Lake Capital, a transatlantic private equity firm has raised $500 million for its first formal institutional fund. The firm has a proven track record in the business services industry and the new fund will continue to make investments in this sector. In the past the team had raised capital from institutions, but always on a deal by deal basis, raising up to $120 million each round. Credit Suisse First Boston acted as placement agent for the fund raising.
Lake Capital was set up in Chicago five years ago and is led by four principals. Founders Terence Graunke and Paul Yovovich and principal Joseph. P. Karczewski are based in Chicago and Julian Hanson-Smith is head of the London office.
The team has been fortunate and at a time where many funds are having trouble securing commitments, has had an enthusiastic response from investors managing to close the fund in a year. Hanson-Smith said: “We decided in early 2002 to raise a formal institutional fund because of the wide range of opportunities we saw in the business services sector. We were originally looking to raise just under $500 million, but the cap was increased to $500 million due to demand from investors.”
The fund has attracted a broad range of US and European pension funds and insurance companies. The fund does not have a cornerstone investor and has specifically built a broad range of high quality investors. “The combination of our operational focus and the size of transactions which is the small- to middle market appealed to our investors,” said Hanson-Smith.
The fund will make between five and seven investments in North America and the UK. The split will be defined by the opportunities, but it should be an equal split, says Hanson-Smith. “All the businesses we invest in are led by what their clients want – if they want to expand to the US or the UK our investment will follow that lead.” The fund has already made one investment so far in US firm Huron Consulting Group.
Typical investments will be between $50 million and $100 million backing a number of initiatives with a view to building leading business services enterprises through organic and acquisition-enhanced growth. The firm is actively exploring additional opportunities in a variety of business services sectors including marketing services such as sales promotion, direct response, public relations, market research, and event services; finance-related services such as accounting-related services, cost recovery services, and financial and economic consulting; operational and infrastructure services such as human capital management, distribution services, technology consulting, and other outsourced services; and speciality services such as corporate training and professional publishing.
Hanson Smith says that focus has been the key to the group’s success. The firm invests significant amounts of capital in building a limited number of high-quality, dynamic portfolio companies. By concentrating on a limited number of opportunities, the team can afford to be highly selective and provide more valuable strategic, operational and financial resources to its management teams. A typical example of this and a significant exit for the firm was Lighthouse Global Network, sold to Cordiant Communications in July 2000 in a deal worth $592 million.