After just more than a year in the fund-raising arena, London-based Close Brothers Private Equity Ltd. formally closed its sixth private equity fund last month at GBP202 million ($287.5 million), just above its original GBP200 million target.
“There was one GBP5 million chunk left, but the group wouldn’t invest unless they could put in the full GBP7 million pounds they had allocated,” said David Berchenbriter of New York’s BerchWood Partners, which served as the fund’s U.S. placement agent.
Not only is Close Brothers’ latest offering almost double the size of its predecessor – 1997’s GBP110 million CBPE Fund V – but CBPE Fund VI also marks the first time the leveraged buyout firm has crossed the Atlantic to raise money. Indeed, almost 25% of the fund’s capital was drawn from U.S. investors, including pension funds and fund-of-funds. Another 25% came from Europe, while the remainder came from U.K. pension funds, insurance companies and banks.
Forty percent of the fund’s capital already has been committed to nine investments, all of which are U.K.-based middle-market companies. Most of them – like Aroma & Fine Chemicals, Gradus, Hillarys Blinds, The Industry, SP Systems and Webgrove – are specialty manufacturers.
The rest of the portfolio includes transport and logistics plays like United Transport International (UTI), NDR, a firm in the business and IT support sector, and Park Resorts, a leisure company.
Sector preferences, however, often take a back seat to a management team’s experience and its prior relationship with Close Brothers when the firm considers an investment. In fact, seven of CBPE Fund VI’s nine portfolio companies are run by entrepreneurs the firm has invested with in the past.
“At the core of it, we combine the financial and investment skills of the private equity team with operational contacts of the serial entrepreneur group,” said Nick MacNay, a director with Close Brothers. “At all stages of the private equity business – sourcing deals, the due diligence, the structure, the exit – the combination of skills is stronger than either of the two groups alone.”
When the firm laid out GBP37 million to create chemicals distributor UTI, for example, it was not the first time Close Brothers had backed the company’s chief executive, Vic Martin. In fact, their paths first crossed in 1990 when the firm made a GBP4 million investment in the Yardbrace Group, another chemical distribution play run by Martin.
The management team and its financiers grew that business over several years, and by 1998, after three more rounds of funding, organic growth and acquisitions, Yardbrace posted GBP80 million in revenue. In June 2000, Close Brothers pumped GBP37 million into Yardbrace to finance its acquisition of Rontokil Initial PLC’s intermodal bulk containers division, creating Europe’s largest logistics and distribution business for bulk and granular chemicals, which is now valued at GBP120 million.
“Our philosophy is to invest in middle-market companies below the radar at which the LBO players fight each other for opportunities,” MacNay said. “It’s about using a network of industrial managers, of entrepreneurs, to source transactions and not [fishing them] out of the auction block.”
That approach appears to be working. The firm’s three most recent funds have returned a 2.8 times multiple on realized investments. Fifty-seven of the firm’s 81 total investments have been exited to date.
Fund VI’s remaining capital will be invested in another six to 10 companies over the next 18 to 24 months. Each investment will range from GBP5 million to GBP50 million and will be mostly in the business and IT support, transport and logistics, specialty manufacturing, leisure and tourism sectors.
CBPE is a subsidiary of Close Brothers Group PLC, a London-based merchant bank.