Thomas Weisel Defectors Consider Launch Of Separate LBO Shop

In a surprise move, three private equity investors with Thomas Weisel Partners resigned last week to launch their own leveraged buyout fund.

The departing trio is led by Alan Menkes, who had served as managing partner of the $1.3 billion Thomas Weisel Capital Partners fund since it was raised in 1999. Menkes’s pedigree – which included stints at The Carlyle Group and Hicks, Muse, Tate & Furst – was widely credited with helping the first-time fund hit its lofty goals, although no limited partners are said to be pulling their commitments as a result of his recent decision.

Also leaving the firm are Dan Dross and Keith Oster, both partners with TWCP.

“All three of us have been in the private equity business since the late 1980s,” Menkes said. “Dan was at Hicks and Keith was at Carlyle, so we’ve spent most of our lives working for independent platforms, and I think we’ve all decided that we prefer working within that model.”

More specifically, Menkes said he felt that Thomas Weisel’s emerging industries bailiwick never really jibed with his interest in conducting leveraged buyouts of established companies. Indeed, the vast majority of TWCP investments can be best described as “growth capital,” even though the fund almost never invests less than $15 million per deal.

Although his new fund does not yet have a name, let alone any commitments, he said it will likely focus on middle-market LBO opportunities.

“We know the fund-raising market is difficult right now, but we feel that there is still a bunch of capital out there and increasing interest among European investors,” Menkes said. “I think we have the level of experience to do this, but it’s important to stress that everything is still very preliminary at this point.”

Menkes will remain full-time with TWCP until the end of February, with Dross and Oster sticking around a bit longer to aid in a transition process that will be closely watched by market insiders.

Although the recent defections were voluntary, the news comes just a few months after Thomas Weisel Partners slashed 120 employees from its I-banking payroll and asked private equity fund-of-funds manager Ashu Rajbhandari to find work elsewhere. Moreover, industry headhunters have seen a steady enough stream of TWCP resumes to make one wonder whether or not Menkes and company represent just the tip of the iceberg.

A spokeswoman for the merchant bank, however, disputes such talk by insisting that the firm plans to hire two to four new private equity professionals within the next few months. She added that an agreement is almost finalized with the executive search firm that will oversee the recruiting efforts.

Once the restocked team is in place, TWCP may begin designing an offering memorandum for TWCP II, although fund-raising will not actually begin until sometime in 2003.

TWCP so far has invested $800 million and has $400 million worth of pure dry powder left, plus another $100 million for follow-on portfolio investments.

Menkes’ responsibilities will be taken over by Derek Lemke, Bill Bunting and Mark Lieberman.

Dan Primack can be contacted at:Daniel.Primack@tfn.com