Lehman spin-out has $1.7bn in dry powder

Renamed Trilantic Capital and still led by Charlie Ayres, the firm will be ‘patient’ in choosing investment opportunities. In an interview with PEO, Ayres said his firm will look for chances to inject quality, over-levered companies with equity capital for some form of control.

Trilantic Capital Partners, the firm that has emerged from Lehman Brothers Merchant Banking, has $1.7 billion of dry powder and will be looking for opportunities to invest in over-levered companies looking for equity capital.

“If there’s a twist on our strategy going forward, it’s to take advantage of the de-leveraging going on around the world,” Charlie Ayres, head of Trilantic, said in an interview with PEO Thursday.

“Many well-run and good companies will find themselves over-levered in this environment for the next 24 to 36 months at least, and they will be looking for equity capital that will come with some form of control that we plan to participate in,” Ayres said.

Trilantic will apply the strategy across various sectors, including energy, healthcare, financial services and consumer, Ayres said, adding the firm has three years left to invest its remaining capital.

Trilantic officially spun out from Lehman Brothers Merchant Banking on 10 April. More than 300 limited partners in the merchant banking funds voted in March to approve the management spinout.

The transaction was funded by a joint venture with Reinet Investment, led by South African billionaire Johann Rupert. Reinet bought a 49 percent stake in Trilantic for $10 million and will take over Lehman Brothers Holdings unfunded commitments to Fund IV of about $230 million. Trilantic’s management team will own the remaining 51 percent of Trilantic.

Trilantic will manage about $3.3 billion in assets, including about 20 holdings in Lehman’s merchant banking Fund III and IV. Lehman Brothers Holdings and the Trilantic management team retain their interests in the general partnership of Fund III.

Lehman Brothers Holdings, the bankrupt parent company, retains its limited partner interests in about $230 million of investments in Fund III and IV. Lehman filed for the largest bankruptcy in history in September after the US government declined to rescue the bank. Lehman has already spun off its venture capital business, its investment management division, including Neuberger Berman, and is working to sell its $9.7 billion private equity real estate group.

Trilantic will be run by Ayres, former managing director and head of global merchant banking for Lehman, along with E. Daniel James, Joseph Cohen, Vittorio Pignatti-Morano and Javier Banon.

Trilantic’s fund will be called Trilantic Capital Partners Fund IV, which Ayres said reflects the management team’s long history raising and managing Lehman’s merchant banking funds.

“This management team has been together fully through two funds, funds three and four. The current team did not raise fund two but certainly managed out fund two,” Ayres said.

Trilantic will officially begin operations on 15 May and keep its offices at 399 Park Avenue. The firm will be patient in terms of choosing investments because an economic recovery is still about two years away, Ayres said.

“If we find, and we’re likely to find, some compelling opportunities, we have the ability to move quickly on things, but my bet is there’s still plenty of pain to come, and earnings are going to be a real challenge for companies over the next two years,” Ayres said.

“Until the consumer feels and acts de-levered and until unemployment bottoms out and reverses, it’s hard for me to see a recovery,” he said. “It’s an incredible investment market, it’s the right period to invest, but we’re not in a rush.”

The name Trilantic comes from the fact that the firm has offices in New York and London and a third “Atlantic-based” relationship with Reinet in Cape Town, South Africa.