Adams Street launches direct LBO vehicle

Fund-of-funds manager Adams Street Partners is raising a separate co-investment fund dedicated exclusively to buyouts. The new vehicle has a cap of $250m.

Chicago-based fund-of-funds manager Adams Street Partners is expanding its direct co-investment program to include a buyouts and growth-financing co-investment fund. Adams Street has made direct investments in the past, but historically the group has leaned toward venture when pursuing this strategy. The new fund represents the first time it will go after the buyouts space with a dedicated co-investment vehicle.

Gary Fencik, head of business development, Adams Street Partners

The fund has a target of $200 million (€167 million), with a ceiling $50 million above that mark. The firm has already approached existing Adams Street limited partners and is now marketing the fund to new investors.

Gary Fencik, head of business development at the firm, told PEO that the buyout vehicle does not necessarily represent a new initiative for the firm, whose direct co-investment history goes back to the early seventies.

Adams Street’s earlier approach had traditionally combined its direct co-investment strategy and its fund-of-funds investing into one vehicle. The firm’s direct co-investments tended to gravitate toward venture, particularly in the technology and life science arena, although roughly a quarter of its deals from its most recent direct co-investment fund could be classified as buyouts investments.

In the mid-nineties, the firm split its direct investing and fund-of-funds programs into separate offerings. But when Adams Street closes its latest fund of funds, the group will reintegrate co-investing back into one bundled vehicle. The firm is currently raising Adams Street Partnership Fund – 2006, a reported $1.5 billion targeted vehicle.

For its LBO co-investments, however, Adams Street felt that to sufficiently pursue these deals, it needed a larger pool of money than it could set aside from just its primary vehicle. “The environment for buyout co-investments today requires a larger capital commitment than we would be able to make from our current direct fund,” Fencik stated.

To accommodate the larger equity cheques needed, Adams Street established the separate buyout vehicle, which will invest alongside the bundled fund in its LBO co-investments, but augment those deals with between $5 million and $25 million in additional funding.

Fencik also added that there was enough interest from existing and potential investors to warrant raising the separate vehicle.

The fund will invest in both the US and Europe, and will pursue deals alongside its lineup of LBO managers. In the past, Adams Street has invested with such groups as Sun Capital Partners, Genstar Capital and Terra Firma, among many others.

On Adams Street’s Web site, the firm lists a number of past co-investments in the buyouts space, including deals for vitamin and supplement maker Leiner Inc., which is currently controlled by Golden Gate Capital, and office supplies manufacturer Esselte, a portfolio company of JW Childs Associates.

The direct investing team at Adams Street is manned by eight partners, including Tom Berman, Jeff Diehl, Tom Dolson, George Spencer, Craig Taylor, Dave Timson and David Brett. Brett was recently poached from PPM America Capital Partners, where his charge was underwriting buyout co-investments.