SK Capital holds one-and-done on debut lower mid-market fund

The new vehicle enables the specialty chemicals-focused firm to cover a part of the market increasingly outside the remit of its growing flagship funds, says managing director Jack Norris.

Sector specialist SK Capital has held a first and final close on its debut lower mid-market fund after less than four months on the road, Private Equity International has learned.

Catalyst Fund I, which was targeting $300 million, closed on its hard-cap of $400 million.

New York-based SK Capital focuses on the specialty materials, chemicals and pharmaceuticals sectors. Its latest flagship fund, SK Capital Partners V, closed on $2.1 billion in February, more than twice the size of its $1 billion, 2014 predecessor.

“Adding Catalyst helps us further differentiate SK as a clear leader in our sector and enables us to cover a segment that became increasingly difficult to cover as our fund sizes have increased,” managing director Jack Norris told PEI.

“We’re seeing the entire firm pipeline from a sourcing perspective, and leveraging our expertise in the sector. Today we have both people and capital sources to complete any investment in our sector across the entire waterfront of the deal size.”

The Catalyst fund will invest in businesses with an EBITDA of between $5 million and $15 million requiring equity cheques of less than $50 million, while the flagship fund invests more than $50 million in larger transactions, said managing director Mario Toukan. Toukan joined SK Capital earlier this year along with fellow managing director Jon Borell to develop the Catalyst strategy.

The Catalyst fund will seek slightly different transaction types to the flagship vehicles.

“Expect smaller carve-outs of product lines, for instance, to build a business around them, and family or entrepreneur businesses with succession issues,” Toukan said.

The flagship and Catalyst strategies each have dedicated teams but share an “exceptionally useful relationship”, Norris said, which includes the same pipeline of deals, resources and relationships.

Most investors in the Catalyst fund are also investors in SK Capital Partners V, although the fund also added some LPs outside of the US to diversify the investor base, managing director Ben Dillion told PEI.

While existing investors asked questions around “the debut fund replicating the investment strategy of the flagship funds, without distracting attention from them”, investors in Funds III, IV and V readily understood and supported the logic of the Catalyst fund, Norris said.

“It’s not hard to understand the benefit to existing investors. There is an enhancement of the virtues of sector focused investing, with more talent, more dealflow and more relationships,” he said.

New York State Teachers’ Retirement System committed $40 million to SK Capital’s Catalyst Fund.