Lion Capital and Blackstone Cooperation

Lion Capital and Blackstone cooperation

In the end of 2005 two PE firms were looking for cooperation on a bid of Orangina. One is a European PE boutique Lion Capital that has split from US based HMTF in 2004. The other is a European division of US-based Blackstone, one of the largest PE players in the world.

Need for cooperation

HMTF success was built on the innovative buy-and-build strategy and the focus on small number of industries including food and consumer branded products in US. On the edge of decade the European division had started up and it had closed a number of successful deals in its target area of consumer-focused brands. In June 2005 it closed its first separate fund at €820 million. The vision pronounced by the managing partner, Lea, stated that Lion Capital is to become the world’s pre-eminent investor in consumer sector. After the split the number of principals and associates had left after the spin-out, but the firm still had some key managers and new prominent managers which suit the consumer-focused brands strategy joined the company, for example, President and CEO of Bacardi Group (Ferrán) and President of PepsiCo Inc. subsidiary (Sewell).

Lion Capital has already proved that it understands consumer-focused industry and can implement strategies to develop the business. To achieve the vision it needed to bid for a large company with a strong brand that is undermanaged. It became easier to get financing from banks at better terms. However, the company had not experience with the deals of about 1 billion and it sought a partner to share equity contributions and add more credibility for LPs. What is more Lion Capital was used to proprietary deals, that were favorable for bidders but with the number of private equity firms increased such deals became rare so purchase prices and EV/EBITDA became higher.

Blackstone established a division in London in 2002. It had lack of knowledge of local markets and legislations that are different for each European country. On the other hand, its size enabled it to participate in the deals with high prices and equity requirements of more than $1bln with little number of competitors. From the other hand, Blackstone Group had a single-decision making body that assessed opportunities through the process of extensive time-consuming communication. In contrast to Lion Capital it raised $14 bln for its fifth fund. From 2002 it had invested $5 bln in 13 transactions. Blackstone was beating the expectations with these investments but it probably was looking for larger deals at that moment as well as it had to support a strategy of being a generalized investor but it had not yet executed any consumer deal. So it needed a successful consumer deal and sought for a partnership with Lion Capital that has a good performance with consumer deals. Blackstone had already considered the other ways to execute such a deal