American Capital Strategies, which has USD17bn of assets under management, has announced that it has raised its second private equity fund, the USD585m American Capital Equity II.
American Capital Strategies, which has USD17bn of assets under management, has announced that it has raised its second private equity fund, the USD585m American Capital Equity II. The launch of the fund further diversifies American Capital’s investor base, adding six new private equity limited partners.
The firm says that as of this month shareholders have enjoyed a total return of 619 per cent since the company’s stock market launch in August 1997, an annualised return of 22 per cent, assuming reinvestment of dividends. American Capital has paid a total of USD1.9bn in dividends (USD25.16 per share) since going public at USD15 per share.
AIG Investments, the asset management arm of American International Group, led the latest fundraising with a consortium of investors including Landmark Partners, Paul Capital Partners, Lehman Brothers Secondary Opportunities Fund, and SVG Advisers.
American Capital Equity II is purchasing 17 per cent of American Capital’s equity investments in 80 portfolio companies for a cash purchase price of USD488m. For accounting purposes, the total purchase price includes the USD488m cash purchase price portion, which is three per cent below the fair value of these investments, and the value associated with an asset management agreement. The remaining USD97 million committed to American Capital Equity II by the limited partners will be used to fund follow-on investments in the 80 portfolio companies.
Through a subsidiary, American Capital will provide asset management services to American Capital Equity II for a 2 per cent annual management fee on the cost basis of the assets and a 10-30 per cent carried interest in the net profits of the fund. It is anticipated that this agreement will increase American Capital’s revenues by USD10m in the first full year of the agreement.
American Capital now manages six funds with approximately USD5.3bn of third-party assets, including European Capital, which was established in 2005, was floated on the London Stock Exchange in May this year and has USD2.7bn of assets.
Other funds include American Capital Equity I with USD900m in assets, American Capital CLO 2007-1 with USD400m, American Capital CLO 2007-2 with USD100m and American Capital CRE CDO 2007-1 with USD600m.
‘We are very pleased to team up with six of the finest private equity fund investors in the world,’ says American Capital chairman, president and chief executive Malon Wilkus. ‘This transaction increases the assets under management of American Capital affiliates by 10 per cent to a total of 31 per cent of our total managed assets and will contribute to our growing asset management revenue.
‘This highly predictable and recession- resistant revenue stream, together with participation in the realised profits of American Capital Equity II, should be accretive to our net operating income per share, and our return on equity and thereby contribute to increases in American Capital’s valuation.’
Harvey Lambert, managing director and head of global secondaries for AIG Investments says: ‘AIG Investments continues to execute transactions in the private equity secondary market and our investment in American Capital Equity II demonstrates the ongoing efforts to find and execute the right investment opportunities.’
American Capital chief financial officer John Erickson says: ‘During a time when the capital markets are closed for many financial services companies, our ability to raise capital in diverse and flexible ways gives us a tremendous competitive advantage.
‘This transaction allowed us to tap a growing set of global investors with significant funds and expertise dedicated to private equity. Our liquidity and ability to fund assets during the market disruption is outstanding.’
Last October, American Capital raised its first externally managed US private equity fund, the USD1bn American Capital Equity I. Up to June American Capital Equity I has generated a net 37 per cent compounded annual return to its investors based on the fair value of the investments.
‘Over the past three months, our newest partners have subjected American Capital, including our investment teams, portfolio companies and investment process to extensive due diligence and scrutiny,’ says Tom McHale, American Capital senior vice-president for finance.
‘They met with portfolio company management teams and our Investment Teams, interviewed private equity firms with whom we have partnered and reviewed our portfolio company due diligence, valuation reports, third-party due diligence reports and monthly portfolio monitoring information. The decision by these partners, who have a long history of evaluating private equity investments, to participate in this transaction highlights the quality of our investments.’
American Capital is the largest US publicly traded private equity fund and the only alternative asset management company that is a member of the S&P 500. Both directly and through its global asset management business, it invests in management and employee buyouts, private equity buyouts, and early stage and mature private and public companies, providing senior debt, mezzanine debt and equity to fund growth, acquisitions, recapitalisations and securitisations.
