While many large buyout firms in fund raising are keeping quiet, one smaller firm is jumping for joy. The Riverside Company recently closed out its third fund, the 2000 Riverside Capital Appreciation Fund LP, on $412.75 million that’s more than $160 million over its original target of $250 million.
The fund launched in July 2000 and had raised $258.8 million just one year later. Stewart Kohl, a managing general partner, said the fund started gaining momentum in early 2001, but even then, the group did not imagine the fund would exceed $400 million. However, $400 million came and went in August and the final close occurred in October.
Since Riverside’s previous two funds were $34 million and $107 million, LPs’ reactions to the larger fund size were mixed, Kohl said.
“While they were pleased to see others endorsing us, on the other hand, some were concerned about the investment strategy that goes with a larger fund,” he said. “But the fact is, our strategy hasn’t changed.”
The Riverside Company looks for acquisitions ranging in value from $10 million to $100 million, spending about $30 million on the average platform company. The group plans to buy 10 to 15 companies per year half platforms and half add-ons. Fund III has already completed $80 million worth of transactions. Riverside would like to have the fund fully committed by 2003, except for $75 million to $100 million reserved for follow-on acquisitions. The group maintains a generalist approach to investing, targeting North American-based companies across many sectors.
Kohl attributes the successful fund raising to two things. Since it was clear by early 2001 that venture capital returns were not going to be as impressive as the years before, investors became more open to including middle-market buyout funds in their allocations. Riverside looked attractive to investors, Kohl said, because the larger end of the middle market is too cluttered, with too many people and too many dollars.
Secondly, among those active in the lower end of the middle market, The Riverside Company has a large staff, four offices in Cleveland, New York, Dallas and San Francisco, an experienced team and high returns on investments, Kohl added.
Riverside’s net annual return to investors since its inception has been 61.1%, according to a press release. Realized returns from the companies Riverside has sold have been higher, yielding 66% net annual return to investors.
Almost all the investors in Riverside’s prior funds re-upped for Fund III. A few of the major returning institutions are Massachusetts Mutual Life Insurance Co., Key Corp., Bank of America, National City Corp. and Heller Financial. The 25 new institutional investors include Liberty Mutual Investment Advisors, The Travelers Insurance Co., Citigroup, Merrill Lynch Ventures, Oregon Public Employees’ Retirement Fund and the University of Washington.
Over the years, Riverside has invested $250 million in 51 companies, the latest occurring this month when the group acquired Ceram Insulators to become the second largest porcelain insulator manufacturer in the world.
While the majority of Riverside’s deals tend to deal with manufacturing, the firm will announce in the next few weeks an investment in the professional services area.