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Herkules closes largest ever Norwegian buyout fund

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Herkules Capital has held a final close of its third Nordic buyout fund on NOK 6bn (approximately EUR700m), making it the largest ever raised in Norway. The close comes two years after Herkules closed its second fund, which is now 70% invested. "The coming months and years will be a good time to invest, so we are happy we have a raised a fund now," says fund manager Tore Rynning-Nielsen, who predicts the fundraising environment in coming months will be less favourable.

Fund III will continue the investment philosophy of previous funds, focusing on the Norwegian and Nordic mid-market buyout segment. The majority of Herkules' deals are proprietarily sourced. "When you are the biggest player in the market, vendors often come to you," Rynning-Nielsen explains. He continues: "Especially in a downturn, deal conclusion might be more important than price for the vendors, so they will prefer a buyer with both sufficient capital and competence," he continues. Additionally, the 20-strong investment team allows Herkules to scout for investment opportunities at the same time as being heavily involved with portfolio companies. "It is particularly important to work closely with portfolio companies to guide them through the current challenging climate, and make sure that they are prepared to benefit when the economy turns," Rynning-Nielsen says.

The mandate does not open up to other type of investments, such as PIPEs or debt investments. Continuing the priorities of previous vehicles, Fund III will concentrate on the consumer goods, telecom, healthcare, outsourcing and electronics sectors; avoiding oil & gas and fish farming which Rynning-Nielsen describes as more cyclical. "In terms of investment focus and leverage, we are quite a conservative investor," he states. In most cases Herkules limits leverage to 4x-5x EBITDA. Similarly, the GP prioritises relationship banking with a select few Nordic banks, such as DnB NOR, Danske/Fokus Bank and Nordea.

The biggest change from previous funds is that former cornerstone investor FERD A/S now holds a smaller stake, which has allowed the GP to accept commitments from more than 50 LPs - up 25 from Fund II. (Page 5).