Herkules closes biggest Norwegian fund ever

01 November 2008

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Fund

Herkules Capital, formerly known as Ferd Private Equity, closed its third fund at NOK 6bn (approximately EUR700m), exceeding its target. Fundraising started with a soft launch in February/March this year, less than two years after Herkules closed its second fund in October 2006, which is now 70% invested.

UBS acted as placement agent, and partner Jeffrey M. Hurlburt of Hogan & Hartson provided legal advice. Herkules has kept the standard terms from previous funds, with a 2% fee, 8% hurdle rate, a life span of 10+1+1 and five year investment period. The mandate does not open up to other types of investments, such as PIPEs or debt investments, and the GP will continue its focus on mid-market buyouts in the Nordic region.

Investors

The biggest change from previous funds is that FERD A/S, which previously committed about 50% of the fund, now represents only 7-8%, meaning that the number of LPs could be increased from 25 in Fund II to more than 50 in Fund III. The majority of previous investors decided to commit to the third fund as well. Investors from Norway, the US and Europe are represented. Among them are Argentum, Orkla, DnB NOR, Storebrand, Goldman Sachs, Indiana PERF and Standard Life.

Investments

The majority of Herkules' deals are proprietarily sourced. The fund focuses on the Nordic and particularly the Norwegian, mid-market buyout segment, and concentrates on the consumer goods, telecom, healthcare, outsourcing and electronics sectors.

Herkules always acquires a minimum stake of 51%, with a 70% ownership or more in the majority of cases. The minimum investment from the fund is NOK 100m in equity and the maximum is 20% of the fund. The sweet spot, however, is NOK 300-400m. The fund has made one investment to date where the equity represented NOK 500m of the NOK 910m deal value in the acquisition of the financial services company, Gothia. In general, Herkules is a conservative investor in terms of debt, and in most cases limits leverage to 4x-5x of EBITDA. Similarly, the GP prioritises relationship banking with a few Nordic banks, such as DnB NOR, Danske/Fokus Bank and Nordea. The debt levels of new investments from Fund III are expected to be around 40-50% of enterprise value.

With the door closed on recapitalisations, IPOs and also to a certain extent secondary buyouts, Herkules sees trade sales as the most likely exit option in the current market environment. Particularly, industrial players who are looking to expand in the relevant sectors could be interesting, albeit with lower expectations on money multiples.

People

The fund is managed by Herkules partner Tore Rynning-Nielsen together with partners Gert W. Munthe, Morten Blix and Dag W. R. Stromme. Herkules has a total of 20 investment professionals who all work on deal origination, completion and the development of portfolio companies.

Name: Herkules III

Closed on: NOK 6bn

Focus: Nordic buyout

Contact: Tore Rynning-Nielsen

Address: Strandveien 50, 1324 Lysaker, Norway

Advisers: UBS (Placement agent)

Hogan & Hartson (Legal).