Leder’s Sun Capital Said to Struggle With $3 Billion Goal

Sun Capital Partners, the private-equity firm co-founded by Marc Leder, is struggling to reach the $3 billion goal for its latest fund, according to two people with knowledge of the matter.

Sun Capital Partners VI LP had gathered about $1.7 billion as of September, said the people, who asked not to be identified because the information is private. The pace has been slower than anticipated for the Boca Raton, Florida-based firm, which initially had aimed to finish fundraising last year by December, the people said.

Private-equity investors are paring down commitments to focus on their most-preferred managers, making it harder for many firms to raise money. Three prospective investors said they decided to pass on Sun Capital’s latest fund mainly because of publicity surrounding Leder, who is also co-chief executive officer of the firm. Two of those investors also said they were concerned that the fund would be too big to make the kind of smaller deals that have been Sun Capital’s best performers in the past.

“No portfolio manager wants to receive that call from the chair of their board who, while surfing the news on their morning commute, is hit in the face by an unflattering article concerning a GP they just voted to back,” said Jake Elmhirst, referring to a general partner, or manager of a fund. Elmhirst is a New York-based managing director at UBS Investment Bank who helps private-equity firms raise money, and isn’t an investor with Sun Capital.

Romney Remarks

Tom Faust, a spokesman at Stanton Public Relations & Marketing, declined to comment. Leder didn’t return an e-mail seeking comment.

Leder, who made his fortune from turning around broken companies from Boston Market to Captain D’s, made headlines last year after hosting an event in his Florida home for then-Republican presidential candidate Mitt Romney. The $50,000-a-plate fundraiser was where Romney said that almost half of Americans felt entitled to government aid. The New York Post wrote in July that Leder has thrown parties at his summer rental home in the Hamptons, drawing complaints from neighbors.

“I believe all Americans should have the opportunity to succeed, to improve their lives, and to build even better lives for their children,” Leder said in an e-mailed statement last year, after news of the Romney remarks. “I have supported people from both political parties who share this view and make it a priority, even though their ideas on how to achieve it may differ,” he said at the time.

Headline Risk

Investors in private-equity funds, such as public pension funds and state retirement systems, tend to shy away from firms that are the subject of negative news, known as headline risk. Two of the three investors who considered Sun Capital’s new fund had put money into the firm’s predecessor pool. One of those clients said that backers don’t want to be associated with firms generating negative publicity, which calls into question the focus of the firm and its investment team.

The three investors asked not to be identified because their manager-selection process is private.

A fourth investor, who also asked not to be named, said the fund’s management team is strong and that the publicity tied to Leder is a bad reason to decline investing in the fund.

While some prospective investors said they were concerned about the size of the new fund, Sun Capital is seeking less than the $6 billion it raised in 2007. The firm cut the size of that fund in 2009 to $5 billion.

Private-equity firms typically take an average of 14 months to complete fundraising, according to data from Preqin Ltd. Funds of funds, which farm out money to private-equity pools, were a big part of the prior vehicle’s investor base, and haven’t been able to commit as much to the new offering, according to people familiar with the matter.

Smaller Deals

The new fund will target smaller deals with an average investment size of $30 million to $40 million, which means the fund will hold a greater number of companies, said people with knowledge of the matter. The increase in number of deals in the fund will help protect against volatility and make the portfolio more diverse, said the people.

During the financial crisis, several companies owned by Sun Capital filed for bankruptcy, including Mervyn’s LLC, Lillian Vernon Corp., Powermate Corp., Crafts Retail Holding Corp., Wickes Furniture Co. and Jevic Transportation Inc.

The firm has since been able to bring the value of its prior fund above the costs of the investments. Sun Capital Partners V LP was generating a 1.3 times multiple on invested capital as of Aug. 31, according to performance data from Oklahoma Police Pension & Retirement System.

Sun Capital has been able to generate some profits for investors this year. The firm and Main Street Capital Holdings in August sold Harry’s Fresh Foods to Joshua Green Corp. In June, the firm stood to double its money on the sale of the parent company of American Standard, a maker of bath and kitchen products.

Sun Capital, which manages more than $10 billion, participates in investments of underperforming companies, turnarounds and special situations.

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