BUYOUTS-Two Beltway specialists expected to raise private equity funds

Wed Jun 4, 2014 4:27pm EDT

*Veritas Capital raised last fund in 2010

*DC Capital launched in 2007

*Both target government contractors

By Steve Gelsi

NEW YORK, June 4 (Reuters-BUYOUTS) - Beltway deal-making specialist Veritas Capital Management LLC and a firm started by some of its former executives, DC Capital Partners LLC, appear poised to refill their coffers at a time of merger pressure among companies doing business with the U.S. government, according to sources.

Neither firm has publicly disclosed a fundraising target. New York-based Veritas Capital is talking to limited partners about launching Veritas Capital Fund V, which would be its first fund since the 2012 death of Robert McKeon, the founder and former chairman of the firm, according to a person familiar with the fundraising effort. The firm raised $1.3 billion for Veritas Capital Fund IV in 2010.

Meantime, Alexandria, Virginia-based DC Capital is talking to investors about re-starting a $350 million fundraising effort cut short by the 2008 financial crisis, according to a separate source familiar with the firm.

With the U.S. military and other government operations facing cutbacks because of federal budget sequestration and other issues, consolidation among contractors has been expected, particularly among mid-market companies.

Last year, Veritas Capital was one of four firms capturing the highest possible score of 1.0 in a performance ranking by the alternative-asset data provider Preqin, joining Inflexion, Vista Equity Partners and Wynnchurch Capital Partners. Each of these firms had three funds ranking in the top quartile by vintage year, according to Preqin.

Veritas Capital has been active on the deal trail of late: In April, its portfolio company, SI Organization, set plans to buy QinetiQ North America Services and Solutions Group, a unit of the British company, for as much as $215 million. And in February, the firm completed its $383 million deal to buy telecom components maker Anaren Inc. Veritas Capital took Anaren private for $28 a share in cash, beating out a rejected offer of $23 per share from Vintage Capital Group.

Meanwhile, DC Capital is re-launching its inaugural buyout fund dating back to the early days of the firm in 2007. Thomas Campbell, founder and president of DC Capital Partners, worked as a partner and co-founder at Veritas Capital from 1992 until 2006, according to his profile on the firm's website. Douglas Lake, Jeffrey Weber and T. Gail Dady, all partners at DC Capital, also worked at Veritas Capital.

DC Capital has made no public statements about the sources of capital for its portfolio, which includes seven companies and two realized investments, according to its website. It is not uncommon in the private equity world for more seasoned executives to invest their own money to establish a track record before raising money from institutional investors. Some private equity firms also raise money for investments on a deal-by-deal basis under a strategy known as the fundless sponsor model.

In April, DC Capital sold a $125 million payment-in-kind toggle note for its engineering portfolio company Michael Baker Corp; the proceeds were earmarked to pay the firm a dividend, according to a published report. The PIK deal, which reflects healthy corporate debt markets, came less than a year after DC Capital completed the $397 million acquisition of Michael Baker Corp through its affiliate, Integrated Mission Solutions. The merged company, Michael Baker International LLC, had more than 5,000 employees and $1 billion in revenue at the time of the deal's close in October.

Calls and emails to both firms were not returned.

(Buyouts Magazine is a Thomson Reuters publication. Editor: david.toll@thomsonreuters.com. www.buyoutsnews.com)

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