EAC Goes Independent, Heads for Ecu 200 Million

EAC Fund II’s ecu 127 million first closing at the end of March saw European Acquisition Capital (EAC) celebrating its new independent status. The four senior partners, Bert Wiegman, Robert Mason, Paul Downes and Bill Robinson, have taken EAC independent from S-E Banken for undisclosed terms and together now own 100% of the management company. EAC is thus following in the footsteps of Industri Kapital, bought out by its principals from S-E Banken’s Enskilda Ventures subsidiary in 1993.

S-E Banken’s full support for the move can be gauged by its ecu 20 million commitment to EAC Fund II – four times its investment in the first EAC vehicle – and its provision of GBP3 million (ecu 4.6 million) of preference stock to fund working capital requirements at the newly independent management company.

Bank ownership of a third-party fund manager sometimes gives rise to investor concern about possible conflicts of interest. With that potential obstacle removed, EAC hopes to bring EAC Fund II to its cap level of ecu 200 million, twice the fund’s original target, well before the end of June deadline. The group has already lined up further commitments totalling ecu 61 million.

Sixteen investors signed up at the first closing, among them several participants from EAC Fund I, who provided 50% of the closed total. Including S-E Banken’s commitment, 40% came from investors from the Nordic region. US investors provided 36% of the first closing total, and the balance was drawn from sources in the UK and Continental Europe.

Paul Downes named the Virginia Retirement System, Commercial Union and Bank of America, together with a leading German banking group, as major contributors to the fund. He added that “an interesting cast list” of international investors looked set to take the fund to the ecu 200 million mark by the end of April.

Although EAC’s second fund is already substantially larger than its ecu 83 million 1991 predecessor and could reach double the size originally envisaged, EAC will not necessarily target larger deals than in the past. Paul Downes explained that EAC Fund I “had insufficient firepower” for the seven deals it completed, compelling EAC to bring in co-investors for deals that the group would theoretically have been happy to undertake as sole institutional equity provider. The first EAC fund, which has realised three of its seven investments – AB Lindex, Stalwart and Tom Cobleigh – has already returned 150% of drawn-down capital to investors. The group now envisages making between ten and 15 investments through EAC Fund II.

For its first investment, EAC Fund II is backing the same entrepreneur the first fund supported in its inaugural deal, the Tom Cobleigh pub chain. Derek Mapp started Tom Cobleigh with one pub in 1991. When the chain was taken over by Rank Organisation in 1996, EAC received more than four-and-a-half times the cost of its original investment.

Now, Derek Mapp is turning his attention to the childcare market with Leapfrog, a start-up company which aims to develop 60 purpose-built day-care nurseries across the UK. EAC led an initial funding package of GBP29 million (ecu 44.5 million) for Leapfrog, investing GBP7 million from EAC Fund II alongside GBP4 million each from Foreign & Colonial Ventures and Phildrew Ventures and GBP10 million of debt from Bank of Scotland.

Had EAC Fund II held its first closing on schedule, EAC would have funded Leapfrog’s entire equity requirement itself. “The delays cost us dear”, said Paul Downes. “What we had to do was find other investors willing to underwrite the deal and allow us to buy a portion back after the fund’s closing”.