REFILE-Lloyds Banking Group's buyout arm targets record year

Tue Jul 9, 2013 4:43am EDT

* LDC has sights on 400 mln stg of deals in 2013

* Firm remains one of the few bank-owned buyout houses

* Says investing in SMEs fits with parent bank's image

By Tommy Wilkes

LONDON, July 9 (Reuters) - The private equity arm of Lloyds Banking Group is targeting a record 400 million pounds ($603 million) worth of deals this year, extending one of the last bank-owned buyout firm's reach into the UK market.

LDC has already splashed out more than 200 million pounds this year across 12 deals including Indian tonic water brand Fever-Tree and security bollard manufacturer ATG Access, a success rate that equates to one in every 13 UK buyouts completed so far.

LDC, which backs medium-sized companies, typically with between 2 million and 100 million pounds in equity, is now looking to break a spending record for new investment set in 2011 when it spent 360 million pounds.

Unlike rivals, which have cut the number of deals struck since the financial crisis, the firm has ploughed on with dealmaking to take advantage of what it says are low prices and a rise in the number of management teams looking for an exit.

"We would do more deals if we could. Some of our best returns have come from investing during the downturn," Chris Hurley, one of the firm's regional managing directors, told Reuters.

Lloyds had once been tipped to spin-off LDC, following rivals like HSBC and Barclays in exiting their private equity businesses, as part of a broader plan to shed riskier assets and shore up a balance sheet damaged by the financial crisis.

But LDC remains a core part of the bank - in 2011 it handed the parent 136 million pounds in profits, up from 69 million pounds in 2010.

While competitors have to battle with raising funds from external investors, restricting the number, size and timing of doing deals, LDC raises all its equity from its banking parent.

In the past, this has irked rivals who claim it can be difficult to compete, particularly if LDC has access to cheaper equity funding from its parent, although the firm goes to the market for its debt finance. Hurley disputes this and says LDC is judged on its returns just like any other firm.

Four-fifths of its activity this year has been sealed via its regional offices outside of London, but LDC is keen to spot - and win - more opportunities from Lloyds' vast branch network, which currently serves up just a handful of deals each year.

Once a company is under LDC ownership, Lloyds can also pick up lucrative traditional banking business like providing loans at a time when British banks have been criticised for not lending enough to small and medium sized enterprises (SMEs).

LDC says it also using an office in Hong Kong, a departure from its UK base that raised eyebrows when it opened in 2008, to help UK companies expand into faster-growing Asian economies.

"If it was just about the returns, Lloyds could put the money into other funds," Hurley said. "They like that we are investing in SMEs. There's good profile in doing that."

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