Boutique advisory shop Greenhill & Co. and its investment arm,
Greenhill & Co. will continue to pitch deals to Greenhill Capital, and an incentive plan has been created within the advisory shop to reward professionals for transactions they helped source for the buyout firm. “In the early days of the firm’s life both sides really needed each other,” Scott Bok, co-CEO of Greenhill & Co., told Buyouts. “Together they gave us greater scale, brand-name recognition, and synergies in terms of advisory and investment opportunities. We concluded we could keep the good stuff without trying to run an investment business on a public company balance sheet.”
Robert Niehaus, the chairman of Greenhill Capital, is leading the $25 million buyout of the LBO shop, which is being paid for principally in Greenhill common stock. Niehaus will remain a senior advisor to the firm following the spin-out, which is expected to close in the coming weeks. The firm will retain the Greenhill name and will continue to operate out of Greenhill & Co.’s New York offices for the next five years or so, Niehaus said.
Greenhill & Co. previously fronted about 10 percent of the investment arm’s funds and will make a much more modest commitment with regard to the firm’s upcoming third fund, Bok said. However, he expects personal investments from professionals at both the advisory and investment shops to reach close to that same amount.
Greenhill & Co. will retain its portfolio of investments in Greenhill Capital, which had a fair market value of $178.5 million as of Sept. 30. Proceeds from the sale of Greenhill Capital will fund share repurchases and dividends and reduce modest outstanding debt. Greenhill & Co. will not pay fees while getting a small slice of the carried interest on Fund III. The firm’s fund placement group will remain a part of the advisory business and will help Greenhill Capital raise its new fund.
Greenhill Capital expects to raise its third fund the first quarter of 2010. Sources close to Greenhill Capital previously told Buyouts it would target $1 billion to $1.25 billion, but Niehaus said the target would be closer to the $875 million the firm raised for its second fund, which closed in 2005. That fund is more than 80 percent invested, he said.
Greenhill Capital invests in specialty finance, telecommunications, insurance, reinsurance, business services and energy. It typically writes equity checks of $10 million to $100 million per transaction, but will sometimes invest more if required. Target companies usually have enterprise values between $50 million and $1 billion, revenues of at least $50 million, operating income of at least $10 million and cash flows of at least $15 million.
Portfolio companies include Stroz Friedberg LLC, a New York-based Internet technology consulting and services firm in which Greenhill Capital invested $30 million in January 2007; and BreitBurn Energy Company LLC, a Los Angeles-based oil and gas exploration and development company Greenhill Capital bought last month for $305 million.
Founded in 2000, Greenhill Capital manages $1.7 billion.