Code Hennessy Finds $1B for Fund IV –

After just over six months of fund raising, Chicago-based Code Hennessy & Simmons last November held a final close on its fourth fund for a total of $1 billion, an amount which is nearly three times the size of its previous fund.

Code Hennessy & Simmons IV was launched in April of last year and held its first close on Sept. 8, 1999. Code Hennessy managing director Brian Simmons said all limited partners in the fund were identified soon after the first close and the final close was held in mid-November.

Pittsburgh-based PNC Equity Management has been a limited partner with Code Hennessy since its first fund, and the company is back for the fourth fund with a $15 million investment.

PNC Equity vice president Laura Vassamillet said the company has a “strong working relationship with the principals at the firm” and often provides part of the mezzanine tranche on certain deals.

Simmons said more than 50% of the fund is derived from existing limited partners with nearly all of the previous investors returning for the fourth fund.

The firm aimed to raise $1 billion for Fund IV because its previous fund, which raised considerably less, took a mere two years to fully invest, Simmons said. Code Hennessy & Simmons III closed on $350 million in 1997. Simmons said the firm wants to focus on investing its funds and limit fund-raising to every four years.

The strategy for Fund IV remains unchanged from Code Hennessy’s three previous funds, focusing on control transactions in middle-market companies that specialize in manufacturing, distribution and service. The fund will make investments worth between $40 million and $400 million, with equity components between $15 million and $50 million.

“This is what our expertise is,” he added. “We know a lot more about making these kinds of investments than we do about investments driven by technology.” In short, Simmons said the firm will stick to the sectors it knows well. “These are the kinds of investments [in manufacturing, services and distribution] our limited partners have hired us to make,” Simmons said.

The firm would not rule out capitalizing on the Internet potential of its existing investments, but it has no plans to invest directly in such companies. “Most of the Internet-related investments you see us doing will be through existing portfolio companies,” Simmons said.

Code Hennessy seeks to be the controlling shareholder in its investments. Simmons said it would be rare, but not out of the question, to join up with an investor group in a control transaction.

With two deals under its belt, Fund IV is about 8.5% invested. The firm bought Western Nonwovens Inc., the largest U.S. manufacturer of dry laid highloft and specialty needlepunch nonwoven textiles, and Kranson Industries Inc., a distributor of container packaging components, with the intention to buy and build. Simmons said a $45 million add-on company for Western Nonwovens is under letter of intent and details will be announced in six to eight weeks.

Simmons added that the firm plans to hire between two and four associates over the next 12 months.