Merger TMF and Equity Trust

September 12, 2010 1:24 PM

Private equity group Doughty Hanson aims to create the world’s biggest offshore fund administration group by acquiring Equity Trust for €350m (£289m) from its buy-out owner Candover and merging it with TMF, the Dutch business that it owns.

The deal, generating a 50 per cent profit on Candover’s initial investment in 2003, would create a powerful group, providing services to more than half of FTSE 500 companies.

It comes a week after Candover became the biggest private equity victim of the financial crisis by announcing plans to wind itself up by returning cash to investors from the sale of its remaining portfolio.

Growing at about 10 per cent a year, Equity Trust provides companies and individuals with tax, fiduciary, legal and fund management services, as well as private client administration and accounting.

The market for helping companies and rich individuals function in the most tax-efficient way – ranging from setting up a holding company for an overseas operation to managing an offshore hedge fund – has boomed in recent years.

Mark Corbidge, co-head of private equity at Doughty Hanson, said factors driving growth of the offshore fund administration market were globalisation, the rise in complex regulations and demands for transparency.

An assault on the world’s tax havens from US and European governments has raised concerns about the impact on businesses such as Equity Trust. But Mr Corbidge said a clampdown was unlikely to hit it.

The Equity Trust and TMF merger, subject to competition regulators’ approval, would create a group with €400m revenue, €50bn of fund assets under management, 4,500 staff and operations in 70 countries.

“Through a combination with TMF, which delivers highly complementary services and which is also growing rapidly, we expect to deliver significant value by creating a high growth, market-defining leader,” said Mr Corbidge.

The deal values Equity Trust at about nine-times its earnings before interest, tax, amortisation and depreciation of €40m. It is cheaper than the €750m price that Doughty Hanson paid for TMF in 2008, valuing it at 12-times ebitda.

Candover said the sale of Equity Trust, which has raised revenues from €60m to €140m since 2003, was agreed at a 24 per cent uplift to its carrying value in June. It would generate €24.2m of cash proceeds for Candover Investments, the private equity group’s listed parent. Shares in Candover rose 1p at 672p on Friday.

10 September, 2010