Clearlake expected to top $1bn-1.5bn target for new dislocation fund

Clearlake's latest offering is expected to hold a first close this month and wrap up in Q4 2020, Hamilton Lane, an advisor to one of the fund's limited partners, said.

Clearlake Capital Group, which in April closed its sixth flagship fund at more than $7 billion, is marketing a fresh offering aimed at dislocation opportunities prompted by the health crisis.

Clearlake Flagship Plus Partners is seeking $1 billion to $1.5 billion, according to a July report recently issued by Pennsylvania Public School Employees’ Retirement System.

A person with knowledge of the matter confirmed the target with Buyouts, adding that Clearlake is expected to surpass it. The Santa Monica, California, private equity firm has yet to determine the fund’s hard cap.

Flagship Plus is likely to hold an initial close in August and wrap up in the fourth quarter, Hamilton Lane, PSERS’ advisor, said in a statement appended to the report. Clearlake’s general partner team will supply at least 5 percent of commitments to invest in or alongside the fund.

PSERS and Illinois Municipal Retirement Fund are each committing $75 million to Flagship Plus. Both pension systems are also among Fund VI’s limited partners.

Flagship Plus was set up to invest in distressed and special situations deals, including rescue financings, backing mid-market businesses in Clearlake’s core consumer, industrials and technology sectors, the PSERS report said. The vehicle will flexibly invest on its own or alongside Fund VI or Clearlake Opportunities Partners in the case of large transactions.

When investing on its own, Flagship Plus will target dislocation opportunities that may not fit the criteria of Fund VI and COP. This deal flow would have a lower risk-return profile than Clearlake has historically sought, Hamilton Lane said.

Flagship Plus will look for opportunities across the capital structure, from debt to equity, in both private and public companies. It will make about 20 to 25 investments, writing checks of $50 million to $200 million, with a net return objective of 12 percent to 15 percent.

Liquidity crunch

“The advent of Flagship Plus speaks to a significantly expanded opportunity set available to Clearlake following the onset of covid-19 and ensuing economic dislocation,” the PSERS report said.

Businesses across a range of industries are facing severe liquidity challenges owing to pandemic-spurred demand disruption and volatility. Several PE firms recently launched funds to provide capital infusions to help companies overcome near-term cash-flow crunches, fix balance sheets or pursue offensive strategies, such as acquisitions.

Today’s challenges are “exacerbated,” the PSERS report said, by “the peak transaction multiples paid” and “significant financial leverage used” prior to the health crisis. In Clearlake’s core sectors, constraints on private and public businesses might take “several quarters or years to resolve.”

This market environment is expected to ensure a strong and steadily growing deal pipeline for Flagship Plus.

Led by founders and managing partners José Feliciano and Behdad Eghbali, Clearlake has been highly active on the deal front of late. The firm most recently joined Blackstone in new investments in Diligent, a New York provider of governance software. The deal, which boosted Clearlake’s interest, valued Diligent at roughly $4 billion, Buyouts sister title PE Hub reported.

Clearlake two years ago sold a piece of itself to GP stakes investors Neuberger Berman’s Dyal Capital Partners, Goldman Sachs’ Petershill unit and Landmark Partners.

Clearlake declined to provide a comment for this story.

Action item: Check out Clearlake Capital Group’s ADV filings here.