Venture Capital – Halogen teams with KKR for pan-European Internet venture

Kohlberg Kravis Roberts is the latest US buyout house to throw its hat into the European Internet arena albeit using a somewhat different technique from some of its counterparts. The firm’s executives have taken a substantial minority holding in European Digital Partners (EDP). EDP, a new Internet venture group and high-end value-added accelerator, was established by the principals of Nordic Internet investment specialist Arkwright Capital Partners and Halogen, a European strategic Internet consulting company.

Peter Bahrke, Erik Fllstrm and Hkan Gomr of Arkwright are managing partners of EDP, as are Maurice Thompson, former global head of investment banking at Deutsche Morgan Grenfell, and Jonathan Asquith, DMG’s former COO.

Roger Brooke, until recently chairman of UK buyout house Candover, is non-executive chairman of EDP. Neil Richardson and Marc Lipschultz of KKR will both sit on EDP’s board and investment committee.

Arkwright, founded by former Bain & Co executives in the mid-1980s expanded its focus from financial services into telecommunications, media, Internet and Internet enabling technology companies. The company was active in the three fields of strategy consulting, corporate finance and venture capital, with a core focus on the Nordic region.

Arkwright Capital Partners backed 15 early-stage Nordic Internet and Internet-related investments between 1998 and the formation of EDP, including Bidlet, Sweden’s largest e-commerce site, and Wideyes, the online recruitment and HR service provider. At the last count, its portfolio was valued at $750 million (a773 million).

A number of these companies have follow-on funding requirements and EDP will be able to support them as they scale up.

Arkwright Capital was also an early backer of Halogen, an e-business services company combining Internet banking and systems architecture expertise. At the end of December 1999, Arkwright and Halogen merged. The new group raised $18 million in pre-IPO expansion capital and has appointed Enskilda and Deutsche Bank to advise on a summer flotation. Halogen holds a 10 per cent stake in EDP.

KKR executives will hold around one third of EDP, which has initial capital of some $100 million and may seek a flotation in the short- to medium-term; the decision whether or not to go public will be dictated by portfolio composition rather than immediate valuation levels. Through co-location with Halogen, the new venture will have a direct presence in Sweden, the UK, Germany, France and Norway. As well as providing venture capital, strategic, Internet consulting and investment banking skills, EDP intends to capitalise on potential synergies and cross-pollination’ between investees.

As a venture which combines investment capacity, strategic consultancy, Internet consultancy and e-business services with a pan-European capability, EDP would appear to have a significant competitive advantage over most, if not all, rival incubators.

KKR is no stranger to the Internet sector, having made early-stage investments in several US Internet ventures including BigVine.com, desktop.com, govWorks.com, MyPoints.com and StarMedia network. EDP is well positioned to help KKR’s US investees enter the European market while KKR is able to provide a perspective on the US Internet market for the new fund.

KKR founding partners Henry Kravis and George Roberts described EDP as an important component of the group’s overall Internet strategy and highly complementary’ with other initiatives: “We can now leverage the knowledge, expertise and networking of European Digital Partners to create opportunities for similar early-stage investments in European companies to build value, while also providing another channel of opportunity and expansion for our portfolio companies, Accel-KKR and our other US based Internet investments”.