Apax Merges With Saunders Karp & Megrue –

Apax Partners’ U.S. business will merge with buyout firm Saunders Karp & Megrue, thus further distancing Apax from its venture capital roots. The deal had been negotiated for more than eight months, and results in SKM partners Allan Karp and John Megrue taking over as co-CEOs of Apax Partners Inc. (the non-U.S. operation is known as Apax Worldwide). A new fund-raising drive is expected to launch within the next several months.

Apax Partners was founded in 1969 as Alan Patricof Associates Inc., and made early-stage investments in U.S.-based success stories like Apple Computer and Office Depot. It also gradually created a London-based affiliate named The MMG Patricof Group, which in 1987 had raised a $65.6 million fund dedicated to European deals. Four years later, the domestic group was renamed Patricof & Co. Ventures, while the international effort-now split between the UK and France, and later Israel-was called Apax Partners, after a Greek word meaning once, and only once.

At the time, both groups were still dedicated to venture capital deals, but the Europeans would gravitate toward later-stage as the 1990s progressed. By the time the Patricof & Co. moniker was dropped in favor of Apax Partners Inc. in 2001, the European group was known primarily for its buyouts activity, including the $3.5 billion acquisition of UK-based yellow pages publisher Yell PLC. Apax Partners Worldwide also had far more fund capital under management than did Apax Partners Inc., which still was concentrating on venture capital, despite a handful of later-stage and buyout transactions.

Rather than allowing the two groups to continue on their separate paths, Apax decided in 2002 to merge its U.S. and European operations. The deal was designed to both boost the U.S. buyout business, and also to pave the way for a global mega-fund. Moreover, plans were even drawn up to deal with the fact that the $1.1 billion U.S. fund was scheduled to run out of cash far sooner than was the EURO4.4 billion European fund.

The merger was scrapped in 2004, however, when Apax Worldwide began circulating a PPM for a new European fund with a EURO4.5 billion target (it held a first close on over EURO3 billion late last year). At around the same time, Apax founding partner Ronald Cohen and Apax managing director Martin Halusa approached Stamford, Conn.-based Saunders Karp & Megrue about a possible merger.

“Ronald and Martin called me, saying that they wanted to scale Apax’s U.S. buyouts practice closer to what they had in Europe,” said SKM’s John Megrue, who previously had spent five years as a vice president and principal with Patricof & Co. “It sounded like a very good idea.”

Firm: Saunders Karp & Megrue
Headquarters: Stamford, Conn.

The official merger will occur next Tuesday, with the combined firm featuring 38 investment professionals, including 18 at the partner level. Megrue says that venture capital will continue to be part of the Apax Partners Inc. mission, although he acknowledges that pre-revenue deals will be few and far between (if there are any at all). That decision prompted the pending resignations of healthcare partners Lori Rafield and Eliot Charles, who both want to continue investing in early-stage pharmaceutical deals.

Apax also recently lost LBO-focused partner Salem Shuchman, while Alan Patricof has not been actively involved with the firm for several years. The third member of the SKM masthead-Thomas Saunders-is still active in several SKM portfolio companies, but is not expected to serve as a partner on the first combined Apax-SKM fund. Both firms currently are investing out of 2000-vintage year funds that are approximately 75% invested-the $1.05 billion Apax Excelsior VI and the $735 million SKM Equity Fund III-and are expected to begin marketing a new vehicle within the next several months. Megrue declined to discuss either a fund target size or compensation information.

He did say, however, that the combined firm will not include SKM Growth Investors, which was founded in 1999 to focus on middle-market growth companies that need between $5 and $15 million. The group is based in Dallas, and will spin out into an independent entity.

In unrelated news, Apax Partners Worldwide last week agreed to acquire a 63% stake in Travelex PLC, a UK-based foreign currency exchange company. The deal valued Travelex at just over GBP1 billion (approx. $1.92 billion), including an undisclosed amount of assumed debt. Travelex Chairman and CEO Lloyd Dorfman’s ownership stake will drop from 63% to 30%, while 3i Group’s position will drop from 33% to seven percent. It is expected to close this July. Other bidders were reported to have included Permira, CVC and Kohlberg Kravis Roberts & Co..



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