Vestar Capital Partners has closed its sixth flagship fund on $804 million, far below its original target of $3.5 billion set when the fund launched in 2010, the firm confirmed Monday.
Along with the closure of the fund, the firm announced the creation of a succession plan, elevating Norman Alpert and Robert Rosner as co-presidents. Rosner and Alpert are both co-founders of Vestar, and also “played key roles” in returning more than $2.4 billion to limited partners over the past three years, according to the firm.
Alpert and Rosner will be in lead roles along with firm chief executive officer Dan O’Connell. “It’s important to indicate who the next generation of leadership might be,” O’Connell told Private Equity International during a recent interview. O’Connell stressed he wasn’t leaving his role.
Fund VI had raised an additional $200 million contingent on the firm closing on a certain amount of money, but Vestar decided to stop fundraising and start investing, O’Connell said. Fund VI hasn’t yet made a deal, but has several in the pipeline, he said.
Despite the significantly reduced fund size, Vestar “see[s] exceptional opportunities in our sweet spot, the North American mid-market”, O’Connell said in a statement.
Through Fund VI, Vestar is targeting equity investments in the range of $50 million to $150 million in US-based mid-market companies with enterprise values ranging from $250 million to $750 million. For Fund VI, Vestar has simplified its investment focus to three core sectors – consumer, primarily consumer packaged goods, healthcare and diversified industries, O’Connell told PEI.
Vestar’s fifth fund collected $3.65 billion in 2005 and was generating a .64 percent internal rate of return and a 1x investment multiple as of 31 December, 2012, according to performance information from the Washington State Investment Board.
Making adjustments in strategy or approach is the kind of thing that would probably cause some uncertainty on fundraising.
Fundraising for Vestar’s sixth flagship vehicle has proven challenging. Launched in 2010 with a $3.5 billion target, the firm cut the target to $2 billion. Vestar also received a fundraising period extension from LPs that allowed marketing to continue through April of this year.
The $804 million final close is similar to the amount Vestar raised for its third fund, which closed in 1997 on $803 million. Vestar IV closed on $2.48 billion in 1999 and was producing a 13.5 percent IRR and a 1.7x multiple, according to Washington State information as of 31 December, 2012.
In 2011, the firm decided to close its European offices and to stop making investments in the region. That decision was influenced in part by the continent’s struggling economy, and the fact that the firm had not completed a transaction there in more than four years, a source with knowledge of the firm told Private Equity International in a past interview. Rosner formerly headed up the European office, but returned to New York in 2011.
Overall, Vestar invested $1.2 billion in nine companies in Europe. Those investments, now fully realised, returned $2.1 billion — a 1.7x realised cash return — to LPs, the firm said.
Fund VI faced various obstacles, including an overall tough fundraising environment, O’Connell said. The decision to pull back from Europe also likely put a damper on the fundraising, he said.
“Making adjustments in strategy or approach is the kind of thing that would probably cause some uncertainty on fundraising,” O’Connell said. “It’s not the kind of thing, in that market, even in this market today, you want to have. The key to fundraising is to gain real momentum from the start, and that probably gave us a bit of a set back on the momentum.”
Vestar also lost one of its founding partners, Sander Levy, a few months ago, when he left the firm to form his own shop called Bridge Growth Partners along with Alok Singh, former managing director at New Mountain Capital, and Kevin Parker, most recently chief executive of software company Deltek.
The result of Vestar’s fundraising comes shortly after Apax Partners announced the closing of its Fund VIII on $7.5 billion, far off its initial target of $11.9 billion.