Investcorp To Raise Barrage Of New Funds

For nearly a quarter century, Investcorp has primarily done its buyouts on a fundless, deal-by-deal basis. Now the Bahrain-based investment firm is looking to change that.

Investcorp is slated to raise three first-time investment vehicles this year, including a U.S. and Europe-focused buyout fund that could be as large as $1.5 billion, and a U.S. real estate-focused mezzanine fund that could raise up to $150 million. A third fund, which could close on as much as $1 billion, will be raised in conjunction with Investcorp’s new Gulf Growth Capital initiative, which the firm introduced late last year.

Meanwhile, the firm also plans to raise its third technology-focused venture capital fund of up to $500 million.

Investcorp, which trades on the Bahrain Stock Exchange under symbol “INVCORP” and the London Stock Exchange under “INFO,” was founded in 1982. In its buyout and real estate strategy, the firm invests on a deal-by-deal basis. Using its own balance sheet to make the initial acquisition, it then syndicates a targeted 85 percent of the equity over the following two-month period.

The new fund would allow the firm to increase the size of its equity checks by $100 million, up from a previous cap of about $250 million. The buyout fund would have the option of supplying approximately 30 percent of the equity for U.S. and European control-stake deals. Investcorp would split the balance of the equity according to its traditional strategy, keeping about 15 percent on its balance sheet and syndicating the rest, said Investcorp CFO Rishi Kapoor.

The buyout fund, targeting between $1 billion and $1.5 billion, is expected to hold a first close by the end of Investcorp’s fiscal 2007, ending June 30, 2007. The firm’s buyout strategy, in place since 1983, is to invest in targets in North America and Western Europe with enterprise values between $300 million and $1 billion. According to Investcorp’s Dec. 5, 2006 prospectus, the firm’s 57 exits since 1983 have generated an average realized net IRR for investors (net of all fees) of 18 percent.

Meanwhile, having blind pools of capital at its disposal is more amenable to some of Investcorp’s other business lines, which often include multiple rounds of funding. Take, for example, Investcorp’s newly-minted Gulf Growth Capital initiative, for which it plans to raise between $500 million and $1 billion.

The Gulf Growth Capital Fund, scheduled to hold a first close by June 30, will finance new projects as well as existing buyout and growth capital deals in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Industries of interest for this strategy include oil and gas, construction materials, health care and education. These businesses need multiple rounds of financing and therefore are best suited to a closed-end fund structure, Kapoor said. “You don’t want to have to go back to investors again and again for follow-on capital for the same deal.”

A similar strategy lies behind TriLyn-Investcorp Mezzanine Partners I LP, which is capable of making several rounds of financing to single target companies.

TriLyn-Investcorp held an initial close in January with $100 million in capital commitments and has since increased its size to $120 million. Investcorp documents say the fund could get as large as $150 million. It will invest in structured mezzanine, high-yield debt and preferred equity in U.S. commercial and residential real estate.

Investcorp’s blind pool model was originally initiated through its venture capital arm in 2001, when it raised its $230 million Investcorp Technology Ventures I. That was followed in 2005 by a $300 million Fund II. This year the firm plans to start fundraising on a third venture fund with a target capitalization between $400 million and $500 million. —A.N.