Phoenix Equity Partners regains independence

DLJ European Private Equity has become the latest in a string of private equity groups to have gained its independence. The group has been bought out by its management team and is spinning out of CSFB’s Private Equity Group. The business has been renamed Phoenix Equity Partners and will operate as an entirely independent entity. The funding for the buyout consisted of an initial tranche of cash up-front provided by the management of Phoenix, while the majority comprised deferred consideration, part of which is performance related.

The transaction follows hot on the heels of Mercury Private Equity’s recent spin-out from Merrill Lynch Investment Managers and F&C Ventures’ move towards independence. In Phoenix’s case, the spin-out was motivated by an overlap between its own investment mandate and that of CSFB Private Equity’s European operations, both of which target mid-market European growth companies. As such, it was deemed imperative for Phoenix to gain its independence, as the groups’ respective funds were going to be in direct competition.

Phoenix Equity Partners was originally founded in 1991 by David Gregson and Hugh Lenon. The business was subsequently acquired by Donaldson, Lufkin & Jenrette in 1997, becoming DLJ European Private Equity, before being acquired by Credit Suisse Group last year. Phoenix Equity Partners leaves CSFB with funds in excess of £500m under management, £300m of which comprises fresh capital available for investment. Funds under management include the £50m Phoenix Development Capital Fund and the £133m Phoenix Equity Partners II fund and DLJ Phoenix III with £71m of investments. Of the 75 investments made by the Phoenix team, 60 have been exited, generating a realised IRR of approximately 40%.

DLJ Phoenix Equity Partners III, which raised £430m last year, has now been closed prematurely and the institution’s undrawn commitments waived. Phoenix set up a new vehicle, which has been temporarily named The Phoenix Continuation Fund (to be re-christened Phoenix Equity Partners IV), to which 90% of the limited partners (32 in total) from DLJ Phoenix Equity Partners III made commitments, creating a £280m fund pool. The vehicle, which was advised by Josyane Gold of SJ Berwin, was swelled further by a £20m commitment from CSFB. It is understood that the fund pool is likely to be fully invested over a three to four year period.

Phoenix will maintain its investment strategy of targeting businesses valued between £30-200m in a variety of sectors including financial services (insurance and fund management), media and leisure. The institution will look to invest between £10-40m in each company, preferring to acquire majority equity stakes. The team will back growth capital deals and larger buyout transactions. Lenon is hopeful that deal flow will remain strong, stating that of the opportunities generated prior to the spin-out, around 20% came through DLJ’s network, while 80% were generated independently. Although the team will lose that 20%, Lenon also hopes that Phoenix’s independence will open up a whole new pipeline of deals in the form of investment banks which previously perceived the group as part of the investment banking competition.

Phoenix is in the process of expanding its team, which currently stands at 16, and is hoping to add three further executives in the coming months.

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