ABN Amro closes second mezzanine fund

Investing in mid-market buyouts and development situations, ABN Amro Mezzanine has over £150m to spend.

ABN Amro Mezzanine, the mezzanine investment division of ABN Amro Capital, has closed its second mezzanine fund.

Commitments have been received from institutional investors in the UK, Continental Europe and North America. ABN Amro Bank, acting as anchor investor in the fund, provided £50m.

The fund will invest up to £30m in individual transactions, which marks a step-up from ABN’s first mezzanine fund, a £75m vehicle closed in August 1998 and fully invested by December 2000. It is managed by Barrie Moore, managing director, who alongside fellow directors Tina Sharp and John Sealey joint ABN Amro in 1996 after running Natwest Markets’ mezzanine operation for seven years.

To be able to effectively manage the larger vehicle, the firm recently hired an additional executive, Bruce Thomson, who joined from Bank of Scotland’s structured finance arm in London.

To raise the fund took 18 months. 'This is an average period for such an offering. Initially I thought we might do it in 12 months, but conditions in the market meant it took a bit longer', said Moore.

Commenting on the geographic structure of the investor base, Moore said that surprisingly, US-based investors did not commit at all, leaving it to Canadian institutions to represents North America in the fund. 'We spent a lot of time in the US, but came away with the impression that US investors are more comfortable with dollar-denominated offerings, and that they are very well serviced by a plethora of domestic players already.'

A number of the institutions who did invest also committed to co-investment arrangements, which gives the fund access to capital in excess of £150m to invest. This is a first for the firm, and according to Moore 'quite comforting'. Limited partners in ABN Amro Mezzanine's first fund had not acted as co-investors.

Moore and his colleagues will be looking to invest in midmarket buyouts and expansion capital transactions in the UK and Western Europe. Moore believes that the outlook is good: 'We see conditions similar to those prevailing in the early 1990s, which were a very good period for mezzanine. EBIT and EBITDA to debt ratios are falling. This leaves a widening funding gap that the banks are reluctant to close, leaving excellent opportunities for mezzanine.'

Given such prospects, Moore is confident that the fund is going to generate 20 per cent plus returns on investment. He says fund I is on target, even though it is still a young portfolio with a small number of exits. 'It's early days. We raised the new fund mostly on the back of our track record built at Natwest.'