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The venture partnership between MM Venture Partners (MMVP) and leasing company GATX (NYSE: GMT) ended last month with MMVP’s buyout of GATX/MM Venture Finance Partnership, their joint venture portfolio.

Terms of the deal were not announced. But Toronto-based MMVP now owns the entire portfolio, which was fully invested with some $110 million in 35 portfolio companies over the past five years.

MMVP is making the buy as it sets out to raise its second fund with a goal of $150 million. The firm expects to close the fund by the end of the first quarter, with two-thirds of its LPs coming from the United States and one-third coming from Canada.

Partner Ron Patterson says that valuations in Canadian companies will lag behind the world market for as long as 18 months, allowing Canadian VCs like MMVP to capitalize on lower valuations than their counterparts in other countries. MMVP expects to have an active 2004 and is looking at deals in anticipation of its upcoming fund closing.

Chicago-based GATX informed MMVP early last year that it was exiting the partnership. MMVP raised money for the buyout in the form of debt financing from HSBC Capital, the merchant banking unit of HSBC Bank Canada and Old Hill Partners, a loan and securities firm.

In explaining its motivation to make the buy, MMVP cites strong returns from the portfolio and faith in an improving economy.

“Because of the recovery in the economy, all these positions are going to be appreciating significantly,” says Patterson.

“We want to hang in and we think we can ride the wave here in recovery of the economy and a recovery in the tech sector.”

The GATX/MM portfolio is comprised of about two-thirds technology and one-third biotech. Its investments are in sectors that MMVP sees as experiencing good recovery, such as semiconductors, communications software, therapeutics and health care software. Companies in the portfolio include Affinium Pharmaceuticals, BelAir Systems, GeoCom and March Networks.

MMVP typically provides its portfolio companies with investments that are a hybrid of debt and equity. Because it collects revenue from the debt portion of its investments, it regularly returns to its limited partners on a monthly basis.

This results in lower upside to its investment returns, but LPs are finding the regular returns attractive, according to the firm. – M.S.

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