LONDON – Duke Street Capital hopes to hold a first close on its fourth European buyout fund in June. Following last year’s buyout from Hambros, the group – formerly HEV – aims to raise at least euro 500 million ($523 million) for Duke Street Capital IV in its debut fund raising as an independent firm.
Duke Street Capital, headed by Chief Executive Edmund Truell, launched its latest fund-raising effort in March. Sharon Corper, responsible for the group’s investor relations, reported that the vehicle has so far met with a very enthusiastic response from investors worldwide and said she expects the fund to be oversubscribed.
The firm’s previous fund, the 1997-vintage HEV III, together with an associated co-investment pool, totaled some euro 380 million ($398 million). Ms. Corper said the majority of the 32 investors in HEV III who are still operational will make similar commitments to Duke Street Capital IV. Some repeat customers wish to deploy significantly larger sums, including one group that has expressed a desire to increase its commitment sixfold in the new fund. Altogether, Duke Street Capital expects existing investors to account for 60% of the capital raised.
With the new fund, Duke Street Capital will maintain its historic focus on mid-market U.K. and continental European buyouts in the euro 20 million to euro 200 million ($21 million to $209 million) range. Although Duke Street Capital IV aims to raise around 25% more than its predecessor, the group is adamant that this increase does not presage a drift toward larger deals. Instead, it is a reflection of Duke Street Capital’s healthy deal flow, which is enhanced by the group’s affiliations throughout continental Europe and a correspondingly rapid investment rate.
HEV III, which closed in September 1997, has already completed eight platform investments, five in the U.K. and three in continental Europe, and three major follow-on acquisitions; the fund is now 74% invested – effectively one deal away from full commitment.
Unlike its predecessor, Duke Street Capital IV will not feature a separate co-investment pool. Instead, the group will offer co-investment opportunities on a case-by-case basis to institutions committing more than euro 35 million ($37 million) to the new vehicle and to “frequent flyers,” investors that have consistently supported HEV/Duke Street funds.
Given Duke Street’s track record, it should come as no surprise that the group enjoys such a substantial constituency of repeat customers. HEV II, a 1994-vintage fund that raised around euro 75 million ($78 million), reached full investment within two-and-a-half years. The fund has now divested eight of its nine investments, realizing 3.5 times cost overall. One of the fund’s highest profile investments was in Glass’s Group, the automotive information services provider, which Duke Street Capital sold for GBP126 million ($201 million) to Hicks, Muse, Tate & Furst last summer, achieving a 104% transaction IRR and a multiple of 7.1 times cost.
Duke Street Capital IV is a 10-year-life U.K. limited partnership. Most of its terms are market standard, but Ms. Corper said that the vehicle also incorporates an unusual investor-friendly feature: 100% of transaction fees revert to the fund, rather than the management company. The fee income of more than GBP1 million ($1.6 million) generated by HEV III also was offset against the management fee.
Duke Street Capital hopes to hold a final close on its latest effort this September.