MidOcean to manage Morgan Grenfell assets

MidOcean Capital, the newly established private equity group which last week acquired a E1.5bn portfolio of late stage investments from Deutsche Bank, is to manage the remaining assets owned by Morgan Grenfell’s Fund IV, valued at E1bn.

MidOcean Capital, the team of former DB Capital Partners executives which last week completed the E1.5bn buyout of late stage investments from Deutsche Bank, is to manage the remaining assets owned by Deutsche European Partners IV (DEP), the legacy fund of Deutsche subsidiary Morgan Grenfell Private Equity.

According to Graham Clempson, who heads up MidOcean alongside Ted Virtue, the group’s London-based team will be looking after six investments that are still owned by DEP. The assets in question, valued by Deutsche Bank at around E1bn, are Laurel, the UK pubs group acquired from Whitbread in April 2001; Italian scooter manufacturer Piaggio; Probitas Pharma, a Spanish blood plasma maker; Go Mass/Sky Rock, a European billboard advertising and radio station business; specialty chemicals company Vantico; and Red Sheriff, an internet business in which DEP acquired a E20m stake in December 2000 which was subsequently written down to a zero valuation.

Clempson said MidOcean will be looking to exit each of the companies on a deal-by-deal basis. Deutsche Bank remains the owner of the portfolio. It has not been disclosed how Mid Ocean will be remunerated for managing the assets.

DEP has committed around E1.3bn in capital to twelve companies and, according to a source close to the fund, has returned approximately E600m to investors so far. The fund’s most successful exit to date was the disposal of Coral Holdings, the UK bookmaker, which was sold to Charterhouse Development Capital in August 2002 in a E1.37bn secondary buyout. The transaction generated realised proceeds of E343m on DEP’s initial equity investment of E129m.

Of the remaining interests in the fund, Laurel and Probitas Pharma are thought to account for just under E800m in unrealised value between them, or 80 per cent of the current total. Deutsche Bank valued both investments at roughly two times cost in September 2002.

DEP gained notoriety in 2000 after a E275m equity investment in SLEC, the Formula One holding company, was sold to German media group EM.TV in an all-share transaction. EM.TV’s subsequent collapse in 2001 led to a near total write-down of DEP’s equity investment.

Another failed investment in the fund was City Reach International, a European internet infrastructure provider in which Morgan Grenfell had invested E37m. DEP has also written down to zero a number of smaller technology-related early stage investments.

Last week, in addition to spinning off Mid Ocean, Deutsche Bank completed the sale of the remaining assets owned by Morgan Grenfell European Partners III, DEP’s predecessor, to Vision Capital. The transaction, based on what Clempson described as a “competitive price”, was backed by a dedicated secondaries fund managed by Goldman Sachs Private Equity Group, which is part of Goldman Sachs Asset Management. The transaction value has not been disclosed, although Vision is thought to have paid around E100m for the four direct investments that make up the portfolio.