Graphite Capital hits £475m target in six months

The £475m close, reached by Graphite in roughly six months and without the help of a placement agent, makes GCP VIII the largest UK-only vehicle to be raised in the past five years, according to unquote" data.

Gearing up for and executing a quick fundraise has not monopolised the firm's attention in recent months, though. Graphite made a handful of investments, notably acquiring high-end steak restaurant group Hawksmoor in July in a £35-40m MBO. And the fundraising schedule unsurprisingly entailed sustained divestment activity as well: Graphite completed four exits in the last 12 months, for a combined value of £550m. Chief among these was NES, the technical recruitment group acquired by AEA Investors last October for £234m – Graphite reaped 4.7x money on the exit.

Graphite managing partner Rod Richards (pictured) told unquote": "There is no question that LPs like to see realisations prior to committing. This not only allows for cash distributions, but also acts as a validation of your investment strategy, which is the other criterion that investors are really scrutinising these days." 

Graphite decided to keep its sights on the same sweet spot from the onset – the fund's predecessor, GCP VII, also closed on £475m in 2007. Says Richards: "We could have raised more money if we had decided to continue fundraising, but are very happy where we are. Although there are a number of reasons why volumes in the UK market could increase, we made the conservative assumption that quality dealflow will remain scarce, and raised a fund of a size which we can be confident of investing within five years while sticking to our proven strategy. If the market does pick up, then we'll be perfectly happy deploying our capital in three years instead of five."

The pace and ultimate success of the fundraise might be impressive, but Richards acknowledges the tougher task faced by private equity firms in the current environment. "Overseas investors understandably have two questions in mind at the moment: what about the situation in Europe, and where does the UK stand? More than ever before, we have had to put forward the relevance of the UK." he says. Graphite senior partner Andy Gray agrees: "Yes, the economy remains difficult, the market is highly competitive and there aren't a whole lot of high-quality opportunities around – but there are four or five areas where we feel we can make very good investments."

Investors
It would seem that the pitch worked, especially with LPs already familiar with the firm: 85% of overall commitments came from investors in previous Graphite funds, with many of these LPs substantially upping the size of their contributions. This allowed Graphite to raise a similar amount as for GCP VII, but with fewer backers: the fund currently has 22 LPs (a number that could reach 25 in the next few weeks), against 39 in GCP VII.

Around 40% of the commitments came from the UK, with a quarter hailing from the rest of Europe and slightly more than a third (35%) from the US and Japan. The last two figures would at first glance suggest a shift in Graphite's LP base – 36% of the previous fund's commitments came from continental Europe and 25% from the rest of the world, according to unquote's coverage of the 2007 vintage. But this is only down to a couple of large US investors tilting the balance this time around, says Richards.

Terms & conditions for GCP VIII remain roughly similar to the previous fund. Management fees sit around the 2% mark, with hurdle at 8% and a dual carry scheme whereby investors can choose between 20% fund-as-a-whole carry and 10% deal-by-deal carry. LPs are also free to adopt a mix of the two schemes.

Investments
Graphite will also stick to its guns when it comes to the fund's investment strategy. The GP will keep targeting buyouts of UK-based businesses valued in the £40-150m range – it may also consider companies further down the value range, provided they have the potential to expand through the roll-out of new sites. The fund should ultimately complete 8-12 deals across a wide array of sectors.

Although Graphite had to negotiate an extension for the previous fund in the wake of the financial crisis, the GP is now eager to put the new vehicle to work. "Unfortunately, the recession cost us 18 months," notes Gray. "But the previous vehicle is now fully invested (bar a cushion for follow-on funding for existing investments) so we are now ready to start deploying GCP VIII straight away. We do have a couple of things in the pipeline, but it is too early at this stage to comment further on this."

People
Richards and senior partner Stephen Cavell led the fundraising process for Graphite. Weil Gotshal & Manges provided legal services, with a team led by Ed Gander, Jonathan Kandel and Stephen Fox.

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