– Deutsche fund IV taps new groups for e800 million

As the Deutsche Bank/Dresdner Bank merger’ foundered on the rock of Dresdner Kleinwort Benson, Morgan Grenfell Private Equity (MGPE), Deutsche Asset Management’s private equity arm, released further details of its most recent pan-European fund raising.

Deutsche European Partners IV, which was capped at 1.5 billion ($1.4 billion), attracted more than 60 limited partners. Deutsche Bank itself committed 25 per cent of the fund. Of the third-party capital raised, 516 million came from US sources and 484 million from European investors. A further 114 million was drawn from the Middle East and the balance of 41 million from the Far East. MGPE’s team has committed 13 million to the new vehicle.

Banks – including Deutsche – are the largest single category of investor, accounting for 665 million of the total, followed by public pensions with 340 million, insurance companies with 234 million and corporate pension funds with 126 million. Funds-of-funds contributed 49 million and corporate investors 44 million. Private investors, including the MGPE team, committed 72 million.

A staggering 800 million was raised from investors new to MGPE, director Susan Deacon reports. Named investors include Abbey National Treasury Services, Chemical Bank, Commonwealth of Pennsylvania Public Schools Employees’ Retirement System, Metropolitan Life and Teachers’ Retirement System of Louisiana. Excluding Deutsche Bank, the fund drew its two largest single commitments from US public pensions, says Deacon, adding that a lot of the new’ money came from European groups.

The formal fund raising process for Deutsche European Partners IV took less than a year. Although MGPE’s previous fund was fully invested prior to the launch of DEP IV, thanks to a bridge facility from Deutsche Bank MGPE was able to deploy or commit 681 million to six deals on behalf of the new vehicle prior to the close. Therefore, during the later stages of fund raising, potential investors were in a position to see what they would be getting for at least part of their money, namely: UK bookmakers Coral; Hoechst’s Vianova Resins operation; Gomass Media/Giraudy, bought from Lagardere; a controlling interest in Italian motor scooter group Piaggio; a minority stake in Formula One Holdings; and the Performance Polymers division of Ciba Speciality Chemicals, purchase contracts for which were exchanged at the end of last year. Three of these investments – Vianova (sold to Solutia Inc last November), Giraudy and Formula One Holdings (EVCJ April 2000 p17) – have been exited and advisers have been appointed to evaluate exit options for Coral which, following the acquisition of Eurobet, is now the UK’s largest offshore betting business.

“The rate and quality of investment, coupled with early returns, certainly helped in the latter part of our fund-raising process,” comments MGPE CEO Graham Hutton.DEP IV is pan-European in scope but will place particular emphasis on the UK, the German-speaking markets and Italy, where MGPE’s local teams operate; however, the announcement of the group’s first Spanish investment was believed to be imminent at press time.

Susan Deacon reveals that, for the first time, MGPE may also undertake a number of venture-type investments in parallel with its core larger buyout activities. In the light of Eurobet’s impact on Coral’s performance, MGPE approached DEP IV’s investors to seek permission to allocate up to 5 per cent of the fund to earlier stage investments. The first such deal, where MGPE invested a small amount’ in the Atlas Venture-led funding for B2Build, a business-to-business proposition focused on the construction industry, completed recently.

Sources close to MGPE expect two further substantial acquisitions to complete before the autumn, presaging MGPE’s return to the market with its fifth fund before the end of the year.