LONDON – Deutsche Bank’s private equity arm, Morgan Grenfell Private Equity (MGPE), has set a euro 1.6 billion ($1.8 billion) target for Deutsche European Partners IV, a pan-European buyout fund focused on the United Kingdom, Germany and Italy.
Formal fund raising for the vehicle began in February. Like many other recent fund efforts, Deutsche European Partners IV represents a step-up in size from earlier vehicles. The group’s previous pan-European vehicle, Morgan Grenfell Equity Partners, raised GBP350 million ($571.38 million) in 1995 and at the time ranked as one of Europe’s largest buyout funds. Shortly afterward, MGPE raised a France-focused fund totaling some GBP50 million ($81.63 million) and an GBP85 million ($138.76 million) Italian vehicle. These funds, managed by local teams headed by Michel Biegala and Dante Razzano, had a remit to undertake smaller deals on their own and to co-invest with Morgan Grenfell Equity Partners in larger transactions sourced through their local offices.
Like Morgan Grenfell Equity Partners, the Italian fund is now approaching full investment. Thereafter, investments in Italy will be made solely through Deutsche European Partners IV, with Mr. Razzano forming part of MGPE’s central team.
MGPE’s venture in France enjoyed less success than its Italian counterpart due to changing market conditions, and last year investors in Morgan Grenfell & Associes and the general partner, Morgan Grenfell Investissement, agreed to terminate the fund.
“The smaller-deal market in France virtually disappeared during the French fund’s prime investment phase,” MGPE Director Colin Brown said. “Although the French larger-buyout market has picked up dramatically in the last couple of years, France will not be a primary focus for the new fund because of the difficulties that still attach both to executing and exiting transactions in that market.”
Meeting a Rising Market
At its target size, Deutsche European Partners IV will be roughly two-and-a-half times the size of the previous pan-European and Italian funds combined, an increase that is broadly in line with the upward drift seen throughout the European private equity market in recent years. A vehicle of this magnitude will give MGPE sufficient firepower to lead more deals such as the recent Vianova and Coral buyouts, both of which were around the GBP400 million ($653 million) mark.
“We will not be looking to do the mega-deals,’ but neither will we rule out small or medium-sized transactions with potential for attractive growth,” Mr. Brown said.
Its Deutsche Bank parentage puts MGPE in a strong position to compete in Germany’s rapidly developing buyout market and is likely to prove a selling point for the fund. While pre-marketing for the fund has focused primarily on MGPE’s existing investor base, the group also has contact with a number of potential new investors, particularly U.S. public and private pension funds, which have evinced a keen appetite for exposure to the German market and are attracted by the Deutsche Bank connection. “We anticipate that some new investors will make substantial commitments to Deutsche European Partners IV,” Mr. Brown said.
Deutsche Bank itself will commit 25% of the fund’s total. The direct holdings – effectively bridge financings – the group has taken in Vianova and Coral alongside Morgan Grenfell Equity Partners, together with any further direct investments completed prior to Deutsche European Partners IV close, will be sold to the fund in their entirety. Mr. Brown commented that this factor should also prove attractive to potential investors because it will enable them to assess part of the fund’s ultimate portfolio before making their commitments.
Another high-profile asset might be added to the new fund’s potential portfolio in the near future: Morgan Grenfell Private Equity and the Soros Fund are participants in the Candover-led consortium that is backing Regional Independent Media’s GBP913 million ($1.49 billion) bid for Mirror Group. If the bid is successful, MGPE’s investment is expected to top the GBP100 million ($163.25 million) mark.
Mr. Brown declined to comment on Deutsche European Partners IV’s terms and conditions, other than describe them as “what the market sees as acceptable.”
MGPE has appointed Massachusetts-based Atlantic Pacific Capital as placement agent and expects the fund-raising process to take approximately six months to the final close.