Parquet flooring manufacturer Bauwerk Boen is one of the holdings in Zurmont Madison’s existing fund
Deutsche Bank‘s proposal has emerged as northern Europe-focused private equity firm Triton Partners – which has been eyeing Zurmont’s companies for a few months and offered to buy a portfolio of assets in May and again in September – is planning to increase its bid for the three assets owned by Zurmont’s fund by 15% to 20% by the end of this week, according to two people familiar with the matter.
In Deutsche Bank’s deal, which was presented by Zurmont to its fund investors on September 21, the bank’s private equity division is offering investors Sfr73.4 million for their interests in the fund, which is equal to 100% of their fair value as of March 31, according to two people familiar with the matter and fund documentation seen by Financial News.
Under the Deutsche Bank proposal, the assets would be housed in a new fund called Zurmont Opportunity fund, into which the bank would also invest Sfr25 million. It is offering investors in Zurmont’s existing fund the choice of selling their stakes or rolling over their commitments to the new vehicle.
Those that roll over their investment will also be invited to invest more money in the new fund, which will be used for follow-on investments.
Advisory firm Park Hill Group – which has been running the fund restructuring process for Zurmont – approached 56 buyers, with the list narrowed down in a number of rounds. Zurmont held negotiations with the three bidders that offered the highest transaction value for the fund interests, according to the documentation.
Triton, which put in a bid for the fund’s assets worth approximately Sfr81 million in September, was not invited to do due diligence, two people said.
Zurmont has to sell its stakes in the three portfolio companies in its Sfr250 million maiden fund before the vehicle comes to the end of its life in May 2017. The companies are electronic engineering services company CCS Holding, parquet flooring manufacturing Bauwerk Boen and steel products business SMB.
However, selling the companies would put an end to Zurmont’s annual fee income of Sfr3.78 million it currently charges for managing the assets – and would effectively put the firm out of business.
The proposed Zurmont Opportunity fund would give the firm an additional four years to develop its existing companies and offer the chance to divest its holdings for a good price. The new fund would charge Sfr1.5 million for the first two years. Rolling investors would not pay any carried interest – or private equity’s share of profits – to Zurmont. However, the Zurmont team would be able to earn 10% carried interest on the new money invested by Deutsche Bank.
The costs of the restructuring with Deutsche Bank would be Sfr1.5 million, which would be paid for by the new fund.
Investors have until 17:00 Central European Time on October 12 to decide whether they want to sell or roll over their commitment. If they have not made their decision clear by then, they will automatically be treated as selling investors, according to the fund documents.
One investor said it would be better if Zurmont had sold the assets to Triton, which would have saved investors from having to pay for the transaction or to continue to pay fees. However, two people close to the deal said the Deutsche Bank deal offered investors two options: either to sell, or to stay invested for an additional four years, whereas the Triton offer only favoured investors that wanted to sell.