LOCUST REVISITED

It was back in April 2005 that Franz Müntefering, then chairman of Germany's Social Democratic Party (SPD), gave an interview to Bild am Sonntag in which he compared investors that buy companies for short-term gain with the biblical plague of locusts that descended on Egypt, stripping the country of all its vegetation.

More than three years on, locusts are once again a talking point in the German private equity market. But time, it seems, is a great healer. Because the asset-stripping locust of legend has had a makeover. Announcing the sale of a 25 percent stake to CVC Capital Partners for €2.4 billion ($3.7 billion) in Frankfurter Allgemeine Zeitung, German industrial conglomerate Evonik Industries referred to its new partner as “Freuschrecke” (see image above left). While there's no precise translation, an approximation is “locust of joy”.

When Private Equity International visited Frankfurt recently (see this month's report on the German market, page 67), it was clear that the advertisement had been well received. At the very least, it provided a bit of light relief (if you look closely enough at the image, you may find it hard not to laugh at this particular locust's rather endearing smile, after all).

Rather more seriously, it was viewed in some quarters as a stamp of approval for private equity from the German corporate and political establishment. Evonik is owned by government-controlled mining and chemicals conglomerate RAG, and funds raised from the stake sale will be used to cover liabilities arising from the closure of coal mines. It is thus a key strategic asset. In addition, Evonik chief executive Werner Müller is a former economy minister. He and CVC appeared to have worked out a mutually agreeable strategic plan for the company, culminating in a planned IPO by 2013.

While it would be curmudgeonly to try to wipe the smile from the happy locust's face, it would surely be premature to proclaim this as the moment when perceptions of private equity in Germany were changed for the better. The very fact that the image still has such resonance highlights how effective it has been as a weapon for private equity's opponents. In addition, increasingly adverse market conditions are making the job of fund managers harder and some sections of the German business press are now preoccupied by the possibility of high-profile deal failures in the near future.

The bad locust, therefore, has not been consigned to the past. Nonetheless, at least it now has competition from its benevolent alter ego.

TPG BUOYS UK FINANCIAL SERVICES FIRM
Bradford & Bingley, the struggling UK buy-to-let lender, has agreed to sell a 23 percent stake worth £179 million (E224 million; $353 million) to TPG, making the global buyout firm its largest shareholder. The latest financial institution to receive rescue financing from TPG, and the first in Europe, Bradford & Bingley said its balance sheet needed the boost as “difficult economic conditions” weigh down net revenues. The investment coincides with a rights issue expected to raise some £258 million, underwritten by Citi and UBS. TPG will be allowed to appoint two non-executive directors to Bradford & Bingley's board. Matthia Calice, a partner at TPG, said in a statement that the company's market position, coupled with the current cash injection, will provide the speciality lender a platform for growth. Cleary Gottlieb and Linklaters were co-counsel to TPG. The buyout firm is raising a $7 billion fund to target investments in distressed financial institutions. In April, it led a $7 billion capital infusion in beleaguered US banking giant Washington Mutual, with TPG agreeing to purchase a $2 billion stake.

SUNNY OUTCOME FOR VENTIZZ SOLAR DEAL
German mid-market buyout firm Ventizz Capital Partners has agreed to exit its majority stake in ersol Solar Energy to technology and services provider Robert Bosch. Ventizz will sell its 50.45 percent stake for E546 million ($848 million) translating to a share price of E101 each. The share price was E42 when ersol first listed on the Frankfurt Stock Exchange in 2005. The Ventizz Capital Fund II first invested in solar cell producer ersol in 2004 and became majority owner in 2005. “The Ventizz II fund has supported ersol during the set-up and rapid expansion stages,” said ersol supervisory board chairman and Ventizz CEO Helmut Vorndran in a statement. “The sale to a long term-oriented industrial partner is the best option for ersol and the fund investors,” he added. Ventizz II closed on E60 million in March 2005 after six months of fundraising. The firm has since raised two additional funds in quick succession. Fund III closed on E125 million in 2006 and Fund IV closed on E450 million in January this year.

BARCLAYS IS LATEST IN NOVEM DRIVING SEAT
Barclays Private Equity will pay an undisclosed sum to acquire 85 percent of Germany's Novem Group, a vehicle trim parts manufacturer that has already had two sets of private equity owners. Novem's management will retain a 15 percent stake in the firm, which was purchased by 3i and Taros Capital in 2004. Taros acquired its original stake in Novem in February 2004 – later diluted when it sold one-third of the holding to 3i – when the company was sold by CVC Capital Partners and Goldman Sachs in a deal valued at E200 million. Goldman and CVC had anchored the company's first management buyout in 1995. The company, established in the Bavarian town of Vorbach in 1947, has annual revenues of approximately E300 million ($463 million) and employs roughly 3,700 people across nine production sites worldwide. It makes interior trim pieces for vehicle manufacturers including BMW, Mercedes, Audi, VW, Volvo, Range Rover, Rolls Royce, Maserati, Lincoln and Cadillac.

HEADWAY ACQUIRES FRENCH SME PORTFOLIO
French private equity firm Viveris Management has sold six minority stakes in portfolio companies to secondaries investor Headway Capital Partners for an undisclosed sum. The technology and biotech company holdings purchased by London-based Headway, which earlier this month closed its second fund on E150 million ($232 million), represent some of Viveris' oldest portfolio assets. Trophos, Ipsogen, Maxmat, Certeurope, Travelsoft and Pytheas were held by Viveris' first Innoveris fund, an FCPI fund established to target minority stakes in France's small- to mid-size early-stage companies. Viveris has raised and managed eight such funds, totalling E190 million. The firm will continue to manage some of the investments sold to Headway, while others will be managed by LC Capital, a Paris-based private equity firm. Headway currently manages E200 million in assets and was founded in early 2004 by Laura Shen Lefranc, Christiaan de Lint and Sebastian Junoy, all formerly of London-based secondaries specialist Coller Capital.

LION SAMPLES RUSSIAN VODKA
London-based buyout firm Lion Capital has bought Russian Alcohol Group, the largest producer of vodka and pre-mixed alcoholic drinks in Russia, alongside Goldman Sachs and Central European Distribution Corporation, a Polish and Russian vodka producer. Lion Capital declined to disclose had much it paid for its majority stake. The Central European Distribution Corporation has made an equity investment of $156.5 million (E99.6 million) for an approximate 40 percent stake in the business. It has also acquired exchangeable notes worth $103.5 million which bear interest from 8.3 percent to 10.5 percent. These can be swapped for additional shares in 2010. Russian Alcohol was created by Industrial Investors, a Russian private equity firm, in 2003. Its Zelenaya Marka (Green Mark) vodka brand is the largest selling in Russia and one of the five most popular globally, according to a statement. The company also sells Zhuravli, another vodka brand, and has one of the largest portfolios of premixed drinks in Russia. It is based in Moscow and employs around 3,500 employees across five production facilities. In the current financial year, the company expects to have sales of more than $500 million.

EQT ADDS VALEO UNIT TO SPECIAL SITUATIONS PORTFOLIO
The opportunity fund of EQT, the Stockholm-based private equity firm, has bought the engine cooling division of Valeo, a French automotive group, for an undisclosed sum. The division has 940 employees in three manufacturing sites, two of which are in Sweden and one in the US. In 2007, the division had sales of €176 million ($277 million). The company supplies engine cooling solutions to manufacturers of trucks, buses, off-highway equipment and industrial diesel engines. The investment is the sixth by EQT's €372 million opportunity fund, which was launched at the beginning of 2006 and which invests in turnarounds and special situations. The deal is the second in the last month by the opportunity fund after it acquired a majority stake in Strauss Innovation through an undisclosed capital increase. The German clothing chain had revenues of approximately €250 million in 2007. Its previous owner, the Geringhoff family, continues to hold a significant stake.