DrKB buys Elderstreet

Dresdner Kleinwort Benson (DrKB), which will become Dresdner Kleinwort Wasserstein by year-end subject to regulatory approval, has acquired the remaining 82 per cent shareholding in Elderstreet that it did not already own. This purchase, which follows on form an 18 per cent stake bought last year, gives DrKB exposure to early stage technology investments.

Andrew Cowley, head of investment strategy in DrKB’s private equity operation, says: “Elderstreet brings us acceleration and we do the same for them but in a different area. DrKB offers Elderstreet acceleration in Europe outside the UK where it wants to be more active.” From DrKB’s point of view it currently sees a lot of deals that are just too early stage for it to invest in, which can now be passed to the Elderstreet team. Cowley notes that for DrKB to organically build the type of operation that it has acquired in Elderstreet would mean two to three years of hiring and fund raising.

Aside from gaining the leverage of DrKB’s European network it seems that Elderstreet is to maintain a significant amount of its autonomy, including the retention of the Elderstreet brand name. The next fund will be called Elderstreet II and the management company will be renamed Elderstreet DrKB. DrKB is committing up to A75 million as an anchor investor to this fund.

As part of its strategy, Elderstreet is building an investment team to identify and manage investments in Germany. Deal flow in other major European economies will be accessed by working closely with the local country teams in DrKB private equity’s global network.

DrKB’s global head of private equity Christopher Wright and Andrew Cowley will join Elderstreet’s management board.

Founded in 1990, Elderstreet has developed into one of the most experienced early stage technology teams active in the UK with a core competence in funding early stage infrastructure software companies. Led by Michael Jackson, a respected figure in the IT industry, the Elderstreet team’s investments to date include Micromuse, which subsequently floated Nasdaq; Netstore, which listed on the London Stock Exchange this year; and APM Digitivity, which was acquired by Citrix Holdings Inc in 1998.

Christopher Wright says: “With this important move, our long established practice of co-investing with other venture capitalists will be enhanced as we become a more active investor in the technology sector. We will carefully maintain these external fund and corporate relationships.”

Michael Jackson, chairman of Elderstreet, said: “Given increasing deal sizes and the opportunity landscape in Europe, we are convinced that having access to a ready made network of investment professionals and anchor funding to support our European technology focus will be hugely beneficial to us.”

DrKB and Elderstreet’s relationship goes back almost ten years and Cowley says DrKB, following its 18 per cent stake in the Elderstreet business taken last year, is appreciative of the firm’s working practice and experience.

The Elderstreet team is made up as follows. It is headed by Michael Jackson who, before founding Elderstreet in 1990, had syndicated and personally invested in the original venture capital for the accounting software company Sage of which he is today chairman. Jackson is a chartered accountant. Paul Frew, prior to joining Elderstreet in 1996, was managing director of Softwright Systems Ltd, a software consulting firm, which was acquired by System Software Associates in Chicago.

Chris Kay, Barnaby Terry and Simon Cook all spent time at 3i before joining Elderstreet. John Horton and David Fisher each spent time at one of the big five accountancy firms. William Horlick is an ex-investment banker and Byron Sheppard was previously in the private equity team at Dresdner Benson.

Elderstreet’s current investment portfolio is split, in order of number of investments, between infrastructure services and enabling software, application software and service providers, business to business, and business to consumer companies.

Dresdner Kleinwort Benson’s (DrKB) private equity business has in excess of A3 billion private equity and mezzanine capital under direct and co-advisory management globally and a total of 110 investment professionals based in nine locations worldwide. Investments cover a range of stages in Europe, America and Asia and they are made using DrKB’s own capital and funds committed by third parties to investment vehicles sponsored or co-sponsored by DrKB. DrKB is also involved in a number of technology fund investments with venture capital firms in Europe and the US. It recently announced the launch of a new $125m technology fund in Japan and also operates a $125m US early stage technology investment fund.

The German, Italian, Spanish and UK private equity teams of DKB operate on a standalone basis in terms of their investment and fund raising activities. Cowley says DrKB wants to keep separate teams in the mid market because those teams have got to keep a strong local presence combined with the independence to make decisions. But three will be a move to have one pool of capital and work as a single team on an investment basis.

DrKB’s private equity operation in Germany amounts to 28 professionals based in Frankfurt under the leadership of Hans Damisch. That team is focused on the mid market. In Milan DrKB has a team investing private equity in the TMT arena, again this operation concentrates on the mid market, an example of a recent deal is Selesta, a financial accounting software company. There is also a private equity team based in Madrid. In France Cowley says the bank is currently hiring a team of people and will make an announcement regarding this new team before the year-end. The UK team of DKB has 17 investment professionals investing in mature (five to ten years old) TMT companies recent deals include Rameses and Octopus Publishing. Elderstreet will remain separate from this UK team.