Last Monday night Martin Wheeler and Kevin Cooper “went out for a few beers”.
This was the low-key fashion the founders of ICG-Longbow chose to celebrate the sale of the remaining 49% stake in their eight-year-old UK debt fund manager to majority shareholder Intermediate Capital Group.
It is a deal that will see the pair, and their six other partners, net an initial payment of £13m and potentially a further £24m in 2016, depending on performance.
Wheeler and Cooper betray no sign of the celebratory drinks when speaking to Estates Gazette in their first post-deal interview, and ?have no time for any more elaborate revelry.
“We are seeing investors this evening so haven’t got anything else planned,” says surveyor-turned-banker Wheeler.
In fact the duo, who have worked together for more than 15 years, seem determined to just take the deal in their stride.
In some ways this is to be expected. When the specialist asset manager, which has AUM of €13.3bn (£10.6bn), took an initial 51% controlling stake in the business in 2011 the option for the final buyout was written into the agreement.
Over the past three years of partnership with ICG, Wheeler explains that there was “a meeting of minds about where the business needed to go” so, although not a fait accompli, the deal “was always more likely to happen than not”.
And it has come with a “market standard” set of tie-ins and performance targets.
Understandably reticent on what these terms might be, the pair do disclose that their tie-in goes beyond the two years stated until the potential second payment.
What Wheeler describes as a “proper medium to long-term package” also means that the firm’s management and portfolio team have to make a personal investment in the next fund the firm raises.
Bigger requirement
Although co-investing has always been one of the features of the business, in common with many investment managers, the requirement is “materially bigger than previous investments”.
Asked whether an institutional sale was seen as an exit from day one Cooper (pictured overleaf) says the plan was to build a successful business and didn’t really go beyond that. “But if you build a successful business the rest will follow,” he philosophises.
Despite playing down the deal, the founding partners are clearly pleased with the direction the firm has moved since they bought a £35m book of mezzanine loans from former employer GMAC and set up what was then Longbow Real Estate Capital in 2006.
They agree the aim was always to move from a firm with an investor base comprising mostly property-related clients, to become a specialist manager of debt funds with an institutionally backed platform.
ICG-Longbow’s current £1.3bn AUM – comprising one listed and three unlisted funds and a £400m senior debt platform added in May, which pulled in four new institutional clients – demonstrates they are delivering on this plan.
And despite an increasingly competitive market for debt in the UK in terms of the number of lenders and pricing, the firm is holding its own in terms of deployment.
The £400m senior debt platform, led by former HBOS and UniCredit banker Trevor Holmes, who joined as a partner last year, is already 50% invested and is on track to complete deployment by the end of the year.
Besides the senior platform, which originates senior loans of up to £75m with a maximum LTV of 65%, ICG-Longbow also provides mezzanine debt through to whole loans, focusing on smaller ticket sizes and regional deals.
Cooper sums up the deals the firm has been doing – both in the regions and the capital: “Anything that has an institutional income stream is going to attract multiple bids. But there is still good value to be found closer to home as well as the regions.”
He adds that shorter lease terms, value-add or a building being “locked down in Nama or a non-core book for a number of years” all provide opportunities.
“Backing property companies and asset managers with value creation skills is what we have done going all the way back to Halifax. That’s the style of lending we do and will continue to do.”
It was Halifax where the duo first met while setting up its commercial property lending division in 1998. The pair then joined GMAC in 2002 where they again set up a commercial lending business.
A detour along the way
Since 2006, when they set up on their own, the business rapidly expanded and the shift from private to institutional backing has been affected – albeit with a detour along the way when the credit crisis led the business into sidelines such as debt advisory and running private managed accounts for CMBS investing.
In 2009 the then nine-strong business “came back to plan A” and starting raising funds for Longbow UK Real Estate Debt Investment II Sàrl.
The first £50m close of the vehicle, which focused on newly originated mezzanine and whole loans, was simultaneous with ICG taking a stake in the business at the end of 2010. A second close followed the next year, taking the fund to a total of £242m.
The timing and quantum of these closes – and the crucial transaction in between – illustrate what has been commonly suffered by many managers in the industry moving into debt: it is difficult to fundraise without a track record and the backing of a ?big machine.
“We had identified that there was a huge shortfall in financing,” says Wheeler. “The banks were in total disarray and going deeper into disarray at the time. But the issue was raising sufficient capital to take advantage of it. We had pretty big ambitions for the business so didn’t want another £20m-£30m deal. We wanted a proper institutional fund to take advantage of the market.”
“ICG was a pivotal part of enabling us to do that,” he adds. “Going back into that time period, a must-have for a fund manager was an institutionally acceptable manager and ICG were definitely that with mezzanine and credit funds but nothing in real estate.”
ICG-Longbow remains the firm’s sole footprint in the real estate world – bar a small recently established team in Germany – and while the buyout will provide the platform for further growth in the UK there are no plans to look across the Channel at present.
So what is in the pipeline? The expectation is that successors to its £400m senior debt and £700m whole loan/mezzanine funds will be launched within six months.
But for now, the pair claim, it’s business as usual.
bridget.oconnell@estatesgazette.com
