frankfurt, Germany – Following the beaten path of many other United Kingdom houses searching for a piece of the private equity action in Europe’s largest economy, Mercury Private Equity (MPE) in mid-May opened a sister office in Frankfurt. The group also dropped the somewhat cumbersome Mercury Asset Management Private Equity tag in favor of the snappier MPE.
Trevor Bayley, a veteran of the U.K. venture capital scene who joined MPE when it acquired Grosvenor in 1994, will head the new German operation as managing director. He will be supported by associate director Joachim Pieper, who previously was a strategy consultant with Bain & Co. in Munich. Michael Hehn, another strategy consultant who worked with The Boston Consulting Group before joining MPE, will relocate to Frankfurt from London at the end of this year. MPE is recruiting a second managing director – likely to be a German national – for the Frankfurt business
MPE ultimately aims to replicate its proven investment strategy – characterized by a close focus on mid-market transactions in its specialist sectors of health care, support services, telecoms, information technology/electronics and special situations – within Germany. In particular, the group will target acquisitions of privately owned companies with values in excess of GBP25 million ($40 million), applying its usual investment criteria of strong market position and outstanding management. However, reflecting the relative underdevelopment of the private equity market in Germany compared with the U.K., MPE may initially cast its German net more widely, considering investment opportunities across a broader range of industry sectors.
Taking It Slow
As a division of Mercury Asset Management, MPE ultimately is a Merrill Lynch subsidiary. Both Mercury and Merrill have established presences in Germany, and their local teams have assisted MPE with its strategy and recruitment efforts.
MPE has been planning its move into Germany for well over a year, a process that has involved a language-training program; as a result, six of the firm’s 14 directors are now fluent in German.
Despite the significant resources involved in the establishment of the Frankfurt operation, MPE is happy to adopt a gentle approach in the increasingly competitive German private equity market. Mr. Bayley emphasized that MPE “is not a volume business” and said the Frankfurt team is under no pressure to invest during its first year of operation. “We would expect to have completed two or three deals within two years and perhaps five by the end of year four, building toward an investment rate of around GBP120 million ($192 million) per annum,” he said. MPE currently invests a similar amount annually in the U.K., but Mr. Bayley said the group expects to see a significant increase in domestic disbursements during the next two to three years.
MPE quotes statistics from Initiative Europe that show a fivefold increase in the value of the German buyout market to nearly GBP3.2 billion ($5.11 bilion) between 1994 and 1998. This rapid rate of growth, fueled in part by the first wave of Anglo-Saxon entrants, continues to exert a magnetic attraction on U.K. players, despite the increasingly competitive nature of the German market. Private equity houses seeking to make their mark – and their Deutschmarks – therefore will need to strive ever harder to differentiate themselves from their peers.
As well as its recognized expertise in its chosen industry sectors, MPE prides itself on the speed of its decision-making process. Mr. Bayley pointed out that, by the year end, one-quarter of the group’s investment committee will be based in the Frankfurt office. He suggested that this factor, together with MPE’s status as a division of a leading global investment house, will reassure potential investees of the group’s ability to deliver.
The new German operation is MPE’s first direct foray into continental Europe. The group has invested directly only in the U.K. and Ireland, although it has achieved a limited exposure to unquoted companies in mainland Europe via relationships with Argos Soditic in France and UPM in the Netherlands.