Key Capital in €700m equity fund deal

Dublin-based corporate finance firm Key Capital has raised €700 million for a private equity fund on behalf of SVG Capital.

The SVG Diamond III Leveraged Private Equity Fund comprises €280 million in equity from private and institutional investors and the balance in debt.

About €35 million in equity was raised from Irish high net worth individuals and families. The balance of the equity was raised in the UK and continental Europe.

Key Capital was the fund arranger for SVG, a private equity investor and fund management business listed in London. SVG is also a 20 per cent shareholder in Key Capital, which was founded in 2001 by Conor Killeen, Kyran McStay and Ken Mintern.

The investment gives institutional fund managers exposure to large-scale leveraged buyout investments by some of the biggest private equity players in Europe, which they would not be able to invest in directly.

These include Blackstone Capital Partners; Madison Dearborn, which backed the buyout of Jefferson Smurfit; Permira, which is believed to be a bidder for Jurys Inns; and Providence Equity, which was an investor in the first taking private of Eircom.

The money raised will be invested in about 40 funds holding direct private equity investments. HBOS is providing a revolving debt facility for the fund.

Two similar funds have been launched by SVG since 2005, raising €900 million between them. On those occasions, Key Capital was involved as a project manager with Nomura as the arranger.

According to Key Capital, 74 investors have backed the latest fundraising, which involved a minimum investment of €250,000.

The fund is targeting an internal rate of return of 22.5 per cent, net of costs.

Leveraged buyouts have grown in importance in recent years and often achieve superior returns for investors. In Ireland, major deals have included the taking private of Jefferson Smurfit, Eircom and Green Property.

Mr McStay, who is managing director of capital markets at Key Capital, said the backers of the fund had committed to a 10-year investment term. About 20 per cent of the funds will be drawn down initially from investors.

"For medium-sized institutions or individuals to have an exposure to the big deals they need to organise themselves in this way," Mr McStay said.