In the largest single-buyer secondary private equity transaction ever, Coller Capital has acquired almost all of the private equity holdings of financial advisor Abbey National. The commitments are valued at $1.33 billion.
Coller has acquired 41 private equity funds and 19 European-based portfolio companies with the transaction, which closed in December.
While the London-based firms did not disclose the amount paid for the assets, reports from the U.K. indicate that Coller paid between $554 million and $646 million for the assets, including a secured loan note of $286 million. This is a significant discount considering all but $290 million of the $1.33 billion portfolio has been drawn down.
Abbey will disclose the price paid in the deal when it releases its 2003 final financial statement next month. A small team at Abbey will manage the few assets that remain until they mature or are sold off in individual deals.
Abbey entered exclusive negotiations with Coller last September. “We chose Coller at the end of the day because they were willing to give us a fair price for the assets,” says an Abbey National spokesman.
The bulk of value in the deal rests with the 41 funds changing hands. About 70% of the funds are buyout funds, with the remaining funds split between mezzanine and venture funds. Fund interests in the transaction include those of European firms Advent International, Apax Partners, Bridgepoint Capital, Duke Street Capital and Schroders. U.S. funds involved include Goldman Sachs, Thomas H. Lee Partners and Warburg Pincus.
Coller Capital has now invested approximately half of its $2.6 billion fund, which was closed in late 2002. The firm vowed to invest the fund at record speed, and to invest more than $1 billion in under a year and a half is rare. Secondary sellers often want deals done in time to avoid upcoming capital calls and will favor firms that can get the transaction done fast.
For Abbey, the deal effectively ends its private equity business, which it began to dismantle early last year in its effort to bail out of all businesses that are “no longer core” to its strategy. It began selling other assets of their private equity portfolio throughout 2003.
“They were able to sell their best funds early on in the process,” says one secondary market observer. “What was left was some of the more mature assets that a traditional secondary player would be interested in. It’s a good portfolio.”
The deal shows a thaw in the deal flow of large private equity portfolios on the secondary market. While secondary firms have raised a record number of funds, buyers have not seen the deal flow expected to follow, given the enormous jump in private equity investment over the last 10 years. “This transaction gives you plenty of evidence of how the secondary market is able to close deals and provide liquidity,” says Tim Jones, a Coller Capital partner. “An institution can liquidate assets that aren’t core. It was a fair deal for them and a fair deal for us.”
Secondary VC Fund
Long-time secondary private equity investor Venture Capital Fund of America (VCFA) has held a first closing on its latest fund for $102.8 million. The New York City-based fund, VCFA Private Equity Partners IV, is expected to hold a final close on $250 million by mid-April.
Founded in 1982, VCFA has definite commitments for another $21 million that arrived too late for the first closing. In addition, the firm has between $55 million and $140 million in soft commitments from limited partners. The last fund the firm raised was VCFA Management IV, a $50 million Bermuda-based fund that closed in 2001.
Limited partners in the new fund include American Family Insurance Group, Liberty Mutual, New York State Teachers Retirement System and the University of Richmond. VCFA has taken on some new LPs that include large institutions and some smaller university endowments that invested between $3 million and $5 million apiece.
This fund represents a significant shift for the firm. Its previous dedicated secondary funds have been focused on buying venture capital assets. The most recent U.S.-based dedicated secondary fund that the firm closed was VCFA Venture Partners III, which closed in 2000 with $100 million and planned to invest 75% of its capital in venture capital assets.
The new fund, which will be fully invested within four years, will have a much smaller emphasis on venture capital. An estimated 90% of fund IV will go toward the purchase of assets of small and middle market leveraged buyouts.
VCFA is actively pursuing a handful of buyout deals for the new fund. The firm will likely add one partner and one associate when the fund closes. It presently has four managing directors (plus two investment professionals working on a consulting basis). Besides its New York headquarters, the firm has offices in Chicago and San Francisco.
Nova Sees Heat in VC
Jumping into the venture capital secondary market without the right expertise is akin to climbing Mount Everest without a Sherpa guide. You might survive, but your chances aren’t too good unless you’re an expert yourself.
Secondaries firm Nova Capital Management found some proper VC secondary guides for its latest trek. Nova announced in February that it added two senior executives to specialize in venture capital secondary deals and portfolio management. The London-based firm hired Olav Ostin and David Tate to make direct venture capital deals in Europe and the United States.
Ostin previously focused on venture capital deals for the ETF Group, a Swiss venture capital firm. Tate was most recently a stockbroker with U.K.-based West LB Panmure.
The two will lead the firm’s venture capital secondary efforts. Nova also makes buyout and other investments, and specializes in direct investment portfolios of distressed and under-performing funds.
“There is an enormous amount of distressed and under-performing venture capital portfolios,” says Michael Kelly, a managing director with the firm. “It is an area that’s full of dread and concern because there’s a lot of dead wood out there, but there’s a lot of value as well.”
Kelly expects the firm to announce a new venture capital deal soon that has U.S. assets. Nova is also looking closely at three portfolios that are purely U.S. investments and a number of European deals that have at least one-fourth U.S. exposure.
Kelly notes that the firm operates in buyout and all private equity industries, but he feels the venture one requires extensive experience.
“We needed to have individuals who had a lot of experience in that sector to help us cherry pick the good portfolios from the bad,” he says.
Prior to co-founding Nova in 2002, Kelly was a senior partner at Executive Interim Management and in general management with Heron International. The firm’s first deal was its purchase of the LICA Development Capital portfolio, a $184 million portfolio that includes engineering firm Accura and ice-skating rink operator Planet Ice.
Unlike more traditional secondary buyers, Nova Capital does not have its own fund. It draws capital from shareholders and firms with proprietary partnerships.
A year ago publicly traded Caledonia Investments, which has a $1.7 billion investment fund, acquired a 33% stake in Nova Capital, providing significant funding for its deals.
Close Gets Close
Close Brothers Growth Capital (CBGC), the London-based investment subsidiary of investment bank Close Brothers Group, has held a first close on Close Brothers Growth Capital Fund II, which plans to participate in secondary deals.
The fund, which has a goal of raising $184 million, closed on $92 million. The firm’s first fund focused on mezzanine investments and closed on $71 million in 2000. It was completely invested in July 2003. Fund I has returned more than $37 million to investors already, the firm says.
While Fund II will primarily focus on management buyouts and growth capital, the fund will invest in secondary deals, with a preference for buyout secondary purchases.
CBGC invests anywhere from $3.7 million to $46 million per transaction, with the intention of being the sole institutional investor in a deal. The firm has often invested in consumer related and industrial product groups. Its portfolio companies include power provider ATG, hotel and conference center Chilworth Manor Ltd. and Bingo club operator the Walker Group.
Secondary Down Under
Australian fund-of-funds firm Quay Partners is entering the secondary market for the first time with its latest fund – Quay Secondaries Fund. The firm cited the secondary market’s shorter holding period and more stable valuations as the reason for its increased interest.
Three of the Sydney-based firm’s partners specialized in secondary deals before moving to Quay: Sam Armstrong and Stephen White were secondary investment professionals at Sydney’s Macquarie Bank, and Geoff Norman was a secondary investor at London-based Pantheon Ventures.
The firm focuses on buying partnerships in funds that are fully drawn or very mature. If it can’t find enough good deals in secondaries, Quay Partners will invest the balance of its capital in early-stage funds.