Exclusive: Herkules reduces target for Fund IV

The firm, which booked a 7x on the sale of a Nordic transformer supplier, will hold a final close before year end.

Norwegian group Herkules Private Equity has reduced the target for its fourth buyout fund, PEI has learnt.

The firm, which officially came to market with Fund IV in January 2013 targeting NOK 6 billion (€740 million, $1 billion), will now be raising “substantially less” according to a source familiar with the matter.

It is understood the firm held a NOK 1.5 billion first close in December (€180 million, $250 million), raising capital from existing investors. In addition the firm has held a number of ‘rolling closes’ ahead of a final close expected to occur at year end. The final close will be lower than NOK 4 billion, the source added.

Tore Rynning-Nielsen, a senior partner at Herkules, confirmed to PEI the fund will be smaller, but declined to disclose the revised target and hard-cap. The reduced target is due to two things, he said. “We have already made four investments in the fund, so we can’t really keep the fund open too long.”

Additionally, contrary to the firm’s prior fund, Herkules IV will provide co-investment opportunities in “most of our investments”, which means Herkules can invest from a smaller vehicle while having the same strategy as Herkules’ prior fund, Rynning-Nielsen said. The fund will make approximately 10 investments. 

The fundraising has been moving at a slower pace than expected, the source said. Herkules IV came back to market a bit too early, when Fund III had not matured as much as some investors had anticipated, the source said, but added that the firm has a good track record.

This week, Herkules sold Nordic transformer supplier Noratel to Acal, a European corporate for NOK 735 million (€90 million, $123 million). This exit has yielded the firm a 7x return and a 30 percent IRR, Rynning-Nielsen said. Following this divestment, Fund I, a NOK 2 billion vehicle from 2004, has now been fully realised. The fund has generated a return multiple of 7.2x, and an internal rate of return of 102 percent.

In 2006, Herkules raised a fund that was twice the size of its predecessor. This NOK 4.25 billion 2006 vintage has a return multiple of 1.4x, PEI reported last July. The performance of Herkules Private Equity III, a 6 billion NOK, 2008 vintage that is nearly fully invested, was 1.3x, PEI reported at the time.

Herkules typically invests in energy and oil services, health care, consumer goods, trade/retail, services and technology and telecom and media in Norway.