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Darwin Private Equity, a private equity firm founded in 2007 and focused on the UK’s lower mid-market, has closed its maiden fund on £217m.
Likewise, the launch of Spirit Capital, the former Aberdeen Asset Managers Private Equity firm, which has bought itself out from its parent company, shows the enduring attractiveness of the sub-£100m buyout space in the UK despite the difficult investment climate.
Buyout firms want to remain in the space, and new entrants are keen to join it because of LP appetite for small buyouts and the plentiful opportunities on offer.
“The LPs who invested in our fund are long-standing private equity investors; investors who have proven they are in it for the long-term,” said Jonathan Kaye, founding partner of Darwin, who was formerly at CVC.
His co-founders are Derek Elliot and Kevin Street, who had both formerly worked at Permira. Darwin completed its first deal in late 2007, buying sports drinks company Maximuscle for £75m.
Darwin counts Goldman Sachs, LGT Capital Partners, OXIP, Pantheon Ventures and RIT Capital Partners among its investors.
The new firm closed its fund on £217m, below its £250m target. “The fundraising climate got more challenging as time went on from when we started raising in May 2007,” said Kaye.
While deal activity has slowed down in the lower mid-market, Kaye believes there are still opportunities. “There are still quality assets available,” he says. “Vendors are reconsidering and processes are taking longer but lenders are still open for business, especially for debt packages up to £25m.”
Colin Stirling, a partner at Spirit Capital, agrees, saying: “At the lower end of the market, there are always triggers for business activity – succession issues, divorce and so on. We won’t see as many auctions but there’s a reasonably good level of opportunities.”
Darwin is also seeing more opportunities as a result of the slowing economy. “We are actively looking for turnaround opportunities,” says Kaye. “They represent an increasing proportion of the deal flow we are seeing.”
The Spirit team had been in discussions with Aberdeen Asset Managers about a spin-out for about a year. The team believes being an independent firm, rather than a captive, is preferred by investors.
As part of its buyout, it has assumed management of about £100m of private capital from Aberdeen, which is in the form of two funds invested in parallel. The current funds are around 70% invested, suggesting a new vehicle could be in the market.