Risk Capital raises £75m debut fund

The 8-year-old firm led by UK entrepreneur Luke Johnson has raised its first institutional fund so as to be ready for investment opportunities driven by current market distress.

UK private equity firm Risk Capital Partners has raised £75 million (€84 million ; $105 million) for its first institutional fund.

It will write equity cheques ranging from £3 million to £10 million per deal, targeting established UK companies, particularly those whose owners may be suffering from the economic crisis.

The fund was marketed for most of 2008 by Almeida Capital and garnered commitments from US and European investors. It also received a “significant contribution” from the firm’s founders, Ben Redmond and Luke Johnson.

Johnson did not disclose what the fund’s target had been, but said Risk Capital was pleased with the fundraise given the number of deals the firm will be able pursue in the next three to four years.

“I think if we can prove that this works and make good returns then perhaps we can raise more next time, but for the moment, we’re happy with this,” he said.

For those with a reasonable amount of risk appetite, there is going to be considerable value to be had.

Luke Johnson

Risk Capital was founded eight years ago by Redmond and Johnson, who is also the chairman of the UK’s Channel 4 television station and is widely known for having orchestrated the purchase and public offering of restaurant chain Pizza Express in the 90s.

The firm previously raised money for transactions on an ad-hoc basis, occasionally bringing in institutional or high-net-worth co-investors. Johnson said the firm had changed its capital structure to better benefit from opportunities arising from current market dislocation.

“For those with a reasonable amount of risk appetite, there is going to be considerable value to be had because I think prices in an awful lot of businesses across many industries are down by up to 50 percent or more,” he said. “So the potential over the next two to three years to pick some things up and then sell them over the next four to six years at a decent return – both in terms of seeing some recovery in profits from the lows and seeing some recovery in multiples – is considerable. We wanted to have the resources to take advantage of that.”

The firm will look at businesses across all industries, save for hi-tech, he added.

Risk Capital recently purchased London patisserie chain Baker & Spice out of administration as an add-on to existing portfolio company Patisserie Holdings, though this was not an investment from Fund I.

In January, Johnson wrote a column in the Financial Times urging people to wake up to the realities of the financial crisis. “The age of free money from mad lenders is finished. The growth game is over. Whole swathes of industry are on life support. The banks are in desperate straits …This vast reordering of our economic system has only just begun.”

Despite the gloomy tone, Johnson said that ultimately he remains an optimist “because otherwise it all becomes too unbearable, and also because I’m an entrepreneur and therefore I think you need to believe in the future”.

The column was meant to be a “a bit of a wakeup call to try and get a reaction and highlight the fact that there is some complacency still, because I think things are difficult and getting worse in many cases. And I think a lot of banks and businesses and managers have not reacted enough and have not taken on board that this [financial crisis] could last some while”.