Doughty Hanson To Make Its Move Into US Market

Following Sir Isaac Newton’s theory that for every action there is an equal and opposite reaction, Doughty Hanson & Co. in the coming year will open New York offices and begin targeting the US for potential acquisitions, said a spokesperson at the firm. The move by the European giant, which raised $2.5 billion (ecu 2.1 billion) goes against the flow of US GPs who have set their eyes on Western Europe as a prime area of expansion.

The last year has seen the opening of European offices by such established US players as Clayton, Dubilier & Rice and The Carlyle Group, while early next year Dallas-based Hicks, Muse, Tate & Furst Inc. will begin marketing a buyout fund for continental Europe that will include a target of $1.5 billion (story, page 3).

Although partners at Doughty Hanson declined to comment, a spokesperson confirmed that Doughty Hanson will establish New York offices in the first quarter.

The effort will be led by Kevin Luzak, a former investment banker with Salomon Smith Barney and also will be overseen by Nigel Doughty, chief executive officer, for at least the first three months of operation. Although Kevin Luzak only recently joined Doughty Hanson, the spokesperson said he had worked with the firm on several earlier European transactions in an investment banking capacity.

Even though the hordes of GPs that have entered Europe have cited an overly competitive US marketplace as a key concern for widening the cast of their nets, the spokesperson said Doughty Hanson’s decision to target the US reflects a belief that the future of the buyout industry belongs to globalisation. “Our view is clearly that in five years time this will be a global industry, and we will not be talking about KKR as a US fund and Doughty as a UK fund,” the spokesperson said. The growth in fund sizes on both sides of the Atlantic has also forced both US and European firms to be more aggressive and creative in sourcing deal flow, the spokesperson added.

Doughty Hanson limited partners seem to be comfortable with the firm’s decision to increase its reach into the US and also see benefits to the opening of a New York office. “It’s really an extension of their European offices,” said one LP that is an investor in the firm’s current fund. “The type of targets they are looking at are global players, so for us it was very rational for them to have offices in the US”

The New York offices may also help Doughty Hanson, the LP said, by putting the group in closer proximity to sources of financing, such as high-yield debt, that have become increasingly popular options when making acquisitions.

The firm has yet to set parameters as far as the size of US acquisitions it will pursue, although the spokesperson said targets will probably be of a similar size to those in Doughty Hanson’s European portfolio and that many are likely to have a substantial European sales component.

The spokesperson said Doughty Hanson has yet to decide how many investment professionals will staff the new offices.