Mezz Firms Merge, Finally

TCW/Crescent Mezzanine of Los Angeles and Canterbury Mezzanine Capital of New York formally merged on July 1, in an effort to broaden each firm’s geographic reach.

The combined firm is expected to launch a new fund-raising effort within the next several months, and will spend the interim investing the remaining capital from TCW/Crescent III.

Going forward, the five investment professionals of Canterbury will operate as the New York office of TCW/Crescent Mezzanine, although they will continue to manage funds formed prior to the merger. No financial terms of the arrangement have been disclosed.

Patrick Turner, a managing director with Canterbury, says that the two firms began discussions of a possible merger seven years ago. But the timing wasn’t right until now.

“One of us was in the middle of investing a fund, and the other was raising a fund, so we didn’t match up very well,” Turner says.

Today, however, both firms are at similar stages of their fund lifecycles. TCW/Crescent is 75% invested out of its $1.17 billion TCW/Crescent Mezzanine Partners III vehicle (closed in 2001), while Canterbury has run out of dry powder on its $243 million Canterbury Mezzanine Capital II fund (closed in 1999).

Jean-Marc Chapus, CEO and managing director of TCW/Crescent, declined to reveal a fund-raising target, except to say that mezzanine firms needn’t follow their LBO sponsors’ lead in doubling and tripling fund sizes. “Our market is a niche market, so our strategy isn’t changing at all,” Chapus explains. “Our view is that we’ll select the six to 10 best mezzanine deals out there annually, and invest $30 million to $70 million in them. In an active year, that could mean $500 million or more, but it also could be just a couple hundred million dollars in a slow year.”

Chapus and Turner say that the primary motivation for the merger – which they characterize as “joining forces” – is to access potential clients on the East and West Coasts.

TCW/Crescent, for example, has opened New York offices twice within the past decade, only to have them fail to gain traction. Each firm also expects to benefit from the other’s credit skills.

“More heads are better than fewer heads,” Turner says, adding that the combined firm also can utilize two investment professionals based in Paris.