Vestar Backs Newbie Lithos

Vestar, itself no stranger to the financial services industry, has committed $500 million of its own capital to fund Lithos’s investment activity. The new Westport, Conn.-based firm will look to make deals in securities exchanges and service providers to the securities industry, as well as financial technology companies. Both public and private companies are fair game for Lithos, which will put between $25 million and $200 million of equity in each investment.

“Financial services is an enormous sector, and one that’s integral to the economy. It impacts not only the U.S., but Europe and even Asia as well,” Sander Levy, a managing director and founding partner at Vestar, told Buyouts. “The industry, is going through very significant changes, and Phil [DeFeo] has been at the forefront of that change—and in some ways has been the leader—as head of the Pacific Exchange.”

Indeed, in 2004, DeFeo led the demutualization of the Pacific Exchange, converting its equity business into a for-profit corporation. In 2005, the Pacific Exchange was sold to Archipelago Holdings Inc., which, just last month, merged with the New York Stock Exchange.

While Lithos-centered conversations between Vestar and DeFeo began shortly after the latter stepped down from his post at the Pacific Exchange, the two parties were not strangers. “We’ve known the DeFeos for many years,” Levy said, noting that Philip DeFeo’s twin brother, Neil, served as Vestar’s CEO during its investment in electric shaver maker Remington Products Co. LLC, which was sold to Rayovac Corp. in 2003.

For New York-based Vestar, which largely invests in the financial services industry through the insurance market, backing Lithos represents an opportunity to gain exposure to other segments of the market. “We’ve had successes, but not so much in the world that Phil has lived in,” Levy said. “This is a great opportunity to form a venture with him—to marry his strategic vision for the industry with our capital.”

The $500 million of earmarked capital for Lithos will come from Vestar Capital Partners V LP, a $3.7 billion fund that closed last year, Levy said.

Independent of Lithos, Levy said Vestar currently has one pending transaction in the financial services arena that it hopes to close on soon. If the deal closes, Vestar will have invested about $700 million of equity in financial services market in the past five years, he added.

Vestar’s past investments in the financial services include reinsurance companies Montpelier Re Holdings Ltd., Validus Re and Wilton Re, as well as financial advisory firm Duff & Phelps LLC, and business development company MCG Capital Corp. (NASDAQ:MCGC). —A.N.