Outstanding Short Term Returns For Alchemy

Alchemy Partners, the independent private equity group headed by Jon Moulton, is poised to deliver 2.9 times investors’ money to participants in the Alchemy Investment Plan on the sale of its 49 per cent stake in Infigate to Deutsche Bank’s DB Investor subsidiary.

Alchemy invested GBP8 million in Infigate then FOC (Fibre Optic Connection) at start-up this April out of a planned total commitment of GBP22.1 million. Infigate, based in Essen, Germany, was formed to secure first-mover advantage in building a carrier network in Central and Eastern Europe offering services including bandwidth, optical wavelengths, telehousing and web hosting to local telecoms carriers. Alchemy intended to feed its overall commitment into the company over several rounds of financing as Infigate progressed its build-out.

Infigate’s management was able to implement phases of the business plan faster than anticipated, resulting in an accelerated burn rate’ and an expanded equity requirement. Alchemy began discussions with potential co-investors, including DB Investor, for future Infigate funding rounds. DB Investor then offered to acquire Alchemy’s entire holding in the company on terms that would result in net proceeds to Alchemy of GBP23.3 million, including repayment of shareholder loans. Although Alchemy had clearly not envisaged Infigate being a quick flip’, a cash multiple of 2.9 over five months on the GBP8 million actually invested, corresponding to a transaction IRR of more than 1500 per cent, was “considered acceptable for a short-term return”, according to Alchemy’s exit note.

The transaction, currently subject to German cartel clearance, is expected to complete by the end of September. The sale is the fifth full exit achieved by the Alchemy Investment Plan and its second realisation in Germany.

The firm’s earlier German exit, SMATcom, was also achieved via a sale to DB Investor. Alchemy formed SMATcom in 1998 as a holding company to acquire cable TV operating companies in German-speaking Europe. By May 1999, SMATcom had completed three acquisitions and ranked as Germany’s sixth largest cable TV operator. DB Investor acquired SMATcom this spring, enabling Alchemy to return DM117 million to Plan participants for a total investment of DM26.4 million, notching up a transaction IRR of 157 per cent.