Middle-market behemoth

When one thinks of a middle market buyout firm, one doesn't typically imagine 37,000 square feet across four full floors of a midtown Manhattan office building. But to accommodate its rapid growth, this is the size of space to which American Capital has relocated.

American Capital, which primarily provides equity and debt to middle-market US companies, now has roughly 150 investment professionals and 200 additional employees who handle finance, accounting, legal and back office functions. The firm, led by Malon Wilkus, is based in Bethesda, Maryland (near Washington DC). Much of its buyout activity is based out of New York, although the firm maintains additional offices in San Francisco, Dallas, Chicago, Philadelphia, Los Angeles, London and Paris. Last year, the firm had to take out temporary office space in New York to accommodate its swelling ranks of professionals.

The firm's expanding square footage is barely keeping pace with its deployment of capital. During the first quarter of 2006, American Capital invested $700 million (€550 million) in control buyout transactions alone. This is up from $406 million deployed in the first quarter of 2005 on buyouts. ?The first quarter is always the lightest,? notes a professional at the firm. Last year in total, the firm invested $3.2 billion. As of this past May, the firm had invested $1.3 billion.

American Capital, traded on the NASDAQ, is expanding beyond America, and beyond buyout and straight debt placements. Last year the firm launched European Capital as an entry to the European middle-market. It also launched a commercial mortgage backed securities business (CMBS). Earlier this year the firm announced the creation of a venture capital investment business. The firm is in the process of unveiling a collateralized debt obligation business, as well.

In previous interviews, Wilkus has compared the US middle market to a vast ?mom-and-pop? industry ripe for consolidation. He has also watched with interest as more and more general partners turn to the public markets as a source of investment capital, including KKR and, most recently, former Apollo Management partner Michael Gross. He has noted with some chagrin that private equity trade publications often fail to report on American Capital's fundraising activities, such as when the firm raised $140 million this past January in a public offering.

American Capital is a different sort of firm, to be sure. But as the private equity market continues to evolve in American Capital's direction, maybe it won't seem so different, after all.

More Lone Star execs indicted in Korea
Three additional South Korean executives tied to Lone Star Funds have been indicted in an ongoing probe of the firm's activities in the country. The indictments, announced last month, were for Shin Dong Hoon, a former vice president of Hudson Advisors Korea, a Lone Star affiliate that processes non-performing loans; Wook Byung Ik, the chief executive of Lone Star joint venture partner KDB & Partners; and Lee Dae Sik, another KDB executive. The charges concern allegedly accepting bribes and misappropriating funds related to Lone Star's distressed assets investment business. At the center of the case is Lone Star's investment in Korea Exchange Bank. Prosecutors have reportedly said that the indicted individuals are accused of improprieties on behalf of themselves, not Lone Star. In related news, South Korean prosecutors last month made an unsuccessful attempt to gain an arrest warrant for the current head of Lone Star's Seoul office, Paul Yoo, who they claim is guilty of embezzlement and breach of trust. The former head of the Seoul office, Steven Lee, fled the country recently and eventually admitted to have misappropriated funds from the firm.

Goldman dropped as advisor in UK
British broadcaster BSkyB has reportedly dropped Goldman Sachs as its joint corporate broker and instead hired rival Merrill Lynch. A source, quoted by Reuters, said of the move: ?Conflict is a factor when making these decisions, but it's not the only factor.? The reported investment banker switch comes after Goldman Sachs' private equity arm joined a consortium that unsuccessfully bid for ITV, a rival broadcaster to BSkyB. A separate article in the Sunday Telegraph in late April reported that Goldman Sachs, in offering hostiletakeover-defense advice to client BAA, the airport company, offered to take a ?significant stake? in the business. A month earlier, Goldman Sachs had been part of a consortium, along with Ontario Teachers and Borealis Infrastructure Management, to have offered to acquire BAA. A Goldman Sachs source told the Telegraph: ?We made it very clear that the consortium's approach to BAA is friendly and supportive of management. They are the subject of a hostile bid from Ferrovial and the consortium offered the company a friendly alternative.?

3i expands to Beijing
The London-listed private equity firm has announced its plans to launch new Beijing operations in the autumn, focused solely on growth capital investments. Chris Rowlands, 3i's head of growth markets, said the firm is currently locating office space and ?putting the team together right now. I think it will be operational the other side of summer, around autumn time.? 3i has had a Hong Kong base for its China investments since 2001 and launched a Shanghai base last October, headed up by director Albert Xu. Traditionally, 3i has targeted growth capital investments in the consumer goods, healthcare, media and manufacturing industries. Rowlands said that Lily Jin, currently a director in the Hong Kong office and formerly at emerging markets specialist Actis, will head up the Beijing office. Jin spent four years with Actis in London before being seconded to Beijing to set up the Actis China office and operations in 2000. 3i's Beijing office will form part of the overall China operations, said Rowlands, and will be staffed by three or four investment professionals. The team will focus exclusively on originating growth capital investment opportunities in China. ?China is such a huge country that we needed to have more on the ground presence,? said Rowlands. ?Why Beijing? Lily brings with her a network of contacts and resources in Beijing and north east China, which we wanted to exploit.?