In the eight months after the Hambros banking group announced that it was up for sale, the status of its HEV private equity arm, previously known as Hambro European Ventures, was the subject of speculation. In the wake of Investec’s GBP472 million acquisition of Hambros Bank, however, the position has been clarified.
Thanks to a change of control clause embedded in the documentation for the GBP261 million (ecu 385 million) HEV III fund and co-investment pool, the private equity team is now independent, and management the vehicle in July was transferred to a new company, Duke Street Capital.
Reading between the lines, it is fairly evident that Hambros – which was excluded from the voting process as HEV was a 100% owned Hambros group subsidiary – was reluctant to see the private equity arm leave the group. The transaction is believed to be the first buyout of a UK private equity firm to be backed solely by its existing investors. Exact terms of the deal have not been disclosed, but it reportedly did not involve any cash payment to Hambros. The HEV III fund is providing Duke Street Capital with an undisclosed amount of working capital, effectively giving the new independent company the status of an investee of the fund it manages. Duke Street Capital chief executive Edmund Truell conceded that some investors had been concerned by the circularity of the proposed arrangement, although the final structure agreed allayed their concerns.
The new management company is technically controlled by management via voting shares, but all benefits pass to HEV III and thence to the investors. HEV III’s 32-strong investor group is headed by Parcom of the Netherlands. Edmund Truell paid particular tribute to the role HEV III’s advisory committee played in facilitating the buyout, describing its efforts as “A1 – beyond the call of duty”.
Duke Street Capital will continue to focus on mature unquoted UK and Western European companies valued at GBP10 million to GBP150 million. Around a third of the fund has been invested to date in deals including Ritz Bingo, hotel and golf operator Blue Green, Focus Retail, chemicals producer Metaux Speciaux and County Hotels. This May, the fund also acquired a GBP600,000 secondary interest in its predecessor, HEV II, from San Paolo Finance, the largest shareholder in Hambros.
In its most recent deal, HEV III sold its investment in Ritz Bingo, which has been acquired by Gala Clubs for GBP36 million, and at the same time invested GBP36 million for a 25% stake in the enlarged Gala group (story, page 29).
The previous 1994-vintage fund, HEV II, which invested in nine deals and has made six realisations to date, is currently showing a 60% IRR and is “well into profit in terms of distributions to investors”, Edmund Truell reported.
The Duke Street Capital team is also continuing to manage the HEV II, HEV I and HUGS funds, and plans to raise a successor fund to HEV III when appropriate.
Marketing of a fund for smaller Austrian deals, Gutmann Hambro Capital Partners, which has been in abeyance pending the conclusion of Duke Street Capital’s own buyout, should resume soon.
Duke Street Capital will continue to work with the affiliates in the Netherlands, France, Spain, Italy, Austria, Sweden and Finland with which it has built relationships during the past ten years. Duke Street Capital’s 20-strong team is headed by Edmund Truell and managing director Graham Lee. Frederic Chauffier, a senior French transactor, is joining Duke Street Capital from SPEF in August.