Exclusive: Riverside closes Micro-Cap fund on $350m

The Ohio-based middle market firm has closed its third Micro-Cap buyout fund   

Ohio-based Riverside Company has closed its third micro-cap fund – Riverside Micro-Cap Fund III – on the $350 million hard-cap, PEI has learnt. The fund was oversubscribed, and spent only five months in market.

With up to $150 million in additional capital from the US Small Business Administration (SBA), RMCF III will effectively have total firepower of $500 million.

The fund’s managers will focus on making control buyouts of small, fast-growing US companies with up to $5 million of EBITDA, the same strategy as the previous two Micro-Cap funds. Both RMCF I and RMCF II are top-performing funds, according to Cambridge Associates benchmarks.

“We’ve seen a lot of interest in the micro-cap space,” Riverside co-CEO Stewart Kohl told PEI. “The fundraising environment remains challenging, but we’ve been able to show a proven track record in this area, and have realised significant exits in previous vintages.”

Riverside has realised 20 exits over the past 12 months to date across its various funds, and is on pace to realise at least 20 for the 2014 calendar year. The company expects to make investments in 10-15 portfolio companies, plus an additional 10-15 add-on investments this year.

“This is definitely a sellers' market. The pervasiveness of full multiples and good financing are significant, which is making it a good time to sell and a more challenging time to buy, but we are confident in our ability to find good opportunities,” Kohl said.

The RMCF fund family was launched in 2005. Since then, the team has acquired 80 companies (39 platforms, 41 add-ons) and exited 12 portfolio companies. RMCF’s model is designed with the goal of growing EBITDA both organically and through accretive add-on acquisitions. Kohl said that opportunities were available across all industries, but especially healthcare, software, and branded consumer goods.

Riverside has already started investing from Fund III. The fund is approximately 25 percent invested, Kohl says. Known investors in the fund include BMO Harris Bank, Makena Capital, Partners Capital Investments, and State of Michigan Retirement Systems.

The close of RMCF III comes on the heels of two other recent fund closings. Like RMCF III, both Riverside Capital Appreciation Fund VI (RCAF VI) and Riverside Asia-Pacific Fund II (RAF II) closed well above their targets at $1.5 billion and $235 million respectively.