Vestar returns with $1 bln target for new flagship fund

  • Vestar 2013 vintage, which closed below target, netting 30 pct
  • Fund VII to invest in mid-market; valuations up to $1 bln
  • Vestar led by Daniel O’Connell, Norman Alpert, Robert Rosner

Four years after raising less than a quarter of what it targeted for its sixth flagship fund, Vestar Capital Partners has returned to market with a new flagship fund targeting $1 billion.

Vestar closed Fund VI on $804 million in 2013, short of the $3.5 billion it set out to raise when it launched the fund in 2010. Weak demand for Fund VI was likely due to the performance of Fund V, a $3.7 billion 2005 fund that was marked at cost by the end of 2012, Reuters reported, citing Washington State Investment Board documents.

The firm’s track record improved considerably with Fund VI, according to Minnesota State Board of Investment documents. Vestar Capital Partners VI was marked as netting a 30 percent internal rate of return as of Sept. 30, the documents show.

If that IRR holds, Vestar VI would be the firm’s best performing vehicle since its $260 million 1993 vintage fund, which netted a 58 percent IRR, Minnesota documents show.

Minnesota invested in Vestar’s three previous flagship funds, state pension documents say. The $82.7 billion retirement system approved a $150 million commitment to Fund VII in February.

Vestar will use Fund VII to acquire middle-market businesses in the consumer, healthcare, business-services and industrial-products sectors. The fund will usually invest $50 million to $150 million per deal, typically in companies with enterprise valuations of $100 million to $1 billion.

Commitments from Vestar professionals will constitute 10 percent of the Fund VII’s total capital, or up to $100 million.

Fund VII LPs will pay a 2 percent management fee on committed capital through the fund’s investment period. Afterward, the fee falls to 2 percent of invested capital, minus any investments that have been exited or permanently written down.

Vestar declined comment. The firm is led by CEO Daniel O’Connell and co-Presidents Norman Alpert and Robert Rosner. The departure of all three executives would trigger a key-man event in Fund VII, Minnesota documents say.

Vestar was founded in 1988 and has offices in New York, Boston and Denver.

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Hundred-dollar bills are counted. Photo courtesy Reuters/Amr Abdallah Dalsh