Consider Wynnchurch Capital, a middle market PE firm. Today, Wynnchurch announced that it has closed its third fund at $603 million. The pool was oversubscribed and came in above its $500 million target, according to a statement.
But Wynnchurch spent two years raising that $603 million, says Roy Sroka, CFO. “Fundraising was difficult,” Sroka says. “It’s very, very nice to be done.”
Wynnchurch began marketing in February 2009, because it’s second fund—which raised $350 million in 2006—was nearly fully deployed. “We needed to go back to the marketplace,” Sroka says. “It seemed a bad time to go out to market. But for us, because we’re value investors, we were seeing opportunities we’d never seen before.”
The PE firm gained momentum after an anchor investor, with a marquee name, became the first to invest in Wynnchurch Capital Partners III LP. “This did create a swell from other investors,” he says. Many LPs that were already investors of its prior funds were very supportive and reupped for “much larger slices,” Sroka says.
For its first close, which occurred in July of 2009, Wynnchurch clocked in with $255 million in commitments. Wynnchurch ended up with $482 million in commitments by the end of 2009, more than its second fund.
Wynnchurch then spent the next 12 months searching for new investors. The PE firm managed to secure more than five new, major LPs by its final close in February 2011, Sroka says. “Trying to find new investors to grow the fund [was hard],” he says.”For the first 12 to 18 months, LPs were very nervous about making allocations…they were pretty skittish.”
He declined to disclose names. Investors of Wynnchurch’s third fund include major institutions, pension funds, endowments, fund of funds and global sovereigns. “We definitely increased our international exposure in this last fundraise,” he says.
Credit Suisse acted as placement agent. Kirkland & Ellis provided legal advice.
LPs also displayed a change in tone with fund III, Sroka says. They were more inquisitive and displayed a “more concentrated focus on terms,” says Sroka. LPs, he says, began to realize that funds had different terms and that there were differences in how fees were being allocated, and how carry was paid. There was also more awareness of institutional standards. “[LPs] really wanted to understand that terms were in line with ILPA and that we used ILPA as a benchmark.”
Wynnchurch, of Rosemont, Ill., typically invests $30 million to $50 million equity per transaction. The PE firm focuses on “real businesses” such as industrial, automotive, manufacturing, transportation services, and services related to oil and gas exploration. Fund II has a net IRR of 9.25%, Sroka says. The fund is still very young, says Sroka. The pool has only had one realization, a recap of 4Front Engineered Solutions, and the sale of Henniges Automotive Holdings to Littlejohn & Co. in November.
By contrast, fund I, which raised $163 million in 2000, has a higher net IRR of 24.9%. “We’re very excited about the prospects we’re seeing in the middle market,” Sroka says.