Private Equity – GSC heads for Europe

GSC Partners, which manages funds totalling some $2 billion (euros 1.8 billion), is the latest US private equity group to reveal plans to address the European market.

Richard Hayden, who retired from Goldman Sachs in December after 31 years, has joined the firm as vice chairman of GSC Partners Inc and chairman of GSC Partners Europe to head up the new operation.

The six-year-old firm, which originally bore the Greenwich Street’ label, was renamed to mark its independence from Greenwich Street and Travelers/Citigroup. In the US, GSC Partners has invested in buyouts, leveraged acquisitions, re-capitalisations, build-ups, pre-IPO fundings and development capital situations; it has also deployed capital in secondary purchases of distressed high-yield bonds and to acquire bonds and bank debt in control restructurings. Its founding partners – chairman and CEO Alfred (Fred) Eckert III, Sanjay Patel and Keith Abell – are all Goldman Sachs alumni, and Richard Hayden says his new role offers “the opportunity to rejoin old friends in an interesting, challenging and entrepreneurial environment”.

Fred Eckert, meanwhile, describes Richard Hayden, who ended his executive career at Goldman Sachs as deputy chairman in charge of European investment banking, as “one of the outstanding investment bankers of his generation” who will bring the firm “unique insight into the investment opportunities in Europe”.

GSC Partners intends to launch a dedicated mezzanine fund as its European signature piece. GSC Partners Europe aims to raise $1 billion (euros 985 million) for the partnership, which with the addition of appropriate leverage, will give the vehicle a capacity of $1.5 billion or more.

“We see ourselves as a facilitator not a competitor”, says Hayden, explaining that GSC Partners Europe has no intention of competing with the private equity houses already in place in the region.

“A great deal of private equity has already been raised, versus an inadequate amount of mezzanine”, says Hayden. Most existing dedicated European mezzanine funds, meanwhile, have looked predominantly at fundings in the GBP25 million

($40 million) range. The planned fund will therefore aim to operate in the market band that is too small for high-yield but requires significant amounts in terms of existing mezzanine capacity.

Nor does GSC Partners Europe see the huge aggregate of mezzanine funds raised by Goldman Sachs, Blackstone, Merrill Lynch and Donaldson, Lufkin & Jenrette as a threat to its European plans. Hayden contends that these are effectively global funds that will feed off big US-oriented and captive deal flows’, whereas GSC Partners’ effort will be targeted exclusively on opportunities in the EU markets. Interestingly, Goldman Sachs has indicated that its new $1.5 billion mezzanine pool (story, page 8) will also be targeting investments in the $25 million to $100 million bracket (euros 25 million-euros 98.5 million), as well as the larger deals to which Hayden referred.

The firm has identified deals requiring mezzanine or junior capital tranches of $30 million to $100 million as the sweet spot’ where there is most need for funding at present – this segment is currently not addressed by the high-yield market, which is heavily skewed towards telecommunications and media deals.

The fund will have no particular sector or geographic focus and aims simply to home in on the most attractive of the opportunities that fit its investment remit. A dollar-denominated vehicle with a multi-currency investment facility, the fund will be structured as a traditional ten-year limited partnership.

GSC Partners Europe regards it as important to maintain relationships with a broad spectrum of private equity sponsors – “all the usual suspects”, as Hayden has it – and investment banking firms to ensure a comprehensive cross section of deal flow. Hayden reports that the group is also already getting enquiries from commercial banks seeking to assemble deal structures with a more significant junior capital component.

GSC Partners believes its European debut fund will be able to offer speed, structuring flexibility and disclosure. Hayden predicts that the fund’s portfolio will correspond to the opportunities being seen now: prospects in Germany are excellent but there is also good deal flow from the UK and France and, to a smaller extent, from Scandinavia.

GSC Partners Europe will have a flexible attitude as to whether to take classic mezzanine with subordinated debt or junior equity – i.e., preference stock. The European fund will also be permitted to undertake public market deals.

The European operation will be based in London. Managing director Christine K Vanden Beukel will transfer from the US to support Richard Hayden, who predicts that the eventual team will include another investment executive from the US and two local investment associates.

GSC Partners will begin marketing the fund as soon as it has the requisite FSA and IMRO approvals. The firm hopes to balance US and European investors in the fund. Citigroup, a supporter of GSC Partners’ US equity funds, has agreed to commit up to $250 million to the European effort . “We are very delighted with the continuing close relationship with Citigroup”, says Hayden, who reports that GSC Partners Europe has also won a first-time commitment from Michael Dell’s MSD investment vehicle.

Hayden says GSC Partners Europe is still deciding which placement agent to appoint for its debut European fund.