London -- Doughty Hanson & Co., Europe's largest buyout firm, hired two Intel Corp. executives and a Merrill Lynch & Co. banker to run a $500 million investment fund, said people familiar with the company.
Nigel Grierson, Intel's European director of corporate business development, and colleague George Powlick are joining the London-based firm, which has managed transactions worth $11 billion. Stephen Marquardt quit Merrill Lynch, where he advised computer and Internet companies, to join Doughty Hanson.The fund may be one of the biggest yet devoted to European technology, where some of the world's top investors are now turning their attention in hopes of identifying the next America Online Inc. or Yahoo Inc. Donaldson, Lufkin & Jenrette Inc. is likely to raise the fund for Doughty Hanson, the people said.
"Everybody thinks it's terribly easy to make a ton of money" from these investments, said Ronald Cohen, chairman of Apax Partners & Co. Ltd., one of Britain's oldest venture capital firms. "The reality is a very different one."
Carlyle Group Inc. and TL Lee, Putnam Capital, both U.S. buyout funds, are each raising at least $500 million to invest in high-growth Internet and other technology companies in Europe, while Chase Manhattan Bank Corp. this month said it would invest $100 million in European technology start-ups.
Doughty Hanson is expected to use its experience in the European buyout market to help identify potential investments, which could later be sold at a profit in share sales. In 1997, Doughty Hanson raised a $2.5 billion acquisition fund, at the time the largest ever raised in Europe.
The firm now faces increasing competition from both domestic rivals such as Apax as well as U.S. firms such as Kohlberg Kravis Roberts & Co. KKR is raising $3.5 billion, Europe's largest buyout fund, and is considering its own position in technology investing.
Other U.S. buyout firms such as Hicks, Muse, Tate & Furst Inc. lured by companies such as Siemens AG, which are selling units that aren't seen as essential to their main businesses.
As competition increases in its traditional markets of engineering and industrial companies, Doughty has sought to expand into new areas, such as the Internet venture. Last year Doughty became the first large European buyout firm to open a U.S. office, which it followed with the $530 million acquisition of Knowles Electronics, and opened a $550 million European property fund.
By bringing in Grierson and Powlick, who will oversee the fund with help from Marquardt, Doughty Hanson is hoping to replicate some of the success Intel, the world's biggest semiconductor maker, has had in finding successful startups. Intel has the world's second-largest technology investment portfolio, worth some $8 billion.
Intel's European venture capital investments include Baltimore Technologies Plc, Europe's largest maker of software for encrypted communication and commerce. Baltimore's shares have climbed more nine-fold in the past year.
The recruitments follow a handful of departures of junior executives at Doughty Hanson. Kevin Comolli, a London based-partner tapped to work on the new venture capital fund, left the firm for personal reasons, while five junior executives left following a dispute with the firm's founders, Nigel Doughty and Dick Hanson, over compensation, people familiar with the firm said.
Marquardt was a managing director at Merrill Lynch, where he worked for more than 20 years including in emerging market investment banking. Last year, he set up a unit focusing on high-tech stocks. Merrill Lynch helped manage a placing of Baltimore Technologies stock on the Nasdaq exchange in October last year.
Doughty and Hanson came together in 1985 when they ran what was to become CWB Capital Partners, a venture of Standard Chartered Plc and WestDeutsche Landesbank. In 1995, they set up Doughty Hanson.
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