In recent years, an oft-witnessed restructuring route of private equity GPs has been that of the spinout, be it from a larger financial institution (TowerBrook from Soros), a corporation (New Venture Partners from Lucent), or even another private equity firm (Lion Capital from Hicks Muse).
Consequently, the June announcement by EdgeStone Capital Partners – one of the largest private equity firms in Canada – that it had been acquired by GMP Capital Trust was notable for its apparent bucking of the trend toward independence.
However, even though the C$155 million deal gave GMP's institutional services division all of the equity in EdgeStone and a ?portion of the carried interest entitlements in Edge-Stone's funds,? according to a statement – the private equity firm will retain a large degree of autonomy from its new owner.
Gilbert Palter, chief investment officer and an EdgeStone managing partner, emphasized in a conversation with PEM that all investment decisions will continue to be made by the firm. ?The partnership is structured in such a way that the management team of EdgeStone will retain full operational control of the firm, including complete independence with respect to all investment decisions,? he said. ?We forged a partnership with the leading independent financial services firm in the country and have all their resources to draw on. It leaves our funds and limited partners with everything they had before, plus more.?
For EdgeStone, which currently has more than C$2 billion in capital under management, the draw of an alliance with GMP was the organization's focus on the mid-market, with ?literally thousands of relationships with entrepreneurs and entrepreneurial companies in exactly the size range we look to invest,? said Palter. ?Our partnership with GMP is a significant value-added relationship in terms of providing a strong additional channel for sourcing deals and accessing expertise,? on top of the deal flow channels already developed by EdgeStone.
On the other side of the coin, the acquisition of EdgeStone allowed GMP to expand the services it offered to its private and investment banking clients. ?Where [a GMP client] is building a business that is not ready to be public, [GMP] wants to be able to refer them to EdgeStone,? said Palter. ?Of course, it is completely our discretion whether – and how much – to fund those clients, but [GMP] now at least is able to offer private equity services.?