THE HUNTED TURNS HUNTER

Harbert Mulherin knows better than most the excruciating process of selling off an entire private equity programme – in 1999, while at technology consulting group EDS, he oversaw a major partnership disposition valued at nearly $500 million (&€422 million).

Now Mulherin is back in the secondary game, this time as a buyer. His new firm, Dallas-based Live Oak Capital, has a fresh pool of capital supplied by private firms Sammons Enterprises, Sponsor Investments and Guggenheim Partners. The fund will seek LP interests on the smaller end of the market – between $5 million and $20 million in value.

Mulherin's path to private equity was unconventional. A native of Tennessee, Mulherin ran his family's cotton business until he was in his 30s. The experience was not a bad preparation for finance. “Being a cotton farmer, I was very familiar with trading, speculating, hedging,” he says.

In the late 1980s, Mulherin got a job at Ross Perot's Plano, Texas-based EDS in the business development division. The company was growing at a break-neck pace, and EDS, contemplating an eventual move toward an in-house direct investment programme, began committing capital to buyout partnerships, including ones managed by upstart firms Welsh Carson, Apollo Advisors, Texas Pacific, Hicks Muse, Kelso and Blackstone.

As the late 90s unfolded, it became clear that EDS would not, in fact, launch a merchant bank. “We looked up one day and said, “You know what? We've got hundreds of millions of dollars in [private equity], and it's not a core competency,”” remembers Mulherin.

An auction was organised and Dallas-based Crossroads Group was “by far the highest bidder”, says Mulherin. A total of 15 buyout partnership interests and one venture capital fund interest changed hands for nearly $500 million, making the deal one of the largest on record in the secondary market. (Crossroads was acquired by Lehman Brothers last year).

The sale also ended Mulherin's job at EDS. He spent time with St. Louis-based venture capital firm Griffin Holdings, and was briefly affiliated with Georgia's ITC Holdings, before launching Live Oak Capital. Mulherin says his long relationship with many prominent GPs gives him an edge in the secondary game, as do the resources afforded him by his backers.

The secondary market has gathered steam since 1999. “Since opening the doors on January 1, I've been head over heels,” Mulherin says.

THREE NEW BDCS FROM GLEACHER, TOM LEE, GORES
The beating of the business development company drums continues. Recently, three investment veterans have lined up with proposed publicly traded investment vehicles targeting mid-market companies. New York investment banker Eric Gleacher has filed to take public a BDC, Gleacher Investment Corporation, and is seeking to raise $500 million (&€419 million) for senior and mezzanine debt investments in private companies. Gleacher – the founder of global advisory firm Gleacher Partners and before that head of mergers and acquisitions at Lehman Brothers and Morgan Stanley – will be managing the fund alongside Emil Henry and Jeffrey Tepper, both Morgan Stanley veterans.

Boston-based Thomas H. Lee is seeking $500 million for THL Investment Capital, while Los Angeles technology buyout firm Gores Technology is seeking $250 million for Gores Investment Corporation. Gores closed its debut third-party private equity fund last November on $400 million.

UTAH'S PETERSON PARTNERS CLOSES DEBUT FUND
The Salt Lake City, Utah-based private equity firm has raised $105 million (&€87 million) for its debut vehicle. Peterson, an early investor in discount airline success JetBlue, was founded in 1995 by Joel Peterson and Jordon Clements to acquire small- and mid-sized companies. The firm's “investment partners” include JetBlue's founder, David Neeleman; Dave Checketts, former CEO of New York exhibition venue Madison Square Garden; Robert Nakasone, former CEO of Toys R Us and a Staples board member; and Martin Trust, founder of Mast Industries and member of the boards of The Limited and Staples.

The Peterson fund closes hot on the heels of Sorenson Capital's debut vehicle, another Utah-based private equity firm (see story p.28).

NOVAK BIDDLE RAISES FOURTH FUND
The Bethesda, Maryland-based venture capital firm has completed fundraising for its fourth vehicle on $150 million (&€126 million). Novak Biddle Venture Partners is led by Rogers Novak and Jack Biddle and seeks “cutting-edge” technologies, many of which are sourced amid Washington's government-backed research and development community. The new fund, whose investors include blue chip pension funds, university endowments and entrepreneurs, will invest between $100,000 and $10 million per company.

QUEBEC'S CAISSE ANNOUNCES PRIVATE EQUITY SHAKEUP
Canada's Caisse de dép^t et placement du Québec, the Montreal-based manager of public pension money will consolidate three direct private equity operations – CDP Capital Communications, CDP Capital Technology Ventures and CDP Capital Americas. In addition, it has retained consultant Ernst & Young to recommend an external manager for its C$300 million ($218; &€180 million) direct venture capital investment portfolio.

The Caisse also announced its intention to invest more than $200 million in Québec's venture capital industry over the next three years. It has C$10.3 billion of assets under management as at December 31, 2003 and its private equity holdings represented 7 percent of total assets under management.

HARVARD BACKS ‘VENTURE BUYOUT’ FUND
The Harvard Management Company has led such notable limited partners as HarbourVest, University of Michigan and Silicon Valley Bank, in helping Redwood City, ([A-z]+)-based Garnett & Helfrich Capital close a $250 million (&€211 million) debut private equity fund. The firm – founded last year by managing directors Terry Garnett, a former general partner at New York venture capital firm Venrock Associates, and David Helfrich, an early investor in ComVentures, a communications venture fund – buys underperforming and non-core parts of public companies in the communications, Internet, media, semiconductor and software sectors. The fund has a “venture buyout” focus. Other LPs include Stanford Management, HarbourVest, RHO Management, University of Michigan, Columbia University, Comprehensive Financial Management, Capricorn Holdings, Park Street Capital and Silicon Valley Bank. Garnett & Helfrich is “exactly the kind of new fund manager that we want to back and put in business,” said Peter Dolan, director of private equity at Harvard, in a statement. “Garnett & Helfrich Capital can be built into a franchise fund addressing a newly emerging investment category, venture buyouts.”

QUANTUM POWERS UP FUND III
The Houston, Texas-based oil and gas specialist has closed its third fund, rounding up a total of $345.5 million (&€292 million). Quantum Energy Partners succeeded in attracting an Alist of limited partners, which includes General Motors Asset Management, Goldman Sachs, Stanford University and Morgan Stanley. The firm is led by managing partners Wil VanLoh, who previously co-founded energy investment banking firm Windrock Capital; Toby Neugebauer, who also co-founded Windrock and AV Jones, who boasts decades of experience owning and operating his own exploration and production companies and is a former chairman of the Independent Petroleum Association of America.