In the midst of a slow market, seven buyout firms managed to wrap up new funds in May — only two shy of the total number closed in the first quarter.
Buyout funds in May rang in at $5.43 billion, not including $223 million coming from Churchill Capital’s newly closed mezzanine fund, Churchill Capital Partners IV.
Topping the list are four investment vehicles that were able to surpass more than $1 billion. Those funds were Bear Stearns Merchant Banking Partners II LP, Behrman Capital III LP, First Reserve Fund IX LP and Whitney V. Most leveraged buyout fundraisers are finding that meeting their targets is difficult enough, and closing oversubscribed is a job well done. The four funds that earned mega-fund status in May succeeded to varying degrees.
Behrman Capital and First Reserve Corp. take the prize for bringing their funds to a close over the initial target, $1 billion for both. Darryl Behrman had a similar reaction to most buyout pros coming out of fund raising this year, describing it as “painful” and “a very long process.” However the fund, placed by Merrill Lynch, was also able to achieve its primary goal of diversifying its investor base.
First Reserve can be considered the right fund at the right time. These days, the mention of the word “energy” creates excitement among private equity pros at the prospect of strong cash flow and predictable growth. First Reserve, focused exclusively on energy and energy-related buyouts, came to market in late September 2000 and closed up Fund IX $200 million above target this month.
Bear Stearns Merchant Banking began fund raising Fund II — its first to raise capital from outside investors — at the end of 1999 and wrapped up $1.5 billion earlier this month without the help of a placement agent. Fund II held a first close in August 2000, just before the market storm hit, which included the vast majority of the fund’s capital. Gwyneth Ketterer, a managing director at the merchant bank, said the fund could have closed months earlier than an official May close, but it held out for a significant investor that needed some additional time.
Then comes Whitney V. The fund, Whitney & Co.’s largest to date, closed this month at $1.1 billion — $900 million below its target. Joining the ranks of firms that have failed to meet their initial target this fund-raising season, Whitney also announced a number of organizational changes. Those included eliminating its international investment activities to focus more on the U.S. and cutting all levels of staff, mainly in Europe, except for the core senior private equity team.
One LP in the fund, who said that “focus is key,” claims that the changes are a step forward and applauded by his institution and likely others. He also said that the fund would have benefited from these changes if they had been made earlier. However a source at another private equity firm, said that there must be a problem at Whitney that prompted these changes.
The lower middle market saw two fund closings this month: Sun Capital Partners II LP, a Boca Raton, Fla.-based buyout shop, finished up its fund-raising at its $200 million target and Goense Bounds & Partners, a Lake Forest, Ill.-based fund made up of former Allstate Insurance Co. executives, closed its debut fund at $225 million, short of its $250 million target.
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