PPM Capital still in spin-out

NOT TO BE RUN OVER TO BACK PAGE

, the still-captive private equity arm of Prudential, has moved to counter growing speculation that talks have broken down with its parent company, with a spokesperson saying that talks with Prudential’s fund management arm M&G were “ongoing”, with a spin-out and first close of fundraising expected before year-end.

A spin-out of the mid-market specialist, helmed by managing director Neil MacDougall, has been on the cards since June last year or before. At the time, the London, Munich, Paris and Chicago-based firm was expected to have become independent by the end of 2006 and fundraising for its first third-party vehicle was understood to be under way.

According to one source, a number of placement agents were approached at the time, with the mandate going to London-based Helix Associates, which was unavailable for comment.

A target of €1bn was given for the fund last year, and no change is expected to be made for a hard cap forecast to be reached in 2008. A first close this year is likely to be no more than €500m, of which €250m is expected to come from Prudential itself.

Previously, PPM Capital, which has assets of more than €2bn under management and a team of 26 investment professionals, has invested from Prudential’s balance sheet in European businesses, with a focus on English, French and German-speaking countries, as well as US-headquartered businesses that have, or are developing, activities in Europe.

PPM Capital has seen significant changes in the last two years. In May 2005, it was rebranded from PPM Ventures in order to move away from an implied focus on venture capital, while the fund of funds arm was renamed PPM Partners.

Prudential’s Sydney-based mid-market operation, Catalyst Investment Managers, acquired in 1998, became independent last July after months of wrangling with Prudential over raising a fifth fund.

To-date, PPM Capital has invested in 105 mid-market companies, mainly in the retail, leisure, healthcare, business and financial services sectors.

PPM Capital has had a relatively quiet year for investments and exits so far – with just the €176.5m buyout of German temp recruitment agency orizon from GL Aktiengesellschaft in May, the bolt-on acquisitions of SIR Industrieservice and Jobs In Time two months later, and the €1.3bn sale of in-vitro allergy diagnostics business Phadia to Cinven. However, this is more or less consistent with its transaction rate for 2005 and 2006.

A number of ‘captive’ private equity teams have spun out in recent years, including Montagu Private Equity, which spun out of HSBC Bank in 2003; ISIS Equity Partners, which became independent from F&C Asset Management in June 2005, with F&C’s venture arm having already produced Graphite Capital in 2001; in the same year, Permira evolved from Schroder Ventures Europe; while BC Partners came from Barings and CVC Capital Partners from Citigroup (now Citi).