Local private equity firm unveils $316M investment fund

The state’s largest private equity firm has finished raising $316 million for its biggest investment fund to date, company officials told IBJ on Wednesday.

Hammond Kennedy Whitney & Co., based in Indianapolis with an office in New York, finalized its latest investment pool on March 31.

Dubbed HKW Capital Partners IV, the fund follows in the footsteps of the firm's $255 million round that ended in late 2007. That fund went toward acquiring 14 companies. An earlier $100 million fund also acquired 14 companies.

With the latest fund, HKW is following its historic strategy of acquiring controlling interests in North American companies in the energy services, infrastructure and medical products industries. It is targeting those sectors because they all have growth projections that well exceed forecasts for the broader economy, said Chairman Glenn Scolnik.

Key drivers for medical products include aging Baby Boomers and their growing demand for health care, Scolnik said. On the energy side, horizontal drilling and North America’s push for energy independence have created openings for support services in which the equity firm invests.

Eighty-one percent of investors in HKW Capital Partners IV were institutional entities, the firm said. That included six insurance companies, four fund-of-funds, two state pension funds, one private-university endowment and a handful of individuals. HKW did not disclose the other investors.

One of the fund-of-funds was AlpInvest Partners, which invested with money it manages for the Indiana Public Retirement System pension fund.

HKW describes its acquisition focus as “lower middle-market companies.” The firm generally invests in companies that report between $20 million and $200 million in annual revenue and $5 million to $30 million in earnings before interest, taxes, depreciation and amortization.

Among other requisites, the firm says it looks for “honest and talented management teams," low risk of “technological obsolescence,” and defined growth plans showing sustainability.

Companies must indicate significant growth ahead of them. Owning most of the market share could hurt odds of getting an investment from the firm, because that means there may be little room to grow.

“We’ve passed on a lot of companies that were wonderful companies that didn’t have any prospects for growth,” Scolnik said.

The age of a company doesn’t directly factor into HKW’s investment decisions, said partner Jim Snyder. But the firm steers away from startups and groups that could burn through cash.

“We want companies that have a history of profitability,” Snyder said.

The firm usually spends four to five years building capital for a fund, Scolnik said, and maintains its stakes in individual companies four to five years before divesting.

HKW began investing money from the new fund in November 2012 to acquire a stake in Brant Instore Corp., a Canadian business that offers screen and digital printing, and distribution.

Since then, HKW has invested in three others: Mobile Tech Inc. in Oregon, Specialized Desanders Inc. in Alberta, Canada, and EnerSafe Inc. in Texas.