Fund Closes: Duff Ackerman Closes $122M Fund –

Duff Ackerman & Goodrich LLC, formerly a pledge fund group with backing from the Mellon family of Pittsburgh, in December held a final close on $122 million for its first buyout fund, which will focus on late-stage growth financing and acquisitions in communications and manufacturing companies.

Duff Ackerman Managing Director Tom Goodrich said the firm decided to launch a buyout vehicle over a year ago. The fund had an original target of $100 million.

The San Francisco-based group hit the ground running, having already invested 30% of the fund.

“I think the fund has accelerated our deal flow and with the additions to staff, it has clearly given us more feet on the street,” Goodrich said.

The biggest investor in Duff Ackerman and Goodrich LP is Caisse de Depot et Placement du Quebec with a $15 million investment, or about 10% of the fund.

Other LPs in the fund include Richard K. Mellon & Sons, Prudential Insurance, Bank of America, CMS, a fund-of-funds based in Philadelphia, PPM Worldwide, a Chicago-based investment company, UnionBanCalEquities, J.P. Morgan Capital and individual investors.

Goodrich said the fund would employ a standard 80%/20% carried interest split, as well as an 8% preferred return rate.

The fund will focus on communications companies in the areas of telecom, information services and the media. The fund will also target investments in specialty manufacturing companies, especially those in recreational and construction products.

Goodrich said he expects gross returns of 30% on the fund’s investments. The fund will look at acquisitions in the $15 million to $50 million range, with a $5 million to $15 million equity commitment per transaction.

John Duff and Arnold Ackerman, who were formerly partners at private equity firm The Fremont Group, started the firm in 1991 investing with a pledge fund. Goodrich joined the firm two years later.

The three partners bring diverse backgrounds to the table. Ackerman is a long-standing operational executive while Goodrich’s history is in strategic consulting. Duff has experience as legal counsel in corporate finance deals.

In the pledge fund days, capital was supplied by the partners and RK Mellon & Sons. Goodrich said the firm’s last investment under the pledge fund was in wireless network operator Triton PCS Inc., which held a splashy initial public offering last November.

New Structure, Same Course

Goodrich said the firm will stay the course with industries in which it has experience in-communications and manufacturing. “We’ll stay in industries that we understand since we have a large network that works with these companies,” Goodrich said. “We’re one of the firms that are typically being approached for funding” from those types of companies.

The fund will use a three-prong strategy of investing in traditional buyouts, setting up platform companies and investing in companies that are close to going public.

After its fund held a first close in February 1999, the firm co-led the formation of Kelmscott Communications LLC, a holding company for commercial printing companies, with J.P. Morgan Capital and First Union Capital Partners. Duff Ackerman provided $9.5 million of Kelmscott’s initial $50 million funding.

To date, Kelmscott has made five acquisitions of high-end printers with annual revenues between $10 million and $30 million. Goodrich said he expects Kelmscott to generate $100 million in revenue in 2000.

Last December the firm committed $12.5 million to Advanced TelCom Group Inc. as part of a $175 million equity round led by Texas Pacific Group (BUYOUTS Dec. 20, 1999, p. 8). Other small investments include about $1.5 million in late-stage growth funding to E-Greetings Network Inc., an online greeting cards company, and $1 million to Cacheon Inc., a telecom infrastructure software company.

Goodrich said the firm has a rich pipeline of deals, with several telecommunications companies under consideration. He said the firm is looking at infrastructure companies, including a competitive local exchange carrier and a wireless company, as possible buy-and-build strategies. On the buyout side, the firm is considering a granite-and-marble processor as well as a publicly traded maker of components in recreational products like snowmobiles, motorcycles and boats.

“Our deal flow is exceptional at the moment and we believe we will be in the market by mid-to-late 2000 with a second fund,” Goodrich said.