Lone Star Funds is planning to return $3.5 billion to its investors in the coming weeks, according to people familiar with the matter, at a time when private equity firms face pressure to deliver cash.
The U.S. buyout firm generated about $1.8 billion in cash from the $4.35 billion sale of specialty chemicals firm AOC to Nippon Paint Holdings Co. in March, the people said, asking not to be identified discussing confidential information. The exit provided more than three times return for Lone Star’s invested capital, the people said.
Lone Star’s investment in Portuguese lender Novo Banco is also paying off. It will receive $1.1 billion in dividends from the bank in a few weeks, the people said. The buyout firm could gain further through Novo Banco as it’s planning a listing of the bank. Novo Banco Chief Executive Officer Mark Bourke said this week that the drafting of a prospectus for the possible initial public offering is “well advanced” and a listing could happen as soon as June.
The remainder of the $3.5 billion returns was generated from investments including Titan Acquisition Holdings, a bicoastal provider of ship repair services and marine and heavy complex fabrication, according to the people. Lone Star bought the business from Carlyle Group and Stellex Capital Management in 2023. GTT Communications, which emerged from Chapter 11 bankruptcy two years ago, also contributed to the distributions, the people said.
The focus on cash returns is ratcheting up pressure on private equity firms to deliver in a tough dealmaking environment. The measure of distributions to paid-in capital (DPI) — a ratio of cash generated to what’s invested — is being seen by investors as the most critical metric to evaluate fund performance.
It hasn’t been easy for private equity firms, as a difficult dealmaking environment has made it harder for buyout shops to exit their investments and return money to their backers. The fundraising market for new vehicles has also tightened as institutions become more selective with deploying their capital.
Lone Star’s Fund XI, which started deploying capital in 2019, has generated a 0.9 times return on a DPI basis, while its prior vehicle that started investing in 2017 has returned 1.35 times, the people said. A Goldman Sachs Group report shows fund vintages after 2019 in the industry have an overall 0.1 times return, while the 2015 to 2018 vintages returned 0.6 times at year four. A Lone Star spokesperson declined to comment on the returns.
“Our investment strategy focuses on asset-rich companies with strong through the cycle cash flows and earnings, where we see an opportunity to drive value through operational improvement, restructuring and M&A,” Chief Executive Officer Donald Quintin told Bloomberg News. Quintin joined Lone Star in 2010 and became CEO in April last year.
“The market turmoil of recent weeks in many ways is a validation of this strategy which emphasizes business fundamentals,” he said.
