Star going Underground

Star Capital has agreed to acquire a one-third stake in the consortium that manages one-third of London Underground from embattled support services group Jarvis for just over £100m.

European private equity firm Star Capital Partners has agreed to purchase a 33 percent stake in Tubelines, the consortium that runs approximately one-third of the London Underground tube network, for approximately £100 million (€150 million; $192 million), according to the Financial Times.

The stake is being sold by UK support services group Jarvis, which has issued a class one circular to the City in relation to a separate disposal, which stated that if the company did not sell its stake in Tubelines, it was likely to go bust. The transaction, which requires approval from Jarvis' partners in the consortium, is expected to close before Christmas according to the newspaper report.

Star Capital is currently investing from its €581 million fund, which closed in May 2002. Earlier this month, the firm acquired German steel recycling company BUS Steel for an undisclosed sum. In September, it bought a 72 percent stake in German energy services provider GWE.

The fund was set up to invest in capital assets and capital-intensive businesses in transportation, energy, oil and gas and telecommunications.

Previous deals by the firm include the joint acquisition with 3i of SR Technics, the aircraft maintenance unit of SAirGroup, the Swiss airline that went into administration in 2002. The €425 million transaction was the largest MBO in the transport and logistics sector in 2002.

Star Capital has described itself as a low-risk capital outsourcing fund. The firm aims to acquire underexploited capital sitting on a vendor's balance sheet, leverage the asset and build an independent business around it. The vendor will typically retain a stake in the business. The strategy is explicitly risk-averse. Star expects to generate an internal rate of return for investors of around 20 per cent. 

The fund is headed up by Tony Mallin, who spent twenty years at Hambros bank where he used to be a vice-chairman.