DB Capital Partners creates Euro 1.1bn mezz fund

12 March 2001

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As the ever-increasing size of the European buyout market precipitates a growing demand for subordinated debt, the past 18 months has witnessed a frenzy of fundraising activity from both indigenous mezzanine providers and US players looking to target the European mezzanine market. The latest player seeking to capitalise on the European appetite for mezzanine funding is DB Capital Partners, which recently announced that it is in the process of establishing a -1.1bn mezzanine fund, DB Capital Mezzanine Partners, to invest in North American and Western European companies.

The fund pool for the new vehicle will initially be financed from Deutsche Bankâ€™s balance sheet, although discussions have taken place with institutions interested in investing money in the fund. The operation will be co-headed by Greg Margolies out of DB Capital Partners in the US and Steven Robertson, who will lead the European operations out of DB Capital Partnersâ€™ London office. The vehicle will operate as a subsidiary of DB Capital Partners, with an advisory board including Manjit Dale, managing partner of DBCP and Graham Clempson, head of European private equity.

The vehicle will look to support companies at the mid- to top-end of the market, providing a broad range of subordinated debt facilities, including PIK and non-cash pay instruments. The fund will invest in buyouts and buy-ins, as well as companies seeking growth capital. It is also anticipated that the fund will provide finance for listed companies. Robertson comments that despite the large amount of mezzanine finance available in Europe, the appetite for increasingly sophisticated debt structures continues to soar as the market evolves.

As such, DB Capital Mezzanine Partners anticipates a wealth of opportunities across Europe, and is already generating pretty strong deal flow.

The DB Capital Mezzanine team will draw upon DBCPâ€™s existing clients, Deutsche Bankâ€™s investment banking relationships, external relationships with sponsors, investment and commercial banks as well as relationships with other mezzanine funds for investment opportunities. DB Capital Mezzanine Partners will generally seek to be the sole mezzanine provider in a transaction, although in the past it has participated as part of a syndicate, and has not ruled out doing so again. In the past 18 months, DBCP has made five mezzanine investments totalling over $95m, including financings for Jostens and Outsourcing Solutions in the US. DB Capital Mezzanine Partners is currently seeking to recruit further staff, which includes appointments at a senior level.

Other players operating in the European subordinated debt market include Mezzanine Management and Intermediate Capital Group, which closed funds on $525m and $456m respectively in 2000. PRICOA Capital also closed its Private Capital Partners II fund on Euro 3.4bn towards the end of last year. GSC Partners, the US private equity firm, is currently in the process of raising Europeâ€™s largest ever mezzanine fund, which has a target of $1bn, while Goldman Sachs and Donaldson Lufkin & Jenrette closed $1.5bn+ mezzanine funds last year with remits covering both the US and Europe last year.