KPS Has Best Week Ever

KPS Special Situations Fund is on a liquidation roll, having recently announced four acquisitions within a span of five consecutive business days. The timing is being termed coincidental, but will undoubtedly help the New York-based turnaround firm raise its third fund in Q2 or Q3 of next year.

The exits include one closed sale—Ebro Electronics GmbH & Co. KG to Nova Analytics Corp.—and three pending sales that are expected to close by year-end: AmeriCast Technologies to Castle Harlan for $110 million; Speedline Technologies to Illinois Tool Works and; Wire Rope Corp. of America to Fox Paine & Co.

“We had decided to monetize each of these four companies at the beginning of the year, but it’s just a wonderful coincidence for our LPs that all the purchases came together at the same time,” says Michael Psaros, a co-founding and managing principal of KPS. KPS created most of the companies via asset acquisitions two or three years ago, except for Ebro. Ebro had been part of Ashcroft, which KPS sold six months after originally creating it to Nagano Keiki Co. of Japan. Psaros adds, “Now, by selling Ebro, we almost tripled our investment in 50 calendar weeks.”

Each of the liquidations comes from KPS Special Situations Fund II, which closed in 2002 with $404 million. Psaros says that the fund currently is around 50% committed, and likely will add two or three more portfolio companies before being fully-committed in the first or second quarter of next year. It also will continue making add-on deals via acquisition platforms Blue Water Automotive Systems (molded thermoplastic components and assemblies for auto OEMs) and Hephaestus Holdings (forged parts for auto industry).

Psaros declined to give Fund II performance data, except to say that the IRR is higher than the 55% reported by limited partner CalPERS. The CalPERS information also showed that only around 34% of the fund’s capital was called down through June 30, with approximately half of its already returned.

He also declined to discuss future fundraising, except to say that any future vehicles are unlikely to have difficulty finding dealflow. “2005 and 2006 have been the busiest years we’ve seen as a partnership, and I don’t see a slowdown,” Psaros explains. “As defaults increase in the second-lien market and the economy slows down, there only are going to be more opportunities for a firm like ours.”

In related news, Monomoy Capital Partners is nearing a $200 million final close for its inaugural fund. That firm was formed last year by a quartet of former KPS pros, and plans to focus on the smaller end of middle-market turnarounds.—D.P.