KPS to hold first close for $1.5bn mid-cap special situations fund this month

Mid-Cap Fund II, which has a $2bn hard-cap, is expected to hold a second close in late summer, sources told Buyouts.

Turnaround specialist KPS Capital Partners, in the market with a sixth flagship offering, is nearing the first close of the vehicle’s mid-cap companion.

KPS Special Situations Mid-Cap Fund II, set to bring in $1.5 billion, is expected to hold an initial closing by June 30, according to Arkansas Teacher Retirement System documents.

The fund, which has a $2 billion hard-cap, is expected to hold a second close in late summer, sources told Buyouts.

The flagship, KPS Special Situations Fund VI, is meanwhile targeting $8 billion with a $10 billion hard-cap, ATRS documents said. No information was shared about its progress.

Capital raising for Mid-Cap Fund II may be helped along by Fund I’s performance. Securing $1 billion in 2019, the debut vehicle was as of December 2022 earning a 1.8x gross multiple and 41 percent gross IRR, ATRS documents said.

Another factor working in KPS’s favor could be emerging complex dealflow spawned by economic uncertainty. A number of recent reports point to an uptick in special situations investing this year as businesses face down high debt levels, high inflation and rising rates.

KPS makes control investments in manufacturing and industrial companies based in North America and Europe. These operate in an array of industries, such as basic materials, branded consumer, healthcare and luxury products, automotive parts, capital equipment and general manufacturing.

Targets are quality businesses that are going through a period of transition or experiencing operating or financial difficulties. KPS has a particular knack for turnarounds in complicated corporate carve-outs which are often global in scale. It also pursues acquisitions linked with financial restructurings and private sales by entrepreneurs, families and other owners.

The flagship strategy focuses on investing $100 million to $1 billion per platform deal.

The mid-cap strategy was designed to observe the same approach as the flagship but with an emphasis placed on lower mid-market opportunities. Its range is up to $100 million of initial capital.

Fund I has made seven platform investments. The latest, announced in March, is Princess Yachts, a builder of luxury motor yachts. Last year, it acquired the porcelain enamel, glass coatings, forehearth colorants and frit-based metallurgical products units of Prince International Corp, creating the standalone business PEMCO.

Established in 1997 as the successor to Keilin & Co, KPS is led by co-founders and managing partners Michael Psaros and David Shapiro and managing partner Raquel Palmer. Partners Pierre de Villeméjane and Ryan Harrison co-head the mid-cap team.

KPS declined to provide a comment on this story.