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HgCapital Seeking $2.8 Billion for European Buyout Fund

HgCapital LLP, the London-based firm that separated from Merrill Lynch & Co. in 2000, is seeking 1.75 billion British pounds ($2.79 billion) for its next fund that will make private-equity investments in Europe.

HgCapital 7 can raise as much as 2 billion British pounds, according to a summary of terms, a copy of which was obtained by Bloomberg News. The firm’s prior fund gathered about 1.9 billion pounds in 2010.

The firm is entering a market in which a number of European buyout shops are competing for a limited pool of investor cash. Sweden’s Nordic Capital is seeking 25 percent less than the 4 billion euros ($5.2 billion) it originally targeted for its latest buyout fund. London-based Permira Advisers LLP, which has been fundraising for more than a year, is targeting 6.5 billion euros. Cinven Ltd., also based in London, is 80 percent of the way toward a 5 billion-euro target for its latest fund.

Steven Batchelor, a member of the firm’s client-services team, declined to comment.

HgCapital’s new fund will typically invest in European companies with enterprise values of 80 million to 500 million British pounds. The fund, mostly focused on Northern Europe, will charge a 1.75 percent management fee on committed capital during the investment period, and 1.5 percent on invested capital after that, according to the summary. The general partner will take 20 percent of the profit.

Mercury Pharma

The firm primarily makes buyout investments in the U.K., Germany, Benelux, the Nordic region and selectively across Western Europe, according to its website. Sectors of focus for the new fund include health care, industrials, services, technology, media and telecom. The firm invests in renewable energy through a separate dedicated fund.

HgCapital has generated recent exits including the sale in August of Mercury Pharma, a U.K.-based specialty pharmaceutical company, to Cinven Ltd. for 465 million pounds. It sold SHL, a provider of psychometric testing, in July to Corporate Executive Board Co. for $660 million, a 3.1 times multiple and 26 percent gross internal rate of return, according to the firm’s website.

The firm’s fifth buyout fund, which raised 950 million pounds in 2006, is generating a 2.8 times realized multiple, according to a person familiar with the matter.

HgCapital began as Mercury Private Equity, an arm of U.K.- based Mercury Asset Management Plc. Mercury Asset Management was acquired by Merrill Lynch in 1997, followed by the spinout of the private-equity unit in 2000.

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