Alchemy CrystallisesExpansion Plans

After a flying start in its first year, when it invested GBP80 million (ecu 119 million) in 13 deals, Alchemy Partners is preparing for a substantial expansion of its business as it extends its sphere of operations from the UK into the German and Swiss markets.

To fund increased levels of activity, the Alchemy Investment Plan, a 12-month rolling structure that raised GBP101 million last year, will be expanded to a maximum of GBP250 million (ecu 370 million), giving the firm firepower equivalent to a GBP1 billion standard fund.

When Alchemy first announced plans to open a German office, managing partner Jon Moulton envisaged raising a separate investment structure for Germany. Existing investors, however, strongly favoured an extension of the current structure to cater for all Alchemy’s investments, irrespective of location. In the UK, Alchemy focuses primarily on “difficult” deals, such as turnarounds and public-to-private transactions. In Germany, although special situation investments are not ruled out, the group plans to adopt a more generalist mid-market focus.

Between 30% and 40% of the enlarged plan is likely to be earmarked for investment in the German-speaking markets, although Jill Pickering, responsible for investor relations at Alchemy, said “nothing is set in stone”. Indeed, the flexibility to deploy assets opportunistically is a major advantage of a single investment structure.

Based on current deal flow, Alchemy is now expecting to invest around GBP150 million per annum in the UK – effectively doubling last year’s rate of activity – and, according to Jon Moulton, is currently reviewing around ten potential investments a month in Germany, where its office is now operational (see page 26).

Scott Greenhalgh, recruited in late 1997 to get the German operation off the ground, will soon be joined by Michael Klein, who has left Morgan Stanley, where he worked in the M&A departments in both Frankfurt and New York before moving to the bank’s global consumer products group. Ultimately, Alchemy expects to build a team of six investment professionals in Germany.

The indications are that most, if not all, of Alchemy’s 14 existing investors wish to increase their commitments to the enlarged investment plan; Alchemy also hopes to bring in a limited number of new backers, probably between six and ten investment groups. According to Jill Pickering, preliminary indications are that “a major chunk” of the new capital will come from US sources.