Sycamore Partners went through a drastic change in 2022, when one of its founding partners, Peter Morrow, departed, leaving uncertainty about the future direction of the consumer and retail investment shop.
But fast forward to this year, and Sycamore, led by its founder Stefan Kaluzny, is gearing up to launch its fourth flagship fund into what is widely considered one of the most challenging markets for raising a private equity fund.
It will be an interesting test to see what kind of reception Sycamore receives after such a change in leadership, and considering some LPs believe the firm took longer than expected to deploy its last fund, which closed on $4.75 billion in 2018.
However, investing in retail over the last several years has been one of the strategies avoided by most PE shops, leaving a niche for specialists to thrive. And Sycamore plays right into that space with its long-time focus on the sector and its penchant for taking over moribund brands and breathing new life into them.
The firm will target at least as much as it raised for the prior flagship pool, Fund III, sources said. Sycamore started talking about raising its next fund at its annual general meeting last fall, sources said.
The fund is expected to hit the market some time this year, though it’s not clear exactly when. Fund III was more than 60 percent called as of last year, a source said. A Sycamore spokesperson declined to comment.
Earlier this year, Sycamore took over Chico’s FAS in a $1 billion deal, which the firm planned to merge into its KnitWell Group platform that includes other brands like Ann Taylor and Talbots. The platform generated about $6 billion in annual sales, Sycamore said in a statement in January.
Sycamore also reportedly was considering a bid for Macy’s, which had received a $5.8 billion offer from Arkhouse Management and Brigade Capital, according to various media reports.
Performance
The firm was launched in 2011 by Kaluzny and Peter Morrow, former Golden Gate executives. It managed about $11 billion as of December 31, 2022, according to Sycamore’s Form ADV. The firm raised $1 billion for its debut fund in 2011 and closed Fund II on $2.5 billion in 2014.
Other senior executives include Rob Sweeney, president, and Paul Fossati, managing director and director of capital markets.
Fund III was producing a 1.45x total value to paid-in multiple as of December 31, 2023, according to performance information from New Jersey Division of Investment. Fund II was generating a 1.15x TVPI and a 4.3 percent internal rate of return as of March 31, 2023, according to Buyouts’ performance data sourced from the San Diego City Employees’ Retirement System.
And the firm’s debut fund was producing a 0.69x TVPI and a 27.84 percent IRR as of March 31, 2023, according to Buyouts data sourced from Alameda County Employees’ Retirement Association.
The firm targets investments in consumer and retail business ranging in size from mid-market to large enterprises in North America. Sycamore focuses on companies that are “undermanaged or underperforming as a result of reasons that Sycamore believes it can address within the investment horizon and are company specific,” the ADV said.
Peter Morrow, co-founder of Sycamore, left in 2022 for undisclosed reasons, Buyouts previously reported. Morrow joined Consello Group and is leading the firm’s private equity effort, expected to raise its debut fund this year.
The funds are hitting the market at a time when many limited partners have dialed back their commitment pacing. North American private equity firms raised a total of $559 billion last year, down 9 percent from 2022, according to fresh data from Buyouts.
Even more drastic, the number of fund closings plunged to a five-year low, with around 1,208 funds closing in 2023, down 17 percent from a year earlier.
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