Duke Street LaunchesFirst Independent Fund –

Duke Street Capital has scheduled a first closing for next month for its fourth European buyout fund. Following last year’s buyout from Hambros Group, the group, formerly HEV, aims to raise at least euro 500 million ($530 million) for Duke Street Capital IV in its first fund raising as an independent group.

Duke Street, headed by Chief Executive Edmund Truell, launched the effort in March. Sharon Corper, responsible for the group’s investor relations, said the vehicle so far has met with a very enthusiastic response from investors worldwide and said she expects the fund to be oversubscribed.

The previous fund of the firm’s predecessor, 1997’s HEV III, together with an associated co-investment pool, raised approximately euro 380 million.

Ms. Corper said the majority of the 32 investors in HEV III that are still operational have indicated they will make similar commitments to Fund IV. Altogether, Duke Street expects existing investors to account for 60% of the new fund.

With the new fund, Duke Street Capital will maintain its historic focus on mid-market U.K. and continental European buyouts priced between euro 20 million to euro 200 million.

More Capital, Same Size Deals

Although Fund IV has targeted 25% more than its predecessor, the group is adamant this increase will not result in a drift toward larger deals. Instead, it is more a reflection of Duke Street’s healthy deal flow, which has been enhanced by the group’s affiliations throughout Continental Europe, and a correspondingly rapid investment rate. HEV III already has completed eight platform investments, five in the U.K. and three in Continental Europe, as well as three major follow-on acquisitions; the fund now is 74% invested and effectively one deal away from being fully committed.

Unlike its predecessor, Fund IV will not feature a separate co-investment pool. Instead, the group will offer co-investment opportunities on a case-by-case basis to institutions committing more than euro 35 million to the vehicle and to investors that have consistently supported HEV/Duke Street funds.

Given Duke Street’s track record, it should come as no surprise that the group enjoys such a substantial constituency of repeat customers. HEV II, a 1994 fund that raised around euro 75.5 million, reached full investment in two and a half years.

Fund II now has exited eight of its nine investments, realizing approximately 3.5 times cost overall.

One of the fund’s highest profile investments was in Glass’s Group, the automotive information services provider, which Duke Street sold for GBP126 million to Hicks, Muse, Tate & Furst Inc. last summer (BUYOUTS Aug. 31, 1998, p. 8), achieving a 104% transaction IRR and a multiple of 7.1 times cost.

Fund IV will have a 10-year life. Most of its terms are standard, although Ms. Corper revealed the vehicle also incorporates an unusually investor-friendly feature: 100% of the transaction fees revert to the fund, rather than to the management company.

Duke Street anticipates a final close for Fund IV in September.