Graphite launches £400m fundraising(2)

Investors are eager to pile into UK mid-market firm Graphite Capital although the level of interest anticipated will easily outstrip supply and leave some disappointed.

Investors are facing a fight to get into Graphite Capital’s seventh fund as the UK mid-market firm kickstarted its latest fundraising, which is targeting around £400 million.

One investor said it had already passed on the Graphite fundraising because as a potential newcomer to the firm’s investor base it would not be able to achieve a “meaningful investment”. He said: “We cannot afford to be too diversified and the re-up rate from existing Graphite investors means our allocation would be too small for it to make sense. This fundraising is over for us before it has begun.”

Another investor, who had just received Graphite’s private placement memorandum for Capital Partners VI, said: “Graphite is targeting a first and only close probably by the end of the quarter, but everything always slides and it depends how quickly existing investors can react. I’d be surprised if they were that fast.”

A source close to Graphite said: “First half is realistic.”

Graphite Capital’s most recent fund, Capital Partners VI, closed in June 2003 having raised £375 million from 39 institutional investors worldwide.

They are keen to stay with the firm that has made close to 100 investments since 1991 in one of private equity’s most competitive markets and generated a multiple of 3.5 times the cost of those investments and an annual return of over 40 per cent. It has realised two thirds of all its investments.

Most spectacularly it sold Wagamama, a noodle bar chain, to Lion Capital, a consumer business-focused buyout firm, in 2005, generating an overall 10.2 times the investment and an internal rate of return of 40 percent. This included a £63 million refinancing of the company, backed by intermediate capital provider Hutton Collins.

Graphite, a generalist investor, faces little immediate competition for funds, although August Equity, a sector-focused firm with a similar investment value range, is due out this year.

Graphite manages more than £750 million in funds for both institutional and private investors, focusing on transactions valued at between £15 million and £125 million across a range of industry sectors, mostly in the UK.

Graphite declined to comment.