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Capital Sources - Region Emerges as Hotbed for Private Equity

By: Jamie O. Hernandez - Date: 06/01/2007

Sun capital partners has raised $6 billion for a leveraged buyout fund targeting distressed companies, making the capital raise the largest of its kind in South Florida history.

The $6 billion fund is Sun Capital’s fifth since the Boca Raton based private equity firm was founded in 1996. A previous LBO fund closed at 1.5 billion in January 2006.

Richard Hurwitz, Sun Capital’s vice president of communications and investor relations, said most investors in the new fund were repeat institutional clients from previous capital raises. He said the institutions include endowments, charitable foundations, and public, private and union pension funds.

“The monies are mostly domestic”, Hurwitz said. “Maybe 75 percent domestic investors and 25 international investors in western Europe, Japan and Australia.”

Sun capital, which closed the fund April 5, planned to raise $4 billion but went higher because of strong demand, Hurwitz said.

“I would say that since we are a top performer, it’s always gratifying to see that your existing investors are prepared to recommit”, he said.

Sun Capital plans to use the fund to acquire distressed companies in the United States, western Europe and Japan.

Sun Capital’s $6 billion buyout fund would tie the 2003 Kohlberg Kravis Roberts' Millennium Fund as the 16th largest in the U.S., according to market research firm Thomson Financial. The rankings were last updated March 31, five days before Sun Capital closed the fund.

The KKR 2006 Fund Private Investors buyout fund led the nation with 15.7 billion in capital and Goldman Sachs, Blackstone and KKR are gathering buyout funds of $20 billion or more, according to published reports.

LBO funds leverage their cash by mixing it with debt. Buyers often restructure their takeover targets privately and sell several years later after generating profits. Returns to investors can range from 20 percent to 35 percent.

Bigger private equity funds often target bigger companies. Hurwitz said that will not be the case for Sun Capital, which has historically focused in companies with $50 million to $5 billion in annual revenue.

“The investment strategy that we have used since inception is still in place,” Hurwitz said. “We do small and mid-size deals. We are not leaving that place.”

Sun Capital has 62 companies in its portfolio, including Miami’s Catalina Lighting, Edwin Watts Golf Shops, Lee Cooper jeans and Wonderbra lingerie. Each year, the firm acquires about 15 to 20 business and sells up to 10 of them.

Private equity has become an attractive alternative for companies looking for growth capital. Last year, U.S. private equity firms spent $421 billion on company buyouts, nearly triple the 2005 spending of $154 billion, according to New York-based research firm Dealogic.

Private equity firms spent $262 billion on acquisitions from Jan 1 through May 21, up from $85 billion during the same period last year, according to Dealogic data.

The growth of leveraged buyout funds has been spurred by investor interest in higher returns, an increased number of successful private equity firms around the United States and the availability of debt at relatively low interest rates.

“There are more investment dollars that are being allocated to private equity than ever before,” said Craig Farlie, a partner of Fort Lauderdale based investment banking firm, Farlie Turner.

Farlie acknowledged south Florida has become a hotbed for private equity. The region is home to major firms such as Sun Capital, Miami-based H.I.G. Capital and Trivest Partners, and Brockway Moran and Partners in Boca Raton. Most of the firms target consumer good businesses.

In November, Palm Beach Capital, named for the town where the firm is based, closed a $110 million LBO fund. A company news release said the fund would target private companies with earnings of $2 million to $15 million.

Last March, Brockway Moran closed its third and largest fund at $700 million. The previous fund closed at $410 million in 2001. Unlike Sun Capital, Brockway Moran and Palm Beach Capital focus mostly on healthy companies.

“For private equity in the Southeast a decade ago, the headquarters would have been Atlanta,” Farlie said. “South Florida private equity firms have grown dramatically. South Florida has become the capital of private equity in the Southeast.”

Hurwitz credits Sun Capital’s growth to the booming global private equity industry and the firm’s strong track record of turning around distressed companies and generating high return for investors. He said the geographic location of his and other local private equity firms has little to do with the success.

In contrast hedge funds populated by former Wall Streeters have gravitated to Greenwich, Conn., where more than 100 hedge fund operators maker their headquarters.

Experts agree the home of a private equity firm has become less important as firms target companies nationwide.

“Money has moved into private equity because performance has been very goof,” Hurwitz said. “There are LBOs all over the world. But this is a wonderful place to live if you’re opening a private equity shop.”

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