Hicks Muse Plans $1.5 Billion Fund for Europe

As Hicks, Muse, Tate & Furst put the finishing touches to its $4 billion fourth US fund, the group confirmed that it plans to raise a dedicated European fund during 1999. The group has set a provisional target of $1.5 million (ecu 1.3 billion) for the vehicle, which is due to be launched during the first quarter.

Hicks Muse has opened a London office (see page 30) headed by partner John Muse from which to coordinate its European expansion and has already hired three additional investment professionals. The group ultimately plans to build a team of eight to ten professionals to cover the European market. A source close to the firm said the new European staff would focus principally on business development and deal origination because Hicks Muse initially plans to “parachute in” transaction capability from the US.

When it first decided to step up its European investment activities, Hicks Muse had earmarked 30% of its fourth US fund for overseas investment in both Europe and Latin America. The group, which also closed a $960 million dedicated Latin American vehicle last summer, has subsequently decided that it will need substantially larger resources at its disposal to pursue the opportunities currently available in Europe.

The firm will initially market the fund – provisionally named Hicks, Muse, Tate & Furst European Partners – to investors that have committed to past Hicks Muse vehicles, but John Muse said he sees a broad constituency of likely takers for the fund. “We’re going to look first to the core investors in out domestic fund, but there are a number of people in the US who might have an interest in a targeted LBO fund who did not commit to our other vehicles”, John Muse said. He added that European investors have so far committed $800 million to Hicks, Muse, Tate & Furst Equity Fund IV.

Hicks Muse plans to charge only a 1.5% management fee for the European fund compared with the more usual 1.75% that applies to many other international buyout funds raised by US groups; the fund’s other terms are standard.

The biggest problem that Hicks Muse may encounter when fund raising may not come from European buyout firms in the market at the same time but from the relationships potential investors have already formed with other European funds.

“We’ve already made significant European investments so we may not have the capacity to follow that vehicle”, said a limited partner that has invested in previous Hicks Muse buyout funds.

A spokesman for the firm said Hicks Muse intends to replicate the proven platform approach it has adopted for its US funds in its European business.

Sectors that are likely to be of particular interest for the fund include media, manufacturing and electronics, as in the US, although the group will pursue opportunities in any sector that lends itself to a pan-European strategy. In all probability, this policy will rule out food-related investments – another area where Hicks Muse has been active in the US – because of the variations in national eating habits across Europe. The spokesman added that Hicks Muse may also target telecoms opportunities in Southern Europe.

If Hicks Muse’s planned European fund reached its target size, the Texas-headquartered group will have secured “fast-track” entry to the ranks of Europe’s largest private equity groups. As 1998 draws to its end, it is sobering to remember that, while less than two years ago Europe had yet to see its first “billionaire fund”, the Hicks Muse vehicle is targeting only half the total raised this summer by CVC’s most recent effort, and will be just one among ten or more billion-dollar-plus vehicles focused on larger European buyouts.

Hicks Muse completed two European investments, Glass’s Group and Daehnfeld, during the course of 1998. A third deal involving a European vendor collapsed in a blaze of publicity in November. Hicks Muse, which this summer agreed to pay Pearson plc $860 million for US publisher Simon & Schuster’s reference and professional publishing operations, withdrew from the deal, having failed to agree a renegotiated price with Pearson after the targets’ revenues fell below estimates.