Private Equity – US giant heads for Europe

US insurer American International Group (AIG) is a significant private equity player on the worldwide stage but, slightly surprisingly, has not to date had a direct presence in the European private equity market. The formation of CapVest Management, a 50:50 joint venture between three former Bankers Trust private equity principals and AIG Global Investment Group, has plugged that gap, and the new operation plans to launch a $500 million-plus (euros 460 million) fund in the coming months.

Randl Shure, the head of BT Capital Partners Europe, and directors Seamus FitzPatrick and Scott Paton left the firm following its takeover by Deutsche Bank, which already boasts a European buyout business in the shape of Morgan Grenfell Private Equity.

The question whether the European market really needs another new entrant at this juncture is a valid one. That the middle market – in this context taken to mean deals of anything up to $500 million – is less comprehensively trawled than the top end, first became a truism and then almost immediately ceased to be true. Mid-market competition throughout Europe has never been hotter and will undoubtedly continue to intensify.

However, Shure and colleagues argue that CapVest will be able to carve out an attractive niche, even in current market conditions. They point out that, within the broad swathe of the mid’ market, private equity operators have so far not sought to take advantage of the capital markets. BT Capital Partners Europe was one of the recognised leaders in this area, leading innovative transactions such as Punch Taverns, the first tenanted pub securitisation in the UK. “We know and understand the securitisation area well, and where we can use the instrument, we will,” says Shure. CapVest will also seek to capture the value to be found in the out-of-favour and more difficult’ sectors where the team members have been successful in the past. Growth capital opportunities, less subject than buyouts to the auction circus, will be a target of choice for the new group.

CapVest will also have the flexibility to provide mezzanine as well as conventional equity – though Shure prefers to describe the instrument as structured equity’ – and, where the managers perceive strong relative value opportunities, will be prepared to provide mezzanine strips on a standalone basis, even in the case of multi-billion-dollar deals.

CapVest’s geographic remit covers the UK, continental Europe and Scandinavia, with the emphasis on the Continent, but not the emerging European markets, where AIG is already active through a variety of vehicles – and evidently plans more following its recent appointment of Roger Charlesworth (story, page 25).

At press time, CapVest was still awaiting regulatory approval but had in principle committed some $50 million for deals due to close during the fourth quarter, to be drawn from a substantial warehousing facility provided by AIG.

The CapVest fund, which the group hopes to have in place by next spring, will have a target range of $500 million to $1 billion (although the new group has yet to take a final decision on its denomination). Shure says CapVest will aim for a good mix’ of US and European investors, predicting that around two-thirds of the capital is likely to come from US sources, reflecting cornerstone investor AIG’s influence. “There is a strong chance that the fund will also include some Asian representation,” Shure adds.

Despite its continental focus, the new group will be based in London, where CapVest intends to grow the team to between eight and ten executives within the next six to 12 months. Another ex-BT team member, Kate Briant, has already been appointed as a principal.

To enhance deal flow for the new fund, CapVest proposes to appoint an advisory board composed predominantly of European entrepreneurs.

Other AIG-sponsored private equity funds organised to date include: AIG Asia Direct Investment Fund; AIG Asian Infrastructure Fund; AIG Latin America Equity Partners; AIG-GE Capital Latin American Infrastructure Fund; The China Retail Fund; The AIG Indian Sectoral Equity Fund; and AIG-Brunswick Millennium Fund.