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DIC takes the sovereign lead

This cements what has been a busy fortnight for the sovereign fund, fuelling further debate regarding the role of these funds in the present private equity environment.

The last fortnight has seen DIC also acquire Almatis, a leading producer of alumina-based products, and a stake in hedge fund Och-Ziff.

DIC acquired Alliance Medical in a secondary buyout from private equity firm Bridgepoint, which bought the provider of healthcare imaging services in 2001 for just £86m.

Since then the company has made 16 acquisitions and now runs more than 190 scanners for public and private hospitals around Europe. This growth has allowed the business to grow turnover six-fold. In the year to March the group produced £132m in revenues.

Bridgepoint said that it had made four times its original investment on the sale. A spokesperson added that Bridgepoint originally appointed Rothschild to run a process early last year to gauge interest and received offers for approximately three times money, saying: “At that stage, we felt there was still value to come from the business, so we pulled it and started again.”

KPMG advised Bridgepoint on the sale. Goldman Sachs advised DIC and Jamieson performed the same role for Alliance Medical’s management. Dresdner Kleinwort and Bank of Scotland will arrange the financing of the deal for DIC.

Last week, DIC agreed to purchase Almatis from Rhône Capital and Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan (see p14 for financing). And the fund also confirmed that it has taken a 9.9% stake in leading US hedge fund manager Och-Ziff.

The latter group, which has US$30.1bn (€20.4bn) under management, is currently raising money through a flotation. The investment, believed to be around US$1.35bn (€919m), values Och-Ziff at roughly US$12.5bn (€8.5bn). It will be completed as part of the flotation.

The two firms intend to invest together going forward and the money raised by this transaction will be re-invested in Och-Ziff funds.

Sovereign funds have come under the spotlight, not only through DIC and its voracious appetite and the termination of Delta Two’s bid for Sainsbury, but also due to Sir David Walker’s decision that private equity regulations should also embrace sovereign wealth funds (see p10).

Walker, who is currently drawing up a series of recommendations for the UK private equity industry, has called for quasi-private equity entities also to be subject to his voluntary code of corporate governance guidelines.

Although Walker admitted that these other entities were not strictly within his remit, he said that both he and the BVCA, which commissioned his review, should work towards promoting their commitment to regulation.

These funds have not only been buying assets directly but have also been acquiring stakes in private equity funds. Most notably, the Chinese state investment fund took a 9.9% stake in Blackstone for US$3bn (€2.04bn) in July. In addition, Carlyle and Apollo have both sold stakes to the Abu Dhabi government.

Such manoeuvres can be mutually beneficial. The sovereign fund can get an experienced manager to deploy the money and the manager can tap into a vast supply of funds and be introduced to proprietary deals in the country concerned.

Perhaps the problem with private equity is that the market has become too efficient in the more developed Western economies. There is no price negotiation to be had for assets sold through highly contested auctions.

In economies where the leading owners of assets are also the legislators and there is little difference between state and private ownership, those with the right connections can thrive and still strike deals at attractive prices.

This unholy alliance of uber-capitalists and ruling oligarchs looks likely to become a potent force for years to come.

by Sandrine Bradley