Snapshot: Cabot Square talks fast fundraising

Cabot Square Capital has stopped fundraising for its fifth vehicle at just under £300 million ($468 million; €421 million), although the process will remain open until June next year, Cabot Square managing partner John Van Deventer told Private Equity International.

The process remains officially open for 12 months following the first close, and the firm has the option to increase the fund to £350 million, which is currently unlikely, Van Deventer said.

CS Capital Partners V held a first close in mid-June at £275 million with £300 million of commitments, as PEI reported previously. Fundraising began in January.

Fund V, which saw a lot of interest from UK pension funds, has already made one investment that it will announce soon, Van Deventer said, declining to comment further, and will make another three to four before the end of the year.

The firm invests in financial services, operating property and infrastructure companies with strong cash flow and real assets, including start-ups, turnarounds, distressed companies, buy and build strategies and expansion capital, according to its website. It typically takes majority stakes.

Fund V is bigger than its previous fund, a 2011-vintage, £180 million vehicle that was fully invested over 18 months. For its latest vehicle it will make more investments in the same range of £30 million to £50 million and retain its focus on the UK, Van Deventer said.

“We are seeing a lot of interesting opportunities in the UK where financial restructurings are progressing more quickly,” he said.

Overall, the firm is seeing a strong pipeline of potential investments driven by legacy issues relating to the financial crisis, and regulatory changes that curb bank lending activities to the retail and corporate market that the firm is focused on, Van Deventer said. “We are finding situations where there are mispriced assets” he added.

“[If you ask] is the asset properly priced and the answer is yes, then we’re probably not interested,” he said in reference to the firm’s appetite for risk-adjusted pricing.

The firm has witnessed an accelerated pace of investments to four or five in a year. “It’s faster than we’ve ever done,” Van Deventer said, noting that it has sold six business in the past two years, which “frees up some bandwidth” at the firm.

At any one time, Cabot Square holds 11-15 investments and “that is exactly where we are,” he said, adding that he expected further exits over the next 12 months.

Its recent exits include the sale of debt purchasing firm The Compello Group, completed in early August, according to a statement. The sale to Sweden’s Hoist Finance Group generated a 2x return on invested capital and an internal rate of return of 18 percent.

Compello was held by CS Capital Partners III, a £300 million, 2006-vintage vehicle that has five investments remaining. Van Deventer expects to fully exit the vehicle within 24 months.

Van Deventer said he expected the hold period for Fund IV to be shorter and for it to begin making realisations next year. The “search for yield in a low interest rate environment” is creating interest in its portfolio companies from trade buyers and financials, he said, noting that “this is a particularly strong market for what we do.”

“We don’t see a lot of other firms that are set up to engage in early corporate infrastructure builds,” he said.