Squadron joins forces with FLAG

A degree of consolidation seems inevitable and last week there was a step in this direction as Squadron Capital joined forces with FLAG Capital of the US. Squadron currently has $1.5 billion under management; by unifying with FLAG it will become part of a combined organization with more than $6 billion in assets and exposure to North American venture capital, mid-market private equity and real assets, in addition to Asia.

"Increased regulation is making the industry more complex so it helps to have a larger platform and be able to deal with issues across different jurisdictions," says David Pierce, CEO of Squadron, who will become a partner at FLAG.

Informal negotiations between the two parties began last year after Peter Denious, a partner at FLAG and responsible for international investment strategy, raised the possibility of a merger with Pierce.

The timing of the approach was driven by the US fund-of-funds' needing to reassess its Asia strategy. FLAG has been investing in Asia since 2005 and opened an office in Hong Kong two years ago, hiring Chi-Ho Song from Cambridge Associates to head up operations. Sadly, Song passed away in mid-2011 and the firm decided the best way to develop a regional platform was to find a partner with strengths that complemented its own.

"What we bring to the table is global perspective," says Denious. "When you look at how Squadron is operating in Hong Kong with a global LP base, we can help in terms of investor relations and LP coverage. On the investment side, we have been active in Asia but certainly not at the same magnitude as Squadron: they have $1 billion with managers in the region to our $200 million."

Robert W. Miller, owner of Squadron via his family office, Search Investment Group, saw the merits of the alliance and gave it his approval. Miller started building the Squadron team in 1989 and spun them out into a subsidiary in 2006 so they could raise third-party capital. He will continue to be an LP in the firm's fund-of-funds.

FLAG's two executives in Hong Kong will join the 23-strong Squadron operation and, although a degree of attrition isn't unusual in M&A situations, Pierce says the rationale behind the transaction is "not so much a consolidation as a strategic combination that creates a more robust organization." Both firms were in the process of raising their third funds but efforts were put on hold once negotiations reached a certain stage and the expectation is they will launch a combined vehicle in 2013.

 

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• Topics
• LPs
• Greater China
• Hong Kong (China)
• Squadron Capital Advisors