Accretive Exit Capital Partners has closed its debut secondary fund on $125 million (€74 million), raised solely from HarbourVest Partners, while simultaneously acquiring interests in five companies from Evercore Capital Partners II.
Accretive purchased stakes in five assets owned by Evercore Capital: oil and gas exploration company Davis Petroleum; radiological imaging company Diagnostic Imaging Group; measurement equipment distributer Test Equity; waste transporter Mr. Bult’s and tax consultant alliantgroup.
The firm holds a 20 percent stake in each of four companies and an 8 percent to 10 percent stake in the fifth, Accretive managing director Theodore Tedeschi told PEO. Together with Evercore, a controlling stake is held in four of the five companies.
“In this case, the best liquidity option [for Evercore] was to sell to someone like us and work with us on a less traditional exit or use our contacts and knowledge base to have a liquidity event,” said Tedeschi.
Based in New York and with offices in Los Angeles, San Francisco, London and Mexico, Evercore consists of an advisory business, as well as an institutional investor asset management business and Evercore Capital Partners, a middle market-focused private equity group.
There were four primary reasons Evercore agreed to the transaction, which was proposed by Accretive, said a source familiar with the transaction: solid valuations, retention of control, avoidance of debt structure refinancing and the opportunity to provide some liquidity to limited partners.
“In terms of avoiding the inefficiency of refinancing debt structures, avoiding the distraction to the companies and management teams of a sale process, this transaction is uniquely appropriate in the current credit and economic environment,” said the source.
“We’re not buy and hold,” Tedeschi said, noting that the fund’s life is five years. Accretive acquires assets with a particular exit strategy planned. “If [the seller’s] not on board for what the strategy is, we’re not on board for doing the transaction.”
The West Palm Beach, Florida-based secondary direct investment firm was formed approximately a year ago when the four-person team began reviewing acquisition targets and speaking with potential limited partners.
Two of the firm’s managing directors, Tedeschi and Ed Wang, worked together at Accretive’s predecessor company, Asymmetry Capital. Asymmetry executed a distressed general partner takeover of Zero Stage Capital, a Boston-based venture capital firm, from 2003 through 2007.
Wang and Tedeschi are joined at Accretive by State of Rhode Island pension fund trustee Andrew Reilly and Richard Sullivan, former chief executive of digital recording company Applied Digital Solutions.
Accretive targets performing assets owned by vintage 1999 to 2003 buyout funds with low leverage and good growth potential that can be exited within 24 to 36 months.
Specific requirements for investment include less than 2.5 times net debt to EBITDA ratio, a minimum of $5 million in free cash flow and four consecutive quarters of double digit earnings growth.
HarbourVest was one of three large firms interested in funding the transaction. Accretive selected HarbourVest because “they were willing and able to do the transaction quickly and speed was a requirement because [Evercore] wanted it done by the end of June so it could be reported in the second quarter”, said Tedeschi.
Evercore sought efficiency in the transaction but “there was nothing magical about the second quarter”, said the source.
HarbourVest declined to comment.
Accretive’s remaining $15 million of dry power will likely be reserved for follow-ons as opposed to new transactions, Tedeschi said.
It is currently in discussions with additional sellers and is looking to raise a second fund of $300 million to $400 million.