Lloyds TSB has created a new division within its corporate group. Acquisition Capital will oversee the activities of the bank’s venture capital arm, LDC, and its Acquisition Finance Unit (AFU), which is extending its financing capabilities to include mezzanine. As director of Acquisition Capital, Michael Joseph, the former managing director of LDC, will lead the group.
Lloyds TSB’s decision to move into the mezzanine market is driven by the opportunity to improve returns. “The bank’s mezzanine investments will initially be made through Acquisition Finance in situations where we are also providing senior debt,” says Joseph. The first year will be spent making sure the bank is content with the level of risk involved in mezzanine but then Joseph hopes to move towards providing mezzanine as a stand-alone product in 2004. The total available for mezzanine investment this year is fluid but Joseph expects to do 10 to 12 deals. Commitments, with a target hold of between GBP2 million and GBP10 million, will be made from the bank’s balance sheet.
The Acquisition Finance Unit already provides debt finance in change of ownership situations including management buyouts, corporate acquisitions and share restructurings. Syndications the group has been involved with include the GBP1.55 billion debt financing of Hicks, Muse, Tate & Furst and Apax Partners’ buyout of Yell. Although the team of 40 professionals is based in London, Manchester, Leeds, Birmingham and Edinburgh (with a Thames Valley office planned), AFU also invests in Europe. The department completed 65 deals last year, typically around 70% of investments support private equity-backed deals.
The investment strategy of LDC, previously called Lloyds TSB Development Capital, will not change under the new structure. The 25-strong team, based in six UK offices, invests in medium-sized companies looking for between GBP2 million and GBP30 million of equity. LDC specializes in deals in the GBP5 million to GBP75 million range; it completed 17 deals in 2002, investing around GBP120 million. Joseph joined the group in 1987 from 3i; he will retain his position as a non-executive director and on the investment committee. Darryl Eales replaces him as managing director of LDC.