Greenhill spin-out plans two funds

Greenhill Capital Partners, the private equity unit of investment bank Greenhill & Company, will spin out into an independent firm as its parent narrows its focus to advisory work.

“Our transition to an exit from merchant banking is not a reflection of the quality or the potential of that business. It is merely a reflection of the fact that the opportunity we see in the client advisory business has expanded considerably, and that capital needs and other differences between the two businesses inevitably become more pronounced as they each grow,” Simon Borrows, Greenhill co-chief executive officer, said in a statement.

Robert Niehaus, chairman of Greenhill Capital, will lead an entity that is purchasing Greenhill’s private equity unit for $25 million. Other Greenhill Capital employees will slowly transition to the spin-out over time.

Greenhill will continue to manage the private equity unit’s four existing funds through Niehaus, who has led the division since 2000. The investment bank also will hold the investment portfolio, which had a fair market value of $178.5 million as of 30 September 2009.

The bank will work with the fund investment teams to “maximise the value …over a number of years”, Greenhill said in a statement. Greenhill will use the proceeds from the portfolio to fund share repurchases and dividends and reduce its debt load.

Greenhill also pledged to make “a modest commitment” to two funds that will be raised by the independent firm, though the bank will not be responsible for fees on the commitments. The bank will own a “modest” portion of the carried interest in the exiting private equity funds and the two planned funds.

Greenhill also will continue to own its fund placement advisory group, which will act as placement agent for the spin-out in raising the two planned funds. Details about the planned funds were not disclosed.

Greenhill Capital was founded in 2000 and manages four private equity funds totalling $1.7 billion in committed capital. The unit invested more than $1.2 billion in more than 50 portfolio companies across several industries, including energy, financial services, for-profit education, telecommunications, technology-enabled services and business and information services.