NIB to back Virtue, Clempson in Deutsche MBO

The Dutch private equity house is helping DB Capital Partners’ management prepare a MBO from Deutsche Bank.

Dutch private equity house NIB Capital is developing a bid to back Deutsche Bank’s private equity arm in its negotiations to buy the bank’s €1.5bn late stage direct private equity portfolio.


Deutsche Bank said today that it was in exclusive negotiations with Ted Virtue, the New York based chief executive of DB Capital Partners, and Graham Clempson, the unit’s European managing partner.


According to a source close to the negotiations NIB Capital is understood to be in advanced talks with the Deutsche duo to ensure they have the firepower to buy Deutsche out of its obligations to the asset class.


The source said: “The easy part is buying the team out. The issue is the financing to take the assets off Deutsche’s balance sheet. The management team will continue to manage the portfolio while finding deep-pocketed investors to take over Deutsche’s investment, in a secondary purchase of the assets.”


The assets in question include Center Parcs, the leisure concern bought out in December 2000 for €1.1bn, and United Biscuits. In addition, Deutsche and the DB Capital team are discussing the sale of other direct private equity assets with a book value in excess of a further €1.5bn.


Rumours of a possible MBO at DB Capital first spread in early October when it emerged that the bank was looking to scale back its private equity operations following a sharp fall in the division’s technology and telecoms investments. Early reports suggested that KKR, Merrill Lynch and Goldman Sachs had expressed an interest. Later, NIB Capital was said to be preparing an offer for the portfolio.

A buyout of the management team and the portfolio is believed to be the most attractive option for the bank for a number of reasons. The bank is understood to have looked for outright buyers, but had concluded that the complexities involved outweighed any advantages in a quick sale. The source said: “It is a much better deal for Deutsche, if Virtue and Clempson stay in place. They won’t have any change of control clauses to worry about, for example. They know them and trust them and Deutsche may even retain a small sliver of equity.”


A sale to Clempson and Virtue, backed by NIB Capital, would also have the advantage of avoiding a potentially embarrassing sale to a rival such as Goldman Sachs. The source said: “The bank would hate it if in three years, Goldman Sachs turned round and made a killing from the portfolio that Deutsche decided was too rich for its blood.”


NIB Capital is believed to be working closely with another private equity manager and a private family investor to arrange financing for the buyout.


The deal is far from done, however. Morgan Grenfell Private Equity’s efforts to buy itself out from the Deutsche went through more twists and turns than a Grand Prix circuit, only to founder in late 2001 on the wreckage of the fund’s loss-making Formula One deal.


Deutsche said that negotiations are currently at an early stage and that further announcements will be made ‘as appropriate’. Ted Virtue declined to comment. In London, Graham Clempson could not be reached. NIB Capital declined to comment.

DB Capital is also in the process of reducing its exposure to private equity partnership commitments through the formation of a collateralised fund obligation.