Trying its hand at fund raising, New York-based Hammond, Kennedy, Whitney & Co. (HKW) held a $50.6 million first close on HKW Capital Partners II LP. The firm launched the fund with a $100 million target in November.
Although HKW has been buying low middle-market manufacturing companies since 1982, the current fund is the firm’s debut effort. Previously, with money collected from high-net-worth individuals, HKW sponsored 14 management buyouts and 29 add-on acquisitions, all of manufacturing companies.
Investors signing on for the first close of Fund II include David L.Babson & Co., Forethought Life Insurance Co., John Hancock Life Insurance Co., National City Equity Partners, CoMerica Bank, Provident Bank and a host of high-net-worthers and foundations.
Glenn Scolnik, chief executive and president of HKW, said the size of the fund made the fund-raising process relatively painless.
“Even though we’ve been told fund raising is very difficult,” Scolnik said, “we really haven’t experienced as much difficulty as some others because we’re in the smaller end of the middle market.”
HKW looks for companies in the $20 million to $50 million revenue range. Deal flow is strong in this area, Scolnik said. Fund raising would have been impossible if the firm had been looking for something like $3 billion, he added, because “you just have to do too many deals and investors wouldn’t go for that.”
HKW, with offices in Indianapolis, Ind., and Chicago, in addition to the New York office, likes companies with a No. 1 or No. 2 market position. The firm works with management, allowing the members to own equity, and sticks closely to a policy of leaving operations in their hands.
Since closing on the $50.6 million, HKW has soft-circled other commitments, but is putting more effort into pursuing acquisitions, Scolnik said. The firm hopes to reach a final close by the fourth quarter.
One HKW management buyout in particular represents a typical deal for the firm. In 1994, HKW acquired a company called Control Devices from GTE Corp. The company manufactured circuit breakers, optical sensors and ceramic products and generated approximately $45 million in revenue at the time. Looking for a more global presence, the group acquired a French company in 1996, adding $30 million in revenue, and proceeded to an initial public offering later that year, garnering an IRR of 130% per year for HKW. The firm completely exited the investment in 1999 when the company was sold to a strategic buyer in England.
Other previous acquisitions include Excel Industries Inc., an automotive component parts manufacturer, and Baldwin Technology Co., a printing equipment manufacturer. The firm currently holds eight companies in its portfolio, including Horton Enterprises Inc., an ambulance and emergency vehicle manufacturer, and Reinhold Industries Inc., a manufacturer of composite components for the aerospace, defense and commercial lighting industries.