HKW Seeks Up To $185M for Fund III

Firm: Hammond Kennedy Whitney & Co.

Fund: HKW Capital Partners III

Target: $185 million

Placement agent: Bass Creek Advisors

Legal counsel: Kirkland & Ellis

The middle market is not just growing by leaps and bounds in the buyout corridor between Washington, D.C. and Boston. The Midwest is experiencing an upsurge in private equity fund raising and the same rush to deals as the rest of the country. Hammond Kennedy Whitney & Co. (HKW), which is over 100 years old, is one of the latest firms to charge into buyout fund raising. The Indianapolis-based firm is on the market for its third fund and is seeking up to $185 million.

According to documents filed with the Securities and Exchange Commission, the firm, which has satellite offices in New York and Chicago, is looking for $185 million for its third fund, HKW Capital Partners III. HKW is being advised by Cleveland-based Bass Creek Advisors. The fund has a minimum investment of $5 million.

HKW expects to have a first close on the fund by the end of the year and have a final close on the fund sometime next year. It is targeting mostly existing institutional investors, and is presenting its case to various LPs, including endowments, many financial institutions, funds-of-funds and some state pension funds.

The firm began doing private equity deals in 1983 without a dedicated fund. For 17 years HKW executed buyouts with outside funding until it decided to raise a stand-alone pool of capital for its transactions. Considering all its previous deals to be its Fund I, HKW’s first dedicated fund was HKW Capital Partners II, which closed in 2001 with $57 million. Many of its limited partners in the fund were pre-existing merchant banking clients of the firm. Last year the firm closed on HKW Partners II Supplemental, a $41.6 million fund that invests along with its predecessor. The firm expects those funds to be fully invested by the end of the year and it currently has two companies under letter of intent. It will likely make capital calls from HKW Capital Partners III within three months of closing the fund.

HKW’s strategy mandates that it acquire control positions in all of its portfolio companies. It focuses on the lower end of the middle market and targets companies that have between $10 million and $100 million in enterprise value. The firm prefers companies with revenues between $20 million and $100 million and operating cash flow of at least $2 million, but has no such minimums for making add-on acquisitions. While the firm has in the past turned to its LPs to make co-investments during its investment cycle, those opportunities will be fewer with a fund of $185 million.

HKW focuses on industrial and service companies in the United States. It executes consolidations, corporate divestitures, ownership changes, growth equity investments, management buy-outs and recapitalizations. Its portfolio companies include Robstown, Texas-based C&J Specialty Rental Tools; Maxon Corp., a Muncie, Ind.-based manufacturer of combustion equipment and OakRiver Technology, an Oakdale, Minn.-based medical device provider.

The firm is headquartered in Indianapolis and has offices in New York and Chicago. HKW will soon open an office in Shanghai, China, mostly to help its portfolio companies source materials and products.

HKW was founded by founder Paul Hammond in 1903 as a merchant bank for wealthy individuals and families. HKW started to withdraw from its merchant banking activities in the mid-1980s and became an equity sponsor for management buy-outs. While HKW ended its merchant banking services for clients in 1990, it provides its portfolio companies with merchant banking services, mostly for mergers, acquisitions and financing. — M.S.