– Merrills climbs on mezzanine bandwagon

Merrill Lynch & Co closed ML Mezzanine Investors, a $1.1 billion (euros 1.08 billion) mezzanine facility combining third-party capital with Merrill Lynch’s own monies, in February.

Like Goldman Sachs and Donaldson Lufkin & Jenrette, which recently amassed mezzanine pools of, respectively, $1.5 billion and $1.6 billion, Merrill Lynch has opted for a structure that can invest in both Europe and the US. However, like the vehicles from its banking rivals, Merrill Lynch is likely to find more suitable opportunities to deploy the new fund in the US than in Europe.

ML Mezzanine Investors is targeting investments in the $50 million to $100 million range – below the radar screen of the high-yield bond market but seriously chunky for smaller independent mezzanine funds or conventional debt providers. Demand for mezzanine tranches of this side, although soaring in the US, is still relatively limited in Europe.

Merrill Lynch is already established in the top ranks of mezzanine underwriters. Tom Davis, president of the bank’s institutional and corporate client group, said “Broadening our global leveraged finance platform with this additional source of mezzanine financing will significantly enhance our ability to provide complete solutions for clients, whether that involves loans, bonds, equity or strategic advice”.

European deal flow for ML Mezzanine investors may prove spasmodic, at least for the time being. However the bank has more than one reason for keeping a very sharp eye on the European private equity market. Last year, Merrill Lynch announced plans to launch a euros 1 billion to euros 2 billion ($1 billion-$2.03 billion) European fund at the beginning of this year, to be managed by a team headed by Edward Annunziato. Speaking in mid-February, a source close to Merrill Lynch confirmed that the vehicle was not yet out in the market. The implications of such a fund for Merrill’s existing European private equity arm, London-based MAM Private Equity, remain unclear.