Cash back is the most effective investor relations tool known to private equity professionals, and now that market conditions have substantially improved, many general partner groups are currently making better use of it than they have for years.
European mid-market investor Industri Kapital is a case in point. The flotation in late March of Oriflame Cosmetics, Sweden's first Initial Public Offering in two years, generated a cash multiple of nearly six times IK's €90 million ($108.9 million) equity investment in the company, according to sources close to the transaction.
IK sold Oriflame shares worth €225 million to the public and retained a 19 percent equity stake which is currently valued at around $230 million. In May 2003, it had already received a €70 million dividend from Oriflame following a recapitalisation.
The exit came just weeks after the firm had completed what amounted to an almost eight fold return from selling its remaining holding in Nobia AB, the Swedish kitchen manufacturer it floated in 2002 after an initial €33 million equity investment from its 1994 fund. The sale, which took total proceeds from the Nobia bet to €270 million, prompted Björn Savén, IK's chief executive, to describe the investment as an example of “how buyouts can work.”
Both realisations came at an important time for IK. The firm is still in the market with its fifth fund, hoping to add substantial commitments to the lowly €500 million it had raised by the time of the first close in October 2003.
The firm is working hard to get the new fund over the finishing line. Launched in the spring of 2002, its initial target of €2.5 billion has been reduced to €1.6 billion. Also, according to investors familiar with the offering, several other terms and conditions have been given a more investor-friendly slant, and a substantial improvement to IK's investor relations and communications policies have been noticeable also.
This makeover is likely to have a positive affect on IK's fundraising prospects, but the real test will be whether it can keep up the pace on exits. Sources say further realisations are expected later this year. Compagnie de Fives-Lille, a France-based engineering business, and salmon distributor Labeyrie, another French investment, are said to be preparing liquidity events.
Both companies are part of the portfolio owned by IK 2000, the €2.1 billion fund that is currently 80 percent invested. Getting some more of that fund's capital back to LPs as well would further boost the appeal of Fund V.
AXA CLOSES €250M EARLY SECONDARY FUND
Secondary funds continue to appeal to the buy side. The Paris-headquartered fund manager has closed its Fund of Funds II on €250 million ($306 million), in line with the target amount stated when the fund was launched in May 2003. The fund, which is 25 percent committed, has made seven investments so far. More than half the investments made so far are from 2003 vintage funds. Dominique Senequier, chief executive officer of AXA Private Equity, said the unit had enjoyed great success in Germany where it arrived in the market “just as everyone else was moving out”. She added that the company was now looking to develop its UK operations headed by managing director James Pitt.
HANDS HAS €2BN
Terra Firma Capital Partners, the European private equity firm founded by UK financier Guy Hands, has closed its debut buyout fund on €2 billion ($2.49 billion), scaled back from its original €3 billion target. It is the largest first-time private equity fund ever raised by a European manager. The firm held a second closing on €1.7 billion in September 2003 before adding another €300m to reach the total. Hands, who put around €20 million of his personal wealth into the fund, predicts that it will take up to three years to invest the capital in seven to ten leveraged transactions. The group is targeting deals of around €1 billion in enterprise value and expects to commit up to 40 percent of the fund to Continental Europe.
CLOSE BROTHERS PE CLOSES £360M FUND
US institutions are pushing into European mid-market funds. This was underlined once more with the announcement in March that Close Brothers Private Equity (CBPE) has capped its latest fundraising (Fund VII) at £360 million (€528 million; $649 million) within six months of launch. Around 45 percent of commitments came from the US, with the remaining 55 percent equally divided between UK and continental European investors. The fund's LPs include AIG Global Investment Corp, AlpInvest Partners, JP Morgan Fleming, Lockheed Martin Pension Fund and Scottish Widows. CBPE managing director John Snook said CBPE would now consider a maximum transaction size of £100 million, with the minimum transaction size remaining at £10 million. “That is important to us because we want to retain the ability to invest over a wide spread of midmarket deals,” said Snook.
€500M GERMAN FUND OF FUNDS LAUNCHED
ERP-EIF Dachfonds, a new €500 million ($608 million) state-sponsored fund of funds, has been established in Germany to invest in domestic high-tech venture capital funds.
ERP-EIF Dachfonds is a joint venture between the German Federal Ministry of Economics and Labour and the European Investment Fund (EIF). Both parties are committing €250 million to the fund, which will be managed by EIF. The fund's main aim is to support funds focusing on investments in early and development stage technology companies in Germany.
NORDWIND RAISES €300M FOR GERMAN TURNAROUNDS
The Munich-based private equity firm established in 2002 by former Carlyle executive Hans Albrecht, has held a final close of NCP Fund I, a €300m ($373 million) equity fund aimed at making control investments in underperforming companies in Germany, Austria and Switzerland. 70 percent of the institutions that committed to the oversubscribed fund are based in the US, 20 percent in Europe and ten percent in Asia. Nordwind will invest the fund mainly in medium-sized German businesses with financial or operational weaknesses that are either privately owned or part of larger corporations. The firm intends to invest between €20 and €60 million of equity capital per transaction in target companies with up to €1 billion in annual sales.
B-BUSINESS PARTNERS RETREATS
B-business Partners, one of the most high-profile European venture capital groups established during the technology boom in 2000, has brought a halt to new investments and is set to close its offices in London and Stockholm. The firm's chief executive officer Lennart Johansson confirmed that new deals are “off the agenda for the foreseeable future”, but he did not verify reports that the firm was planning to return up to €500 million ($623 million) of its €728 million ($908 million) fund to investors. Johansson said that the firm would now be focusing on existing portfolio companies, but would not be liquidating its holdings. “We are not looking for immediate exits,” he said. “We will examine possible mergers with other companies as well as acquisitions and organic growth.”
ARCIS CLOSES €175M SECONDARIES FUND
Founded in 1993 by Arnaud Isnard, along with Jeremy Coller one of the pioneers of the private equity secondaries in Europe, Paris-headquartered Arcis announced the final closing of ESD Fund III at €175 million ($212 million).The fund, which held an initial closing in February 2003, is the third of the group's vehicles to focus exclusively on the European market. At present, it is ten percent invested. With equal backing from US and European investors, Arcis also achieved a similar ratio of new versus existing investors. The new fund closed at almost twice the level of its predecessor.
Market sources indicate that there is still considerable demand in the marketplace for secondary funds, despite the fact that significant amounts of capital have been raised for the strategy recently. In late 2002, London-based Coller Capital closed a $2.5 billion (€2.1 billion) secondaries fund, the largest such structure ever assembled. Multibillion vehicles raised by Lexington Partners and CSFB Private Equity followed. Last month, AXA Private Equity closed its Fund of Funds II on €250 million which target private equity secondaries. In late 2003, Swiss private equity manager Partners Group held an interim closing for its debut secondary fund on €90 million.
ICG READIES €1.5BN MEZZANINE POOL
Intermediate Capital Group, Europe's largest dedicated mezzanine specialist, has secured equity commitments of over €650 million ($793.8 million) to ICG Mezzanine Fund 2003. In a press release, ICG revealed its intention “to gear up this fund to not less than 1:1”. As a result, ICG expects the fund to have cash resources of up to €1.5 billion, an increase of more than three times its previous mezzanine vehicle raised in 2000.
The size of ICG's new fund reflects recent trends in the European mezzanine marketplace, with subordinated debt funding increasing to €4.03 billion in 2003. More and more mezzanine funds are being dedicated to Europe and the increased size of funds demonstrates a serious commitment to this sector. Last year, Goldman Sachs closed the largest mezzanine fund ever raised, GS Mezzanine Partners III, with $2.7 billion of available capital, targeting investments in Europe and North America.