Buyers: AlpInvest Partners, AXA Private Equity
Deal price: More than $123 million (€100 million)
Financial advisor: Buyers: Continental Capital
Legal counsel: Buyers: Weil Gotshal & Manges
The private equity groups of large financial institutions continue to seek their independence and have a staunch ally in a secondary market that is flush with cash. WestLB‘s London-based private equity arm West Private Equity is the latest captive group to spin out, enlisting the the help of secondary investors AlpInvest Partners and AXA Private Equity.
AlpInvest and AXA purchased the investments, future commitments and LP shares of West Private Equity Fund 2000 (WPE 2000) from WestLB. In the same deal, the investors helped the West Private Equity (WPE) partners purchase the management company and also committed capital for a fund that WPE will raise later this year. The deal is valued at more than €100 million ($123 million).
Both sides reached an agreement in December and announced the closing April 18. Neither WPE nor AlpInvest would provide specifics about the transaction.
WPE, which will be renamed Lyceum Capital, has already been operating more or less independently. WestLB initially funded the buyout arm with €140 million in 1999, but the firm raised additional capital from limited partners and eventually closed on €300 million. West Private Equity’s LPs are mix of U.S. and European institutional investors that remain in WPE 2000.
The spinout was expected. The partners knew from the group’s inception in 1999 that it would eventually seek to become more independent, according to CEO Philip Buscombe. “When we raised the original fund we were sponsored by WestLB and then raised the majority of the fund from outside investors,” Buscombe said. “We understood that for our second fund we would need to be more independent. That’s what’s been done with this transaction.”
AlpInvest Principal Wouter Moerel said that his firm was attracted to the deal due to the clear focus of the fund’s investments and the experience of the team. He also noted he was particularly impressed with Buscombe’s years with Investcorp and Managing Director Jeremy Hand’s experience with Duke Street Capital. “West Private Equity is very clearly focused on the middle market in the U.K. with an asset base that reflects that and also a sourcing base that reflects that,” said Moerel. “You get a consistent message.”
Buscombe said that the newly independent firm’s investment strategy would remain unchanged. WPE invests in U.K. and European-based mid-market companies in the business and consumer services industries. WPE 2000 has managed more than €350 million, including co-investments, and has invested in 29 companies that the firm organizes into nine groups comprised of business outsourcing, education, healthcare and IT services, among others. Its portfolio companies include Coperion, a German manufacturer of industrial compounds; IT service provider Fox IT and U.K.-based vehicle fleet management company Velo.
WPE saw its first exit in 2004 when it sold its investment in Southern Cross Healthcare to the Blackstone Group, and that same year WPE sold Asquith Schools to Cognita, an educational investment firm backed by Englefield Capital.
For WestLB, the deal concludes a process that the Dusseldorf-based bank has been embarking on for several years, as it has slowly shed its private equity holdings in order to focus on client banking services.
Cipio Partners announced last October that it won an auction for the venture portfolio of West STEAG Partners, the corporate venture group founded by WestLB and STEAG Electronic Systems. Cipio made the acquisition in cooperation with San Francisco-based secondary firm Pantheon Ventures, German funds-of-funds firm Braun & Schreiber and other, undisclosed financial groups.
Prior to the Cipio deal, Boston’s HarbourVest Partners bought assets of the West LB Growth Fund from West LB. Nova Capital manages the assets today.
WestLB has said that private equity investments would still be possible for its banking clients, though it has not yet detailed a strategy to do so.
While large financial institutions spinning out their private equity groups is not new, industry observers still see that market segment as widely appealing to secondary buyers and a trend that will continue to grow. Colin McGrady, a managing director with Dallas-based advisory firm Cogent Partners, told Buyouts, “Anytime you have private equity groups attached to a platform where it is tangential to the business you’ll have times where the focus of the platform changes and the private equity arm becomes an independent group.”