Lehman’s Fund Invades Europe

Citing a dearth of available mezzanine debt funding on the U.S. continent, Lehman Bros. (NYSE: LEH) announced that it closed Lehman Brothers European mezzanine Fund 2003 with $908 million (EUR750 million).

The firm set out last year to raise $606 million (EUR500 million) and has more than 30 limited partners in the fund.

Lehman invested $182 million (EUR150 million) in the fund.

Christopher Cooke and Julian Entwisle – who serve as managing directors and principals – raised the fund. Cooke’s appointment to the investment team was announced with the fund’s close.

Cooke previously served in Lehman’s fixed income division.

The firm says it raised the fund from more than 30 limited partners in U.S., Europe and Asia. Cooke declined to name any of the fund’s LPs.

However, Cooke acknowledges that while the LP base is diverse, the fund may have appealed to some types LPs more than others.

“Mezzanine has always held an appeal to insurance companies and I think that proved to be the case here,” Cooke says. “We also found other funds and family offices that were interested in something that had yield.”

Past limited partners in Lehman’s private equity funds include American Express, Colorado Public Employees Retirement Association, Harman Investments, Hibernia Bank Pension Plan, Marsh & McLennan, Miami Valley Insurance Co. and Raytheon, according to Thomson Venture Economics (publisher of PE Week).

So far the firm has invested $200 million from the fund in 12 companies. The fund will strictly focus on European companies and on mezzanine debt.

It will also focus on “old line manufacturing companies with free cash flow,” says Cooke.

Lehman is not alone in showing faith in the mezzanine market. TA Associates is setting out to raise $500 million for TA Atlantic & Pacific V, a new private equity fund that is expected to hold a first and final close in December.

TA’s fund will primarily be marketed to limited partners based outside of the United States and do some earlier-stage deals and make mezzanine investments (see PE Week, May 24, 2004).

Also, New York-based media merchant bank Veronis Suhler Stevenson (VSS) is raising a mezzanine fund with a goal of $350 million. The fund, VSS Mezzanine Partners, is the firm’s first to focus on mezzanine. The firm had a first close in January for approximately $100 million (see PE Week, May 10, 2004).

The mezzanine market has generated intensified interest since Goldman Sachs closed GS Mezzanine Partners III with $2.7 billion last year.