Sunrise Capital looks to Europe

US private equity firm Sunrise Capital Partners has launched its second fund with a target of between $400 million and $600 million. Sunrise Capital Partners II is being marketed to institutions in both the US and Europe and the firm has set up a London office in an effort to raise its profile in Europe.

The fund will look at both public and private companies that are financially distressed, underperforming, undergoing operational turnaround or operating in industry sectors that are in a state of distress.

The fund’s managers and investment bank Houlihan Lokey have already committed to invest around $20 million in the fund, which anticipates a first close in the first quarter of 2003. The largest investor in Sunrise I has already agreed to commit to 25 per cent of Sunrise II.

Lawrence Coben, senior principal of Sunrise Capital Partners II, said: “We believe Sunrise II represents a rare first class opportunity for European investors to invest in an enormous and growing specialised sector of the private equity market.” He added the objective of the fund is to achieve superior returns by investing in companies when they are in intensive care and restoring them to full health.

The firm’s first fund had one European investment, while the new fund is looking to invest 75 per cent in North America and the rest in opportunities in Europe, mainly in the UK.

Coben believes there is a gap in the European market for this type of product with an imbalance of funds and deal flow. “When we launched our first fund in 1998 people asked if there was a need for a distressed fund, in what was a good market.” Sunrise I’s performance with an IRR of over 45 per cent is proof that the demand is there and there is an even greater need for such funds in the current climate.

“This fund is particularly timely, with the number of investment opportunities in distressed companies growing rapidly and far outweighing the funds committed to this particular sector,” he said.

He anticipates the UK providing the major source of European deals. “The legal system is better [than the rest of Europe] and so restructurings are easier to do. Speaking the same language also helps.” The London office has a team of 15 so far and is still growing. How large it gets depends on the volume of transactions and of course the size of the fund.

Coben is cautiously optimistic about fund raising: “In this environment you can’t have unbridled optimism, but there’s a lot of interest for this kind of product and investors are definitely interested in meeting with us.”