Mercury Private Equity Enters German Market –

Following the path already beaten by many U.K. groups in search of a piece of the private equity action in Europe’s largest economy, London-based Mercury Private Equity this month opened offices in Frankfurt, Germany.

Simultaneously, the group dropped its somewhat cumbersome Mercury Asset Management Private Equity tag in favor of the snappier Mercury Private Equity (MPE).

Trevor Bayley, a veteran of the U.K. venture capital scene who joined MPE when it acquired Grosvenor in 1994, will head the new German operation as managing director. He will be supported by associate director Joachim Pieper, who was previously a strategy consultant with Bain & Co.’s Munich office. Michael Hehn, another strategy consultant who worked with The Boston Consulting Group before joining MPE, will relocate from London to Frankfurt at the end of this year. MPE currently is recruiting a second managing director, who likely will be a German national, for the Frankfurt business.

Staying Focused on the Mid-Market

MPE will look to employ the same investment strategy it has in the past-characterized by a focus on middle-market transactions in the health-care, support services, telecom, information technology and electronics sectors-in Germany.

The group will target acquisitions of privately owned companies with values in excess of GBP25 million ($40 million), with an eye toward strong market position and outstanding management teams.

However, reflecting the relative underdevelopment of private equity in Germany, MPE may initially cast its net more widely, considering investment opportunities across a broader range of sectors.

Parents Aid in Transition

As a division of Mercury Asset Management, MPE is a subsidiary of Merrill Lynch & Co. Both Mercury and Merrill already have offices in Germany, and their local teams have assisted MPE with its strategy and recruitment plans.

MPE has been planning this move for well over a year, with preparations including a language-training program; as a result, six of the firm’s 14 directors are now fluent in German.

Despite the colossal investment of resources involved in the establishment of the Frankfurt operation, MPE is happy to adopt a soft approach to the increasingly competitive German private equity market.

Mr. Bayley emphasized MPE is not a volume business and said the Frankfurt team is under no pressure to invest during its first year of operation. “We would expect to have completed two or three deals within two years and perhaps five by the end of year four, building towards an investment rate of around GBP120 million per annum,” he said.

Shifting Attention from U.K.

MPE currently invests a similar amount annually in the U.K., but Mr. Bayley said the group expects to see a significant increase in non-U.K. investments in the next three years.

MPE references statistics that show a five-fold increase in the value of the German buyout market to nearly GBP3.2 billion between 1994 and 1998. This rapid rate of growth, fueled in part by the first wave of U.K. entrants, continues to exert a magnetic attraction for U.K. players, despite the increasingly competitive nature of the German market.

The new German operation is MPE’s first direct move into continental Europe. The group previously has achieved limited exposure to unquoted companies in mainland Europe via relationships with Argos Soditic in France and UPM in the Netherlands.