New York-based middle-market turnaround specialist KPS Special Situations Funds announced the final close of its Fund II on $404 million (EUR331 million).
The fund, which began fundraising in the fourth quarter of 2002, surpassed its initial fundraising target of $350 million and is more than double Fund I, which closed in February 1998 on $160 million. The firm also raised a $50 million KPS Supplemental Fund.
According to KPS founding principal Michael Psaros, the firm expanded its investor base by more than 20 new limited partners, bringing the total to more than 30, including two Japanese investors. San Francisco-based placement agent Probitas Partners helped raise additional capital after the firm raised an initial $225 million from existing KPS investors.
KPS invests in most sectors excluding high technology, biotechnology, media and telecommunications, and tends to strike middle-market deals in the manufacturing, transportation and services sectors.
“In the middle market, we have never seen a greater quantity of opportunities that are also quality,” Psaros said. “While the wave of mega-bankruptcies is over, [those companies] never were for private equity play. For the middle market in private equity, the turnaround market looks vibrant.”
Psaros attributes much of the fund’s success to the same consistent turnaround strategy he and his co-founding principals, David Shapiro and Eugene Keilin, have undertaken with KPS since the firm’s inception in 1991. KPS takes controlling interest in companies that have strong franchises and competitive advantages in their markets, but that are experiencing operational and financial problems. Psaros said the firm prefers a more operational approach to restructuring a company rather than relying on financial engineering. KPS also often partners with US and Canadian labor unions in its transactions.
KPS has already made three purchases with Fund II, including Wire Rope Corporation of America, Speedline Technologies and AmeriCast Technologies. Psaros said KPS expects to make between eight and 12 additional investments over the next two to four years, with an equity investment range of between $20 million and $50 million.
In December, the firm sold bus manufacturer New Flyer Industries to Harvest Partners and Lightyear Capital in a deal that news reports pegged at approximately $300 million, following a $44 million investment in March 2002.