By Max Clarke
Demand for leverage to fund acquisitions is on the rise amongst private equity secondary funds, according to Investec Fund Finance which says it has seen a five-fold increase in enquiries from these funds over the past year. The latest example of this is Investec’s £10 million loan to Chamonix II LP, a fund managed by London-based Chamonix Private Equity, to purchase five non-core businesses from LINPAC.
LINPAC is a UK-based international plastic packaging manufacturer and the business units concerned are LINPAC Storage Systems, LINPAC Environmental, LINPAC Recycling, Intellident and LINPAC Metal Decorating — previously collectively known as the LINPAC ‘Speciality Businesses’.
The debt facility provided to the fund by Investec was specifically designed to suit the structure and expected cashflows of the Chamonix II fund.
Simon Hamilton, Investec Fund Finance, comments, “We have seen a marked increase in the past year in the volume of enquiries received for debt financing solutions from secondary funds. We are currently working on opportunities where the debt requirement is over £250 million, which is a five times increase from this time last year.
“By providing leverage at the fund level, it gives the manager more flexibility to negotiate with the vendor and structure the asset level debt across the portfolio. It also maximises returns by managing equity drawn from the investors and cashflows being returned from distributions.”
Andrew Hartley, Partner at Chamonix, comments, “This deal was particularly complicated due to the number of moving parts involved. Investec’s understanding of our industry combined with their ability to meet our fast-changing requirements was a significant factor in allowing us to complete the deal. It has also helped us to fulfil one of our primary objectives, which is to generate enhanced returns for our investors.”
The Investec Fund Finance team focuses on the financing needs of leading private equity funds and the professionals behind them. Investec offers a broad range of financing facilities tailored to the unique requirements of the private equity sector. Typically, the loan sizes are greater than £5 million and can extend to between £50 million and £100 million at the higher end. The loans are usually structured against the private equity investments, management company cash flows or investor commitments.
Other secondary funds the Investec team has recently worked with to provide debt facilities include GreenPark Capital and DFJ Esprit, whose Encore 1 fund was established to manage the Venture portfolio acquired in October 2009 from 3i and is backed by Coller Capital and HarbourVest Partners.