The Deal: GMT Communications Seeks Money For Tech

NEW YORK ( TheStreet) --London private equity firm GMT Communications Partners is celebrating 20 years of focused investment in telecommunications, media and technology this summer by raising a new fund.

The firm has set a target of about €350 million ($463 million) for its fourth fund, but has not fixed a firm deadline for reaching that goal.

"The critical thing is to get our existing investors ready to go. Once you have had the first close there's a clearer timetable on the final closing," said Tim Green, a managing partner.

Those existing investors, in particular, Green and his team are in touch with themselves. But for a wider audience, they have brought in Greenhill & Co. ( GHL) as the placement agent. That's especially needed to reach investors who might previously have had their eyes on more generalist funds.

As GMT partner Natalie Tydeman explained, "In the past there was not so much appetite (in Europe) for sector funds, but people who seven years ago would not have considered investing in one are developing specific sector strategies."

By the end of the process, Green envisages about 40% of GMT's fourth fund to be backed by U.S. investors, slightly more by European investors, with the remainder coming from elsewhere.

GMT, which earlier this year teamed up with New York peer Veronis Suhler Stevenson to provide growth capital for Dutch cloud-infrastructure services provider IT-Ernity Internet Services BV, does have a track record it can trade on. It has made a money multiple of 2.5 times across its three previous funds, and an aggregated internal rate of return (IRR) of 25%.

Over the past two decades it has made 32 "headline" investments, often in companies it can use as buy-and-build platforms for consolidation in particular markets, and sometimes across borders within Europe. In addition to those base investments, GMT has made about 70 bolt-on acquisitions over the years.

Right now GMT is working on three add-ons, including one it hopes to put in place as early as this month and the others by the end of September. Green declined to go into further details about the pipeline, although he did say the firm was not working on any imminent exit opportunities.

Eventually, of course, the building stops and the bulked-up businesses have to be sold. GMT has made 24 exits overall.

GMT's third fund reached a final close in 2007, but made its first investment, in Finnish business and credit information provider Suomen Asiakastieto Oy, as early as 2006. Within two years, GMT had sold the business to Bahrain-based alternative investment house Investcorp, generating an IRR of 70%. A second, partial exit from Fund III came in 2011, with the sale of German online multi-player games developer Bigpoint GmbH to Summit Partners and TA Associates via a $350 million partial refinancing. GMT, which retained a minority interest in the company made approximately 4 times its investment and said it expected the final return from Bigpoint to be higher. GMT initially backed Bigpoint in 2008, in a deal valuing the company at about $100 million.

Green and Tydeman said they saw continued opportunities in their space, which includes communications infrastructure, as well as content and related businesses such as software-as-a-service and technology. Some 90% of their investments were in continental Europe, within a sweet spot of €50 million to €150 million, and they expected to be able to continue leveraging their sectoral expertise, while maintaining only a single London office.

One deal on the market in the media space at the moment is Pearson plc's proposed sale of M&A information provider Mergermarket Group, which GMT bid for last time round but lost out to the publisher of the Financial Times. At that time Pearson bought the company for 101 million British pounds, ($153 million). Mergermarket went back on the block in late July, but Pearson executives declined to comment on the potential valuation, or on a Reuters report, citing "banking sources," that Mergermarket could command a price tag of as much as 300 million British pounds.

Green also declined to guess at a valuation. "One would want to understand if the franchise might be affected when it loses its connection with Pearson's FT," he said.Green noted that buyers' and sellers' price expectations were often out of synch in smaller and mid-market deals, while tight financing meant buyers could not always pay as much as they might otherwise have done.

"Banks are less willing to lend at big multiples," he said.

--Written by Jonathan Braude and Laura Board--

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