It’s lights out for the private equity business at DPL (NASDAQ: DPL) the parent company of Dayton Power & Light Co. The Dayton, Ohio-based energy giant announced earlier this month that it sold its private equity portfolio to AlpInvest Partners and Lexington Partners for approximately $850 million. The portfolio involved contains about $1.2 billion in fund commitments and the deal is one of the largest secondary transactions ever.
Lexington and AlpInvest will provide capital for upcoming capital calls of funds in the portfolio. Closing on the portfolio will occur on a rolling basis as general partners approve the sale. Morgan Stanley served as DPL’s financial advisor on the sale and Cadwalader Wickersham & Taft provided legal counsel.
The portfolio, which was valued at $754 million at the end of 2004, contains general partnerships that both Lexington and AlpInvest already serve as limited partners. A total of 27 firms manage the portfolio’s 46 funds. Firms with funds in the portfolio include American Industrial Partners, CVC Capital Partners, Fremont Partners, Kohlberg Kravis & Roberts, Newbridge Capital and Vestar Capital Partners.
DPL says it will use the proceeds from the sale to repurchase debt and possibly make new investments in its core energy business. The sale is welcome relief for DPL, which fired the former chairman who started the private equity group. The former chairman and other top executives at DPL are accused of using the portfolio to give themselves hefty bonuses as well as other corporate abuses. A host of government agencies, including the Federal Bureau of Investigation, is investigating the alleged misconduct of DPL’s former management team.
It was the two secondary buyers’ familiarity with the assets for sale that made the joint secondary transaction successful. “A joint transaction pulls together the skills and capabilities and relationships of the joint firms and often that’s helpful in getting insights into the portfolio,” said Lain Leigh, a managing partner with AlpInvest Partners. “Between the two of us, we have excellent coverage of the general partners within the portfolio. As a combined bidder we have better knowledge.”
Joint transactions for private equity assets are not new to the secondary market. AlpInvest has been involved in several such deals previous to this, including being part of the seven-member syndicate (when it was known as NIB Capital Private Equity) that purchased the private equity portfolio of Deutsche Bank’s DB Capital Partners (DBCP) for $1.625 billion two years ago.
Lexington and AlpInvest, along with Boston’s HarbourVest Partners, are involved in a prospective deal for $1 billion in private equity assets held by Allianz’s Dresdner Bank. The deal would involve up to 100 private equity funds. The Allianz board has put any sale of the assets on hold, and the consortium of secondary buyers may make another bid. All firms involved either declined to comment or did not reply to inquiries.
As expected by secondary buyers, large financial institutions and corporations are continuing large sales of private equity portfolios. Landmark Partners recently purchased the $950 million private equity portfolio of Bank One. Late 2004 saw Pantheon Ventures ink a deal that netted the majority of Swiss Life’s private equity portfolio and Coller Capital purchase a 22-company portfolio from Dresdner Bank.