Barclays Bank’s private equity arm, retained by the bank following its sale of parts of the BZW investment banking business, is positioning itself for further growth. Renamed Barclays Private Equity (BPE) to reflect its status as a subsidiary of the Barclays Capital division, the private equity group has announced substantial new funding, further progress of its European expansion programme and a first closing of its UK PFI Fund, as well as flagging a number of imminent senior appointments.
BPE, which has now opened a German office as part of its on-going European expansion programme, begins business under its new name with GBP400 million (ecu 600 million) in additional capital at its disposal. Axa Sun Life has allocated BPE a further GBP150 million, which will be matched pound for pound by Barclays group capital, while an additional GBP100 million has been brought under management from an unnamed UK institutional investor.
BPE has managed private equity funds for Sun Life for three years. In 1995, as BZW Private Equity, it took over management of the insurer’s GBP40 million venture portfolio from Sun Life Investment Management, along with a new capital allocation of approximately GBP45 million. Under the three-year agreement, BPE matched the new capital allocation with its own funds and also reinvested realised proceeds from the Sun Life portfolio.
The new allocation will be managed on different terms, explained Graeme White, head of BPE: it is effectively structured as an LP, and proceeds will be distributed on realisation.
The new capital pool immediately increases BPE’s underwriting capacity to GBP75 million per deal – GBP25 million from each pot, as Graeme White put it – while larger underwritings may be undertaken after approval from Barclays Capital’s board.
BPE expects this increased underwriting capacity to enhance its competitive position both in the UK and across Europe. Graeme White said the group, whose largest deal to date was the circa GBP200 million New Look buyout, is currently looking at a number of deals in the GBP150-300 million range.
Present in France since 1990, BPE opened an Italian office last year and will this year initiate a German operation. In Germany, BPE will focus principally on transactions with values of GBP10-100 million, Graeme White said: “We are looking for deals which don’t appear on the investment banks’ radar screens, which in many cases are likely to be family companies, though we also expect to invest in some corporate disposals”.
The group has just cleared one of the major hurdles to entering the German market: recruiting an appropriate individual to head the operation. At press time, the identity of the executive had not been announced, pending his resignation from his current post, which Graeme White confirmed is within the German private equity industry. Further expansion of the German team through the recruitment of experienced locals is planned during the year. Two senior UK appointments are also imminent.
BPE has also announced the first closing of the Barclays UK Infrastructure Fund on GBP50 million, half way to its maximum target. The fund, set up to capitalise on opportunities arising under the government’s Private Finance Initiative (PFI), is managed as part of the private equity operation by a team headed by Chris Elliot. Bank of Scotland and Commercial Union managed funds committed to the vehicle alongside Barclays itself at the first closing. BPE has made two PFI investments to date, in the Dartford & Gravesham and Norfolk & Norwich hospital projects.
Overall, BPE completed 21 deals with a total transaction value of over GBP580 million last year, while realisations including the flotations of Autologic and Workplace Technologies and trade sales including Protek, GRP and Eversholt made 1997 its most profitable year to date, according to Graeme White. He added that the group boasts a 20-year IRR of 33%, “significantly ahead of the industry average”.
Commenting on the private equity business, Barclays Capital chief executive Bob Diamond said “BPE has consistently delivered impressive returns and its expansion plans in the UK and overseas reflect its growing franchise and the importance we attach to its continued growth as a key business unit within the investment bank”.