Deutsche Bank to reduce PE holdings

Deutsche Bank is seeking buyers for part of its private equity arm, DB Capital. DB Capital, which has around €6 billion under management, is understood to be looking for potential buyers for its direct investments, which have a book value of between €3.5 billion and €4 billion. No new money will be invested into the direct investment business, while the €2 billion fund-of-funds business, which represents around 30 per cent of the business, is expected to remain with Deutsche Bank.

The move follows chairman Josef Ackermann’s speech at the half year press conference when the bank announced plans to cut €2 billion from its operating cost base by restructuring its retail and private banking businesses and reducing its private equity portfolio to focus on its core businesses.

There have been rumours of a possible buyout with the unit’s management team or a sale to another bank or financial institution, but it is still early days and the bank has declined to comment. The move by the bank to reduce its private equity holdings mirrors that of other institutions looking to focus on their core businesses in uncertain climates. Abbey National has ceased all new private equity investments and is understood to be seeking to exit it’s existing private equity commitments and Accenture recently sold its venture capital business, Accenture Technology Ventures to CIBC World Markets. UBS earlier this year announced its intention to cease direct private equity investment and HSBC Private Equity is currently negotiating its own management buyout from its parent in a deal reported to be worth £50 million – see evcj September, page 3.

A lot of banks decided to get into private equity when times were good and weren’t satisfied with investing only in private equity funds, but wanted to take part in direct investments as well. But many of these institutions have found it a pretty expensive proposition and they are now forced to sell their portfolios says Michael Granoff, chief executive officer of Pomona Capital, a secondary specialist, which is more likely to be attracted to the likes of Deustche Bank’s fund-of-funds business, rather than its direct portfolio of investments. It remains to be seen if DB’s direct investment portfolio is attractive to the secondary market, which is not short of deal flow at the moment.

It is thought that losses on the Arrows Formula One racing team, which is on the brink of bankruptcy, and struggling Luxembourg chemicals firm, Vantico may have contributed to the decision to dispose of the direct investment portfolio. But it has not been all doom and gloom. In August, Deutsche Bank sold Coral Eurobet, the UK betting chain, to Charterhouse Development Capital for £860 million. Morgan Grenfell Private Equity (MGPE), which has was subsumed into DB Capital Partners’ operations following the bank’s decision to block the Graham Hutton-led buyout of the team and its funds, bought Coral for £390 million in 1999. Deustche Bank is a substantial cornerstone investor in the MGPE fund to which this investment belonged.