CD&R targets $5bn for next fund(2)

Clayton Dubilier & Rice is targeting $5 billion for its ninth fund and will inject at least $250 million in a general partner commitment into the vehicle, according to four sources who have seen the private placement memorandum for the fund.

It’s not clear if fundraising has officially launched, but PPMs started going out to investors in February, according to two sources.

CD&R declined to comment.

The GP commitment of at least $250 million (5 percent of $5 billion) is relatively high compared to other funds in the market, according to one potential LP who has seen the documents. “That’s way more than typical; LPs like to see skin the game,” the LP said. It’s not clear if the GP commitment will be straight cash or come through management fee waivers.

Don Gogel

The firm, which closed its prior vehicle — Fund VIII — in 2009 on $5 billion, will charge a 1.5 percent management fee that will drop to .75 percent after the five year investment period. Fund IX will share 100 percent of deal fees with LPs to offset the management fee, sources said, citing the PPM.

The PPM lays out the firm’s performance numbers. For example, the $5 billion Fund VIII was generating a 17.9 percent net internal rate of return as of 31 December. Fund VII, which closed on $4 billion in 2006, was producing a 9.2 percent net IRR.

Fund VI, a 1999 vintage, was producing a 9.4 percent net IRR, according to the PPM, and Fund V, a 1996 vintage, was generating a net 1.93 percent IRR as of 30 September, according to performance information from the Washington State Investment Board.

CD&R's earlier funds were “off the charts”, according to one source. For example, Fund II, a 1986 vintage, was producing an 11.46x multiple. The firm was founded by Joseph Rice, Martin Dubilier and Eugene Clayton in 1978. Donald Gogel is the CEO and chairman.

Fund VIII looks to be the firm’s best performing vehicle in recent years; strong performing portfolio companies

Joe Rice

include NCI Building Systems, into which CD&R invested $250 million, and which was being marked at around $760 million, according to the PPM, sources said.

Also, the firm sold cleaning products maker Diversey for $4.3 billion in 2011, generating a 2.4x return on its initial 2009 investment, according to sources, previous reports and the PPM. In February, CD&R sold mail-order medical supplier AssuraMed Holdings alongside GS Capital Partners for $2.07 billion. The firms acquired the company in 2010 for $900 million.

CD&R has long been viewed as one of the truly dedicated operations-focused shops in the industry, boasting an operating bench of some high-profile former corporate leaders like former General Electric chief executive officer Jack Welch, former Procter & Gamble Company CEO AG Lafley and former Allstate CEO Ed Liddy.

However, many firms on the fundraising trail in recent years have boosted their capabilities around operational improvements, whether building benches of senior advisors, growing internal teams or making operations a core focus of the overall investment strategy. It remains to be seen if the proliferation of such strategies dilutes CD&R's fundraising advantage as an operations pioneer, sources said.