Madison Dearborn Partners is resigned to that fact that it’s going to take a lot longer to raise its $10 billion sixth fund.
The Chicago buyout shop typically needs three to four months to raise its funds, Paul Finnegan, Co-CEO, said during a keynote interview at PE Networking Chicago. That hasn’t been the case with its latest effort because of the downturn in leveraged buyout market. “It’s amazing because when we were raising our last fund, there was real concern about the middle market,” Finnegan said, when asked about the trend toward more specialized buyout firms. “Now the reverse is true–the large funds are being punished…We go in cycles.”
Finnegan said he expects fundraising to take “a lot longer” for fund VI, and he expects other firms raising large funds to face similar challenges. “That’s the cycle we’re in,” he said.
Madison Dearborn is currently seeing more opportunities in minority investments, a traditional strategy that has accounted for about 59% of the firm’s deals, Finnegan
said. “We’re not seeing many leveraged opportunities.” Instead, the firm is seeing more growth equity and expansion capital opportunities, he said.
Other interesting tidbits from Finnegan:
*He expects IRRs for Madison Dearborn’s fifth fund to come in around the high teens to early 20 percent-range.
*A common critique of large buyout firms is that they raised too much money at the height of the boom. Finnegan is more concerned about firms that expanded
from around 45 professionals–about the size of Madison Dearborn–to 400 to 500 professionals worldwide. “What’s going to happen to them now that deals have slowed down?” he asked.
*The firm may add another office