in 2000 as a financial partner to build up a German office, has left the firm. The departure came after CD&R decided the German market would not generate sufficient investment opportunities to justify a permanent presence in the country. Since leaving CD&R, von Schröder has joined Augusta Finance as an advisor, spending two days a week advising the London based boutique investment bank on its activities in Germany.

Mezzanine Management hires ex-Pricoa director
Mezzanine Management, the UK-based provider of mezzanine and private equity financing set up in 1988, has expanded its team of European directors with the appointment of Rolf Brien. He joins the firm from Pricoa Capital, the mezzanine and equity business of Prudential Financial. Brien has also worked for Goldman Sachs in London and Price Waterhouse in Frankfurt.

DVC continues to build German team
Deutsche Venture Capital (DVC), the European life sciences and technology investor based in Germany, has made two appointments at its European life sciences team as it continues to build its team despite the downturn. Thomas Taapken, previously director of Aventis Venture Activities, and David Karabelnik, director of Breslin Biotech, join the firm’s life sciences team as director and consultant respectively.

Carlyle expands European venture team
Carlyle Group, the US private equity group, has sought to shore up its technology venture capital portfolio with the appointment of Ulrich Schumacher to the firm’s venture capital advisory fund. Schumacher led the spin-out of Infineon Technologies from Siemens in 1999, subsequently completing an initial public offering of the company in March 2000. Schumacher will continue as CEO of the Munich-based microelectronics business.

Debevoise expands London PE team
Debevoise & Plimpton, the US law firm which recently advised the NIB-led consortium in its acquisition of Deutsche Bank’s late stage private equity portfolio, has made a series of appointments at its European team based in London. Following the recent appointment of former Baker & McKenzie partner Marwan Al-Turki, Debevoise has hired two further lawyers to the firm’s private equity group. Christopher Mullen has joined Debevoise as a senior assistant from Freshfields Bruckhaus Deringer. Chézard Ameer has also joined Debevoise as a senior assistant from Baker & McKenzie. Geoffrey Kittredge, a senior assistant within Debevoise’s private equity practice group, has been promoted to International Counsel.