Gruppo, Levey Holding Co., and Madison Dearborn Partners, a Chicago-based private equity investment firm, have launched a $100 million specialty private equity fund, Direct Equity Partners, to invest capital in direct marketing and e-commerce companies.
The fund was designed to capitalize on the rapid convergence of the traditional DM and e-commerce industries, and has plans to invest in a broad range of both DM companies eager to gain a foothold in the dot-com world and dot-coms who recognize the need for traditional DM expertise. Investments include opportunities in recapitalization, restructuring, mergers, consolidation, acquisitions and refinancing.
The first investment of $18.9 million was awarded to fine art publisher and direct marketer Atelier, based in Markham, Ontario, in December. Like many direct marketers, Atelier hoped to transform itself from a traditional DM business into one wielding a forceful Internet marketing channel. All it needed was the cash.
“We’re what you’d say is the first jewel in the crown,” Atelier founder and CEO Harvey Kalef said. With the infusion of funds, Kalef plans to advance its Internet marketing strategy and expand its consumer-based business into the b-to-b arena
Patricia Campbell has been named president and managing director of the fund. Previously, Campbell served Barnesandnoble.com as vice president of interactive marketing, and in 1998 served the Direct Marketing Association as chairperson. Her responsibilities include identifying investment opportunities and providing strategic and management services to the selected companies.
“The fund is specifically set up to focus on direct marketing companies who have existing assets that are looking to take those assets and move into new business, new products and new distribution channels,” Campbell said. “This fund is going to allow that growth capital to do that.”
Six prospective investment companies are currently under review with plans to invest in three to six companies this year, each receiving an average $10 to $20 million in equity, Campbell said.
Criteria for eligibility includes value-added assets such as an existing customer database, an established marketing channel and a developed product currently available in the marketplace.
Campbell says that while classic venture capital investments are often confined to a monetary investment, DEP also brings to the table the collective expertise of its principals who actively participate in strategic, marketing and operations planning to help grow the companies.
“Anything [a company] can do to get up the learning curve with fewer mistakes is of huge value to that company,” Campbell says.
Madison Dearborn, which committed the $100 million in capital to the fund, currently holds approximately $4 billion in assets under its management. Should all go as planned, Madison Dearborn is expected to commit further capital.
“While our initial funding commitment is $100 million we have every reasonable expectation that our ultimate commitment of capital will be significantly in excess of that amount,” said Benjamin Chereskin, managing director of Madison Dearborn.
In its initial investment to Atelier, DEP joined with private equity firm, London, Ontario-based Blackburn Group, to invest the $18.9 million in Atelier. The two firms now hold a majority interest in Atelier. Gruppo, Levey Holdings Inc., New York, is parent company of Gruppo, Levey & Co.
Atelier owns a proprietary “brushstroke” technique that has the ability to capture and reproduce original oils on canvas. A unique product, Campbell says, that is virtually indistinguishable to the naked eye from its original. While the product had been marketed solely to consumers via direct mail and catalogs, the infusion of funds will allow Atelier to pursue marketing goals via the Internet and in the b-to-b marketplace.
For example, Kalef recently launched a corporate division to target b-to-b companies via direct mail and through its Web site, www.atelieramerica.com, which Kalef plans to “dramatically” improve. Upgrades include the capability to capture customer data, link to other major sites such as museums, accept orders online and upload the imagery from its entire product line. In addition, Kalef plans to expand its product line to include small gifts and gift cards using the same proprietary technique.
“There are a lot of companies like us who are not yet mature but have great potential,” Kalef said. “Through [the fund’s] expertise and finances, it give us the ability to fulfill our potential which requires the input of capital.”
Direct Marketing Association president and CEO H. Robert Weintzen said the fund verifies the view that the DMA has long held that the DM world continues to grow and expand and that the pairing of the online and traditional DM worlds is just another form of convergence.
Weintzen said there has been significant interest in DM from financial firms and investors, a “marked difference” from even a year ago. “These are people either looking to invest, ask about trends in a given segment or talk about people running companies that they are thinking about investing in,” Weintzen said.
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