Deal sourcing: Right under your nose

Here are the four main categories where GPs appear to have bought up companies they were naturally working with:

Deal advisers
It can quite reasonably be assumed the companies we know best are those we regularly do business with. In an industry where networks are everything, it should therefore be relatively unsurprising when a private equity firm invests in an advisory practice. Nonetheless, for the purposes of this exercise, such deals undeniably fall into the ‘right under their nose' category.

This sort of relationship, however, can become awkward when the adviser becomes involved in deals that go wrong – as Altor has learned through its ownership of Carnegie, a Swedish financial services group. Carnegie was among the advisers that worked on the IPO for Altor portfolio company OW Bunker. When the shipping company filed for bankruptcy just seven months after listing, accusatory fingers were pointed in the direction of the advisers that worked on the flotation. Altor's Tor Krusell found himself publicly rebuffing criticism targeted at both the firm and one of its portfolio companies.

Where the immediate working environments are distant, the scope for such a double-headache is less acute. AlixPartners, for instance, which provides financial advice on issues regarding operational improvement, turnaround and restructuring, has been under the ownership of CVC – which is unlikely to make turnaround investments – since 2012. The business was recently stengthened by the bolt-on of Zolfo Cooper's European assets in a deal thought to be worth $100m.

Pass-the-parcel deals
It is well documented that private equity loves a secondary buyout. According to unquote" data, 40% of buyouts in Q1 2015 saw companies go from one private equity owner to another. However, when companies are passed around between firms like parcels, eyebrows ought to be raised.

In May HgCapital acquired UK creative software provider The Foundry in a tertiary buyout from Carlyle Group, which had itself acquired the company from Advent Venture Partners in 2011. Advent had itself acquired the company from Florida-based investment bank Wyndcrest Holdings in 2009. HgCapital's acquisition closely followed the buyout by French private equity house Sagard of air-transportation equipment group Alvest from LBO France; a deal that marked the company's third successive period under private equity ownership.

In January 2015, however, Onex pre-emptively trumped both HgCapital and Sagard with a quaternary buyout. The Canadian firm invested roughly $320m to acquire a majority stake in UK marine, defence and aerospace survival equipment manufacturer Survitec from Warburg Pincus. Survitec has been under private equity ownership for 16 years to date, having been acquired by Alchemy Partners in 1999, Montagu Private Equity in 2004 and Warburg Pincus in 2010.

Fund administrators and asset managers
If deal advisers and private equity houses enjoy a close relationship, the mother of all ‘takes one to know one' deals takes place when a private equity house acquires a fund administrator.

Warburg Pincus- and General Atlantic-backed Santander Asset Management announced its intention to merge with Unicredit's Pioneer Investments in April 2015. Once regulatory approval has been obtained, the combined asset management company will have an enterprise value of €5.35bn. The motivation and logic from private equity houses in creating such a behemoth in an industry they understand so well is clear – the result being a more diversified portfolio of products, clients and distribution networks, as well as an astonishing €355bn in assets under management. It is almost a case of private equity by-numbers.

Other examples of such deals include Electra Partners' £180m management buyout of Ogier Fiduciary Services (now known as Elian) in February 2014 and Silverfleet's £50m buyout of Ipes from RJD Partners in April 2013.

Increasing private equity ownership in the space follows recent regulatory demands, which have fuelled the need for third-party fund administrators. Upon its acquisition of Ipes, Silverfleet stated legislation such as the Alternative Investment Fund Managers Directive, as well as increasingly complex investor demands, would generate new reporting requirements that are costly to provide in-house.

Financial media
In 1979, Remington's electric shavers shot to international fame through a TV advertising campaign in which its owner, Victor Kiam, proclaimed: "I liked it so much, I bought the company." Almost in tribute to Kiam, private equity firms seem to have adopted the same approach when it comes to financial literature they consume.

Starting with the most immediately apparent case – as far as unquote" is concerned – Alchemy Partners secured a majority stake in Incisive Media in January 2015. The firm had been invested in Incisive, the publisher of unquote", since November 2013. However, Alchemy is not the first private equity owner the business has had. In 2009, Apax Partners took Incisive private in a deal that gave the company a market cap of £199m and an enterprise value of £245m. Three years later, senior lenders took over the company following a debt-for-equity swap.

Yet, the true pioneer in the act of private equity houses acquiring European private equity publications is LDC, which bought Real Deals publisher Caspian Media (then Caspian Publishing) in January 2002. 

Incisive is not alone in turning readers into owners. In December 2013, BC Partners acquired Mergermarket from Pearson Group for £382m. The following year, the business went on an acquisitive spree, bolting on Perfect Information and The Law Report Group.

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• Topics
• Investments
• Origination
• Top story
• Altor
• CVC Capital Partners
• HgCapital
• Advent Venture Partners
• Sagard Private Equity
• LBO France
• Onex Partners
• Santander
• Warburg Pincus
• Electra Partners LLP
• Silverfleet Capital
• Alchemy Partners LLP
• LDC
• BC Partners