Chi-Town Shop Proves Its Staying Power

Waud Capital Partners greatly expanded its base of investors with more large state pensions and international investors with its third and latest fund, cementing the Chicago-based shop’s presence in the industry and positioning it for further growth with successive funds.

The firm closed Waud Capital Partners III LP at $463 million, easily surpassing its target of $350 million. Reeve Waud, who founded the firm in 1993, said the firm could have raised as much as $200 million more.

Though every fund is important for buyout shops, fund III is particularly critical. It is the one that separates transitory shops with mixed records from those investors believe will be in business for a long time.

Waud Capital has grown from around five investment professionals at its inception to 13 today, and its executives expect a number of junior professionals to advance to the partner level. The firm raised $115 million for its first institutional fund in 1999, $315 million for its second fund in 2005, and today manages approximately $1 billion

Still, Waud said the firm remains committed to sticking to small mid-market buyouts focused on backing strong management teams. “You don’t want to dumb down the alpha,” he said.

WCP III attracted 30 new limited partners, including large state pensions. International investors, which made up about 5 percent of Waud Capital’s previous fund’s investor base, make up about 30 percent of fund III, exposing the firm to a potentially lucrative pipeline of investors in future funds. Waud declined to name new limited partners, but previous investors include The Travelers Group, Key Bank, The University of Chicago Hospitals and Health Systems and Middlebury College, according to Buyouts archives.

Waud Capital typically invests $20 million to $100 million in its companies, which span industries including health care (which makes up about half of its portfolio), petroleum distribution and corporate tax advisory niches, among others. The firm employs a buy-and-build strategy in which it backs a management team, which creates or buys a portfolio company that subsequently grows through acquisitions.

The strategy is similar to Waud Capital’s Chicago neighbor GTCR Golder Rauner, where Waud worked when it was known as Golder Thoma Cressey Rauner Inc. before starting his own firm. Notable, the namesakes of that firm, Stanley Golder, Carl Thoma and Bryan Cressey, are all investors in Waud Capital funds. Cressey and another Chicago buyout pro, Madison Dearborn Partners co-founder John Canning, serve on Waud Capital’s advisory board.