The fund-raising market is currently synonymous with the Bermuda Triangle in that prospective vehicles go in but don?t necessarily come out, or they come out distorted from their original version.
Kohlberg, Kravis, Roberts & Co.?s much anticipated Millenium Fund was the market?s latest victim. The fund, which was supposed to supplant its own KKR 1996 Fund and Thomas H. Lee Co.’s recently closed $6.1 billion Thomas H. Lee Equity Partners V LP as the largest buyout fund ever, had to dramatically scale back its target, and is scheduled for a first close at approximately $4.7 billion, said a source close to the firm.
According to the Millennium Fund?s private placement memorandum, the founding partners as well as other principals and executives of KKR will contribute $150 million to the fund.
Despite the choppy waters, some firms still found clear sailing. For example, turnaround specialist Sun Capital Partners Inc. managed to close on $200 million for its first committed leveraged buyout fund, dubbed Sun Capital Partners II LP. Previously, the firm had been making investments on a deal-by-deal basis. Rodger Krouse, co-founder and a managing director of the firm, attributed Sun Capital?s successful fund raising in large part to its track record as he claimed that the firm averages an IRR of above 90%.
The firm is targeting under-performing companies with $50 million to $500 million in revenue. Sun Capital Partners II began its campaign in mid-December and was able to bring on board a range of limited partners including university endowments of Yale University and the University of Notre Dame; pension funds such as Dupont Pension Trust; fund-of-funds investors such as Wilton Private Equity Fund LLC (which is managed by Dupont); financial institutions, including GS Private Equity Partners (Goldman Sachs) and The CIT Group; and others like Moose Partners, Rho Fund Investors and affiliates of PTM Worldwide.
Other buyout shops such as New York-based Evercore Partners Inc. and Minneapolis-based private equity firm Spell Capital Partners LLC are also hoping to mirror the relative success of Sun Capital this summer. A source close to Evercore Partners said the firm plans to come to market with an approximate $700 million second fund. The firm raised a $510 million debut fund in 1995 with investors including AMR Investment Services, Daimler Chrysler Corp.,Deutsche Banc Alex.Brown, Southern Co. and Strategic Investment Solutions Inc. The new fund will look to make commitments ranging between $20 million and $90 million for deals in energy, media and business services.
Noting the adverse conditions for LBO funds – especially new buyout funds – Bill Spell, president of Spell Capital, is banking on low valuations to help drive the firm?s first investment vehicle. Spell Capital launched Spell Capital Partners Fund II LP with a target of $100 million to acquire small- to medium-sized companies in the upper Midwest. The firm expects a first close in early July. Institutional investors will make up a large percentage of LPs, and high-net-worth individuals will account for 15% to 20% of the fund, said Spell. Other investors include US Bank, GE Capital, Dominion Resources and Massachusetts Mutual Life Insurance Company.