Leonard Green talks to LPs about next flagship, debut small-cap fund

Leonard Green & Partners is gearing up to raise its next flagship fund, which could target up to $10 billion or more, the most ambitious goal in the firm’s long history, sources told Buyouts.

Fund VIII will likely be more than $10 billion as Leonard Green closed Fund VII on $9.6 billion in 2016 and could have raised more, sources said.

Along with the core fund, the Los Angeles firm is expected to launch its debut small-cap fund, targeting companies below the normal size it focuses on in the flagship pool, sources said.

Details of the small-cap fund could not be found. 

The core fund is expected to officially launch early next year, possibly in Q1, with the small-cap fund launching alongside it, sources said.

Erika Spitzer, head of marketing and investor relations at Leonard Green, declined comment.

Leonard Green was formed in 1989 and is focused primarily on service industries in consumer, business and healthcare, and retail.

Green Equity Investors VII hit its hard cap of $9.1 billion plus a GP commitment of $500 million in 2016, Buyouts has reported. That fund was more than 50 percent larger than Fund VI, which closed on $6.25 billion in 2012.

Fund VII, still early in its J-curve period, was producing a 0.9x total value multiple as of Dec. 31, 2017, performance information from Washington State Investment Board shows. 

Fund VI was generating a 14.7 percent net internal rate of return and a 1.52x multiple as of March 31, 2018, Oregon Public Employees Retirement Fund data showed. 

Fund VII enabled Leonard Green to write larger checks, as high as $900 million to $1 billion, with co-investments from LPs available for even larger deals, Buyouts reported.

Small cap

The small-cap fund’s management team will likely include Evan Hershberg, a former managing director at Oncap, the middle-market private equity platform of Onex, sources said.

Hershberg left Oncap earlier this year and will join Leonard Green early next year, Buyouts previously reported.

Hershberg was working on the same kind of platform at Oncap, creating Oncap Growth, a small-cap platform. In light of Hershberg’s departure, Oncap put the small-cap platform on hold, Oncap said in an LP note.

LPs reviewing the fund offering will likely take a look at the firm’s deal with Blackstone Group, which acquired a minority stake in the management company.

The minority deal, for a less than 15 percent stake in the management company, was structured as a secondary investment, Buyouts previously reported.

This meant the firm is buying equity from existing private shareholders, who get the proceeds. About 30 Leonard Green executives got paid in the deal, Buyouts previously reported.

Leonard Green is led by a large group of partners, including Managing Partners John Danhakl and Jonathan Sokoloff, Senior Partners John Baumer and Jonathan Seiffer and Partners Usama Cortas, Timothy Flynn, Kristofer Galashan, Christian McCollum, Michael Solomon and Alyse Wagner, the firm’s Form ADV said.

As of Dec. 31, 2017, Leonard Green managed about $23 billion, the filing said.

Action Item: Check out Leonard Green’s Form ADV here: https://bit.ly/2LPGK4X