Private Equity Firms Operating on a Deal-by-Deal Basis – April 2014

by Kamarl Simpson

  • 10 Apr 2014
  • PE

Preqin’s Fund Manager Profiles online service contains profiles of 136 private equity firms actively making private equity investments that are operating on a deal-by-deal basis. Just over 50% of these managers are based in North America. A further 32% are based in Europe, with UK-based managers accounting for well over half of this figure. 

Operating on a deal-by-deal basis is an alternative option to a traditional 10 year life-span private equity fund. GPs operating via a deal-by-deal model present investors with investment opportunities on a case by case basis for their consideration. This method provides investors with access to direct deal flow and therefore more flexibility, it also offers lower fees than investing via a fund. From a GP perspective it is considered to be more labour intensive, however the prospect of carry (the profit firms make once investment performance has been achieved) is attractive and can be accessed at a faster rate than a 10 year fund structure. Pursuing a deal-by-deal strategy also relieves the GP of marketing a fund offering, a process which has become more expensive and time consuming. The time taken from fund launch to completion of fundraising has increased on average since the onset of the financial crises, taking an average of 18 months in 2013 and 2012 up from an average of 11 and 12 months in 2006 and 2007 respectively. 

Duke Street is an example of a private equity firm that abandoned the fundraising effort of its seventh fund in 2012 amid harsh fundraising conditions. As a result, the firm shifted strategy to pursue a deal-by-deal model. The London-based manager is, however, planning to return to market with a traditional fund offering this year aiming to raise a pool of around £150mn to £200mn for buyout investments in West Europe. 

AAC Nordic is the most recent private equity firm to switch to a deal-by-deal strategy after suspending the fundraising of its latest offering, AAC Nordic I, a buyout fund that was aiming to raise €150mn. The Nordic arm of AAC Capital Partners may consider re-starting the fundraising process by the end of the year. The firm’s Benelux arm (AAC Capital Benelux) is investing from its latest vehicle AAC Capital Benelux Fund III that closed in 2013. The firm’s UK arm (AAC Capital UK) is in the process of winding-down operations. 

New-York based Charterhouse Equity Partners also abandoned their fundraising effort in 2012, opting to continue operations on a deal-by-deal basis. The firm abandoned the fundraising of its fifth buyout fund that was in market seeking up to $500mn. 

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