Hellman wins $199m DIAL beauty parade

Hellman & Friedman, following an unusual bidding process, has agreed to back London-based asset manager Delaware International in a $199m transaction.

Hellman & Friedman, the San Francisco-based buyout firm, has agreed to acquire a minority stake of just under 50 percent in Delaware International Advisers Ltd (DIAL), a fund management firm operating out of London. DIAL’s UK-based management team will own a controlling stake in the company.

DIAL, with $19 billion (€15.6 billion) of assets under management, offers US investors non-US focused investment services primarily in long-only equity and fixed income strategies.

Under the deal, Hellman will pay DIAL’s previous owner Lincoln National Corporation $172 million in cash and assume $27 million in additional obligations, according to a statement issue by the vendor.

According to Patrick Healy, a managing director at Hellman who worked on the deal, the majority of the funding will be equity supplied by the firm, with a small debt package being provided by Capital Source, a US lending house.

Hellman came to invest in DIAL following a selection process that is standard practice in mainstream fund management, but unusual in private equity.

Instead of conducting a more conventional auction, DIAL’s management chose to hold preliminary talks with several private equity firms before inviting these firms to respond to a ‘request for proposal.’ Commented Healy: “We produced a 40-page document detailing exactly how the deal would be structured and how it would work. They really turned the auction process on its head, but as a result I’d like to think we were chosen on merit.”

Hellman invested from Hellman & Friedman Capital Partners IV, a $2.2 billion fund closed in 2000 that is now near to being fully invested. The firm is currently in the market with Fund V, although Healy declined to comment on the current status of the fundraising.  

The firm, whose recent additions to its European portfolio include German media companies Axel Springer and ProSieben Sat.1, has a history of investing in financial services assets. Past investments in the sector include asset managers Brinson Partners, Franklin Resources, Farallon Investment Management, Oechsle International and Artisan Partners.

Commenting on Hellman’s taking a minority stake in DIAL, Healy said: “It is our experience that the best money management businesses are employee owned, so we undertook to create a structure where DIAL’s employees have control of their business.”

This approach also implied, Healy added, that Hellman was more likely to realise its investment by selling its stake back to management or list the business on a stock exchange, as opposed to selling it to a trade buyer.