CIT Group Inc. has agreed to sell its direct private equity portfolio for about $125 million, Buyouts has learned.
The move came as little surprise, considering that the publicly traded financial company has been openly dissatisfied with the private equity asset class and is known to be shopping a venture capital fund portfolio as well.
What was a bit unexpected, however, was that the winning bidder was Protostar Equity Partners.
If you haven’t heard of Protostar, you are not alone. The New York-based secondaries firm launched in 2001, but was not ready to begin bidding for assets until 2003.
“We spent the better part of three or four months doing market analysis, and then it took about a year to build up our team and get financial support,” explained Andy Kohn, a Protostar partner. “But now we are a middle-market private equity firm with a specific strategy aimed at acquiring portfolios of direct private equity investments, with a focus on leveraged buyouts.”
The firm also has the financial support of Goldman Sachs Asset Management, but was not viewed as a serious contender when the CIT auction began last quarter.
In the first place, Protostar was forced to match up against venerable secondaries bidders like HarbourVest Partners, Landmark Partners, Lexington Partners and W Capital Group (which also is supported by Goldman Sachs).
More importantly, the smart money seemed to be on Laud Collier & Co., a Roseland, N.J.-based firm formed last year by former CIT investors Paul Laud and Colby Collier. Not only did the pair have a relationship with CIT, but Laud and Collier had helped create the direct portfolio itself and had continued to manage it after spinning out on their own.
“It’s obviously emotionally disappointing, but it does fully clear our deck and give us a fully realized portfolio,” Collier said.
Neither Collier nor any of the other bidders were free to discuss deal details due to confidentiality agreements, but Protostar evidently won the auction because it offered the best price.
This raises the question of whether or not Protostar overpaid, but Joe Haviv, a partner with the firm, says he is comfortable with his firm’s due diligence and pricing on the CIT transaction.
“We do a thorough company-by-company analysis of what we think each company is worth,” he says. “We spend a lot of time on it.”
A source familiar with the deal says that the CIT portfolio’s value comes mainly from its 15 to 20 buyout companies, but that it also includes 17 VC-backed companies.
The deal is expected to close by year-end, with Laud Collier helping to manage the transition.