Electra and AB Asesores Float Dinamia

The UK’s Electra Fleming and Spain’s AB Asesores have formalised the exclusive agreement they arrived at early last year (EVCJ April/May 1997, page 5) by forming a 50:50 joint venture management company, AB Asesores Electra.

AB Asesores Electra will manage the newly-created Dinamia vehicle, which raised Pta 20 billion (ecu 120 million)) through a retail and institutional placing in December.

It thus became the first quoted private equity fund to float in Spain and take advantage of the government’s revision of the tax regime on venture capital investments.

Dinamia has acquired the portfolio of existing unquoted investments managed by AB Asesores through four funds -AB Capital Funds I & II, the AB Venture Fund and KF No.1 Spain fund – for a GBP37 million (ecu 56 million) consideration. Tim Syder, a director of Electra Fleming, said that Electra Investment Trust (EIT) has taken a 10% holding in Dinamia, including the transfer of its stake in Duraval. EIT acquired this holding through the GBP10 million buyout of the paint manufacturer, a deal which was executed under the agreement with AB Asesores.

Dinamia will invest the balance of its assets in later-stage unquoted Spanish companies. Tim Syder said the majority of these would probably be buyouts “at the smaller end of the scale, say, GBP10-25 million”. Such opportunities currently represent approximately two thirds of AB Asesores Electra’s potential deal flow. EIT will co-invest with Dinamia on larger deals, as exemplified by the EI Systems buyout, Dinamia’s first deal. Dinamia has taken a majority stake in the company, with EIT subscribing directly for the balance of the equity (story, page 10).

Current levels of deal flow suggest that Dinamia should reach full investment in 18-24 months, according to Tim Syder.

Dinamia moved from the drawing board to the Madrid stock exchange with surprising speed: AB Asesores and Electra first mooted the idea of raising a quoted fund to acquire the AB Asesores unquoted portfolio and fund new investments last September.

The success of the Dinamia offer suggests that Spanish institutions may gradually be warming in their attitudes towards private equity after several years of indifference or downright scepticism. Spanish investors predominated in the institutional investor group which subscribed approximately 75% of Dinamia’s capital, though the fund attracted interest from groups throughout Europe. The balance of the fund was subscribed by retail investors.

Tim Syder explained that, having seen the performance of unquoted funds in the UK and the US, Spanish investors have developed an appetite for exposure to the asset class. Dinamia proved particularly attractive to domestic investors since it offered the opportunity of taking relatively small stakes compared to most conventional LP fund commitments, with the added advantage of liquidity.

Santiago Eguidazu, vice-chairman of AB Asesores added that the formalisation of the relationship with Electra Fleming and the launch of Dinamia had taken place “At a time when market conditions are especially favourable and when the Spanish government is actively encouraging private equity investment”.

Though it is early days yet, Dinamia has got off to a good start, with around 20% of its stock traded on the first day. It is currently priced at a 10% premium to asset value.

The partners in AB Asesores Electra are anxious to avoid shares in Dinamia moving to a discount, as are the Spanish stock exchange authorities, who are keen to see similar issues in the future.

Reflecting this concern, the carry payable to the fund’s manager, AB Asesores Electra, incorporates a performance fee based on Dinamia’s share price, rather than the company’s net asset value.