Sector News

The Money Hunt: SK Capital Throws Out Playbook, Raises $1 Billion

December 4, 2014
Energy & Chemical Value Chain

SK Capital Partners, a firm focused on the specialty material, chemical and health-care sectors, opted to follow its own formula while raising its latest, and largest, fund, which closed at its $1 billion hard cap.

Five months after launching fundraising efforts, SK Capital held a first and final close for SK Capital Partners IV LP, sharply above the vehicle’s $750 million target.

At a time when limited partners are concerned about dry powder and strategy drift, SK Capital raised double the amount of its previous fund.

The firm, with offices in New York and Boca Raton, Fla., has enough capital to back at least two more platforms from its previous vehicle, which raised $500 million in 2011. Although it has distributed some cash to investors through dividend payouts, SK Capital hasn’t fully exited any of the companies from that previous portfolio.

And although SK Capital welcomed new domestic investors into Fund IV, the firm decided not to go overseas to search for new backers.

All of this runs somewhat counter to conventional wisdom. Typically, private equity firms are pretty much done with making new investments and have at least a few exits to show investors when they return to fundraising.

Lately, firms have been keeping a tight lid on fund sizes to ward off worries about strategy drift-specifically concerns that if a manager raises more money, it might chase deals that are outside its realm of expertise.

Managing Director James Marden said SK Capital’s narrow sector focus on specialty materials and chemicals and its experience carving out businesses from companies such as Clariant Corp . and Chemtura Corp . gave it an edge in fundraising.

Carve-out deals have a reputation for being tricky, given that they typically involve building systems, distribution, sales channels and management teams from scratch.

Mr. Marden said he expects deal flow to continue to be robust as activist investors push for change at industry giants such as DuPont Co. Deal volume in the chemicals space was already at roughly $8.7 billion through the middle of November, up from less than $1 billion for all of 2013, according to data provider Preqin Ltd.

“Because of the shareholder activism that has become more prevalent in chemical industry, there are a lot of areas of shifting focus; core areas have become noncore,” said Mr. Marden.

The firm’s narrow sector focus allows it to be “size agnostic,” which is why its investors weren’t overly concerned about raising twice as much capital for its latest fund.

“We have one company with $50 million in revenue, and another with more than $2 billion in revenue,” he said.

He anticipates the firm will back six to eight companies out of the new fund.

SK Capital opted to market primarily in North America, given uncertainty surrounding the Alternative Investment Fund Managers Directive, which regulates how private equity firms can pitch funds to European investors.

“Few people understand AIFMD and what the implications are with respect to European [limited partners],” said Mr. Marden.

Kirkland & Ellis LLP provided legal counsel to SK Capital. UBS Securities assisted SK Capital in the fundraising process.

Source: The Wall Street Journal

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