Cerberus Capital gears up for next flagship fund

  • Fundraising could star this year
  • Source expects Fund VI to be similar in size to $2.6 bln predecessor
  • Still owns gun maker Remington Outdoor

One source said Cerberus may launch formal fundraising efforts in 2015 or possibly 2016. Another said the firm has scheduled meetings this winter with LPs for a pre-marketing effort.

A long-time placement agent familiar with Cerberus said the firm is facing more competition from newer distressed funds in the middle market, along with credit-oriented shops such as Apollo Global Management. On the plus side, “appetite is good for distressed funds,” the placement agent said.

A spokesman for Cerberus declined to comment. Monument Group, the Boston-based placement agent on past Cerberus funds, declined to comment.

The fund would follow up Cerberus Institutional Partners Series V, which launched in 2011 with a $3.8 billion target and wrapped up in early 2013 with about $2.6 billion. Performance data isn’t yet available for the fund.

Cerberus Series V’s target was pared back from the $7.5 billion it drew in its 2006 CIP IV fund, which preceded the global financial crisis.

Cerberus Institutional Partners Series IV rang up an IRR of 8 percent as of June 30 for the Public Employee Retirement System of Idaho. The median IRR for the 2006 vintage was about 8 percent and the top-quartile threshold was about 14 percent, according to an analysis of public pension fund performance data in the Sept 1 issue of Buyouts.

University of California sold its stake in CIP Series IV in 2013 and did not invest in CIP Series V, according to a spokeswoman for the LP. She did not provide any further details.

One private equity veteran in the LP community said the Fund IV performance isn’t compelling but that Cerberus has done right by investors in the past.

“People are somewhat forgiving if a manager has done well and had one or two vintages that didn’t do well,” he said. The executive estimated Cerberus Partners VI would raise close or a bit more than the $2.6 billion in Fund V.

Huge buyout

These days, Cerberus is working on one of the largest buyouts since the financial crisis in its bid to buy Safeway supermarkets for $9 billion as a large add-on deal for Albertsons. The Federal Trade Commission required Albertsons to sell off 168 stores to avoid any perceived unfair competition in some markets, including California. Middle-market firm Comvest Partners is buying 146 stores for its Haggen grocery chain in the largest piece of the FTC-mandated sale.

By combining Safeway with Albertsons, Cerberus and Albertsons will control the third-largest grocery store chain by revenue after Walmart and Kroger, with more scale to drive down its wholesale purchase prices. Safeway and Albertsons will command large market share in California, a heavily populated, growing area. One Wall Street analyst said Cerberus appeared to be getting Safeway at a good price, with its store portfolio worth $8 billion alone, according to a published report. The deal is expected to close this year.

Cerberus has also been investing heavily in non-performing loans in Europe, along with Lone Star Funds.

Rough patches

Cerberus is led by Drexel Burnham Lambert veteran Stephen Feinberg, co-founder and CEO of the firm. William Richter, senior managing director, is another co-founder. Dan Quayle joined Cerberus in 1999 after serving as U.S. Vice President from 1989-1993. Quayle is chairman of Cerberus Global Investments LLC. Former Treasury Secretary John Snow is chairman of Cerberus Capital Management.

Among its most high-profile deals, Cerberus purchased 51 percent of auto loan giant GMAC in 2006. It also paid $7.4 billion for Chrysler in 2007. While the firm lost control of Chrysler during the car maker’s 2009 bankruptcy process, its $6.3 billion deal to sell Chrysler Financial to Toronto Dominion Bank in 2010 helped it generate a small gain on its overall investment in the auto maker, according to a person familiar with the firm. GMAC received government bailout money during the financial crises and later changed its name to Ally Financial. It is still part of the Cerberus portfolio.

Cerberus continues to own Remington Outdoor, despite efforts to sell the maker of the Bushmaster rifle used in the 2012 Newtown, Conn., slayings. The California State Teachers’ Retirement System, a Cerberus LP, said it’s now requiring an opt-out provision for private equity investments in firearms makers that make assault rifles illegal in the state.

Cerberus also provided part of the second-lien financing for struggling retailer Radio Shack. Last month, Deb Stores, a retailer controlled by Cerberus, filed its second bankruptcy in less than for years.