Duke Street is Making Way in Raising Funds

Private equity firm Duke Street does not give up without a fight. They are attempting to agree to a secondary’s deal and this could secure its future for new deals
Someone familiar with the firm, who chose to stay anonymous said that the company dropped fundraising ideas more than a year ago, they were approached by a secondary’s company earlier in 2013 with a proposal to acquire a significant share in the firm’s sixth buyout fund. The deal closed on 963million Euros in the year 2006 – from current investors.

Duke Street took the decision to appoint, Canaccord Genuity, rather than to put the offer directly to its shareholder base. The firm appointed him to run a process in the hope of establishing some competitive tension over the valuation of the fund shares. It is hoped that should a tempting valuation be made, an incoming group would acquire up to a third of the interests while making a commitment to support Duke Street’s future deals.
Such a situation would give Duke Street the security of a permanent pool of capital from which to invest and a new source of fee income, while investors would be able to engage in portfolio management without the expense of hiring an adviser to sell out, the person said.
The Prospective fund investors may not find the proposal to be too popular. Secondary’s companies have not been adverse to providing follow on capital for the companies that they back. Nevertheless, undertakings like these are normally made to spin-outs. Some of these include the Natwest and KBC teams – who need support adjusting as an independent, not to long-standing managers that cannot get capital from the sources that usually provide.

In the case of Duke Street, the value proposition for secondary’s managers is more likely to be centred around acquiring a share in the fund at a discount that is significant to its valuation and playing on shareholder insecurity rather than being invested in. What seems to be arguably unfair, is what is seen as a manager with a uncertain future, following Duke Street’s decision to postpone fundraising last year, for its seventh vehicle.
Duke Street said that they were not willing to supply any information on the valuation of DS VI. However, someone who is very familiar with the situation, said that it is a lower quartile performer, meaning any offer is potentially going to be too low for all but the most desperate shareholders will be willing to accept.
A kibosh is also put on any hopes that shareholders who have sold out, would use the money to back Duke Street in the future. Given the number of performers who are thought to be strong in the European mid-market currently fundraising, why would a shareholder risk taking a company in which he has made a loss back to his investment committee?
Talks have been described by Buchan Scott, partner with responsibility for Investor Relations at Duke Street, as “extremely early stage with no guarantee that any sellers [in the fund] will come forward”.