Direct Capital launches NZ$250m fund

The New Zealand-focused private equity firm has started fundraising for its fourth fund, which though almost twice the size of its predecessor is targeting NZ$100m less than originally planned.

Direct Capital has begun marketing Direct Capital IV. It hopes to raise NZ$250 million ($132 million) to make growth capital, buyout and pre-IPO investments in companies with enterprise values of between NZ$30 million and NZ$150 million. It will typically write equity cheques of between NZ$10 million and NZ$45 million.

The firm had earlier said that it would look to raise NZ$350 million, but investment director Gavin Lonergan said that the firm is targeting NZ$250 million, but will raise more capital if investors want to subscribe to it.

Fund IV is focused on investments in unlisted mid-sized companies in New Zealand. It will seek to provide capital to companies that want to expand into Australia. The fund will also invest in Australian companies looking to make an entry into New Zealand, Lonergan said.

  Ross George

New Zealand's private market is much larger than the listed market and more representative of the economy, according to Ross George, a managing director at the firm. “In the mid-market sector that we invest in, there are an estimated 1,500 companies with annual revenues exceeding $25 million. Each of those companies will have growth or succession plans requiring capital,” he said in a statement.

The demographics of the country are such that there are a large number of businesses that will over the next five years go through changes in business ownership as they are owned by people over the age of 50, providing an opportunity for succession-related buyouts, Lonergan said. He added that the fund will invest across all sectors with the exception of property and mining.

The firm is currently investing out of Direct Capital Partners III, a NZ$130 million fund, which is about 75 percent deployed. The firm said in September that the remainder will be used to make more investment and for funding add-on acquisitions.

Established in 1994, Direct Capital has invested more than NZ$375 million in 60 companies. Its most recent investment was the acquisition of a 45 percent stake in New Zealand King Salmon Company in partnership with the company management, for about NZ$40 million.