Deutsche Bank’s private equity arm, Morgan Grenfell Private Equity (MGPE), this month set a euro 1.6 billion ($1.8 billion) target for Deutsche European Partners IV.
Formal fund raising for the vehicle began Feb. 1. MGPE describes Fund IV as a pan-European buyout fund with a focus on the U.K., Germany and Italy.
Like many other recent fund efforts, Fund IV represents a step-up from earlier vehicles. The group’s previous pan-European vehicle, Morgan Grenfell Equity Partners, raised GBP350 million in 1995 and at that time ranked as one of Europe’s largest buyout funds.
Shortly afterward, MGPE raised a France-focused fund totaling GBP50 million and an GBP85 million Italian vehicle. These funds, managed by local teams headed by Michel Biegala and Dante Razzano, had a remit to undertake smaller deals on their own and to co-invest with Morgan Grenfell Equity Partners in larger transactions sourced through their local offices.
Like Morgan Grenfell Equity Partners, the Italian fund is now approaching full investment. Thereafter, investments in Italy will be made solely through Fund IV, with Mr. Razzano forming part of MGPE’s central team.
MGPE’s venture in France enjoyed less success than its Italian counterpart, due to changing market conditions, and last year investors in Morgan Grenfell & Associes and the general partner, Morgan Grenfell Investissement, agreed to terminate the fund. “The smaller deal market in France virtually disappeared during the French fund’s prime investment phase. Although the French larger buyout market has picked up dramatically in the last couple of years, France will not be a primary focus for the new fund.” said MGPE Director Colin Brown.
At its target size, Fund IV will be roughly two-and-a-half times the size of the previous pan-European and Italian funds combined, an increase that is in line with the upward drift seen throughout the European private equity market in recent years.
A vehicle of this magnitude will give MGPE sufficient firepower to lead more deals like the recent Coral (BUYOUTS Jan. 11, p. 24) and Vianova (BUYOUTS Oct. 12, 1998, p. 24) buyouts, both of which were around the GBP400 million mark.
“We will not be looking to do the mega-deals, but neither will we rule out small or medium-sized transactions with potential for attractive growth,” Mr. Brown said.
Leveraging a Legacy for German Deals
Its Deutsche Bank parentage puts MGPE in a strong position to compete in Germany’s rapidly developing buyout market and is likely to prove a strong selling point for the fund. While pre-marketing for the fund has focused primarily on MGPE’s existing investor base, the group also has had contact with a number of new investors, particularly U.S. public and private pension funds. These investors have evinced a keen appetite for exposure to the German market and are attracted by the Deutsche Bank connection, Mr. Brown said.
Deutsche Bank will commit 25% of the fund’s total. The direct holdings-effectively bridge financings-the group has taken in Vianova and Coral alongside Morgan Grenfell Equity Partners, together with any further direct investments completed prior to a closing for Fund IV, will be sold to the fund in their entirety. This may prove a boon for potential investors, as it will enable them to assess part of the fund’s ultimate portfolio before signing on, Mr. Brown said.
Another high-profile asset may be added to the new fund’s potential portfolio in the near future: Morgan Grenfell Private Equity and the Soros Fund are participants in the Candover-led consortium that is backing Regional Independent Media’s GBP913 million bid for Mirror Group. If the bid is successful, MGPE’s investment is expected to top the GBP100 million mark.
Mr. Brown declined to comment on Fund IV’s terms, except to describe them as “what the market sees as acceptable.”
Greenwich, Conn.-based Atlantic-Pacific Capital will act as placement agent for Fund IV, which is expected to close in the next six months.