You closed your debut fund of $700 million last September. How was the fundraising process being a first time fund, albeit with a significant track record in the industry?
We were extremely appreciative of the overwhelming response to our inaugural fund. The fund was oversubscribed and greatly exceeded its initial target of $400 million.
Why do you think your strategy of making both debt and equity investments is well suited for the current market, and which represents the lion’s share of your activity, debt or equity?
While the majority of our transactions are control deals, the historic mix of invested capital tends to be closer to 50 percent debt and 50 percent equity. We are typically involved in transactions where speed, certainty of close and the ability to navigate complex situations provides real value to the sellers. Since we have the capability to invest in debt and equity, we can typically make an offer without any financing contingencies. When buying out an entire capital structure at close, we can move quickly and provide greater certainty to the sellers. For example, our recent acquisition of Hunter’s Specialties was completed in less than 30 days, start to finish, and we purchased all the debt and equity at close.
Hunter’s Specialties marked your third acquisition in the past four weeks. What do these three businesses have in common and where are you seeing the most attractive opportunities currently?
We are seeing new opportunities across a broad set of industries. However, we have seen a large number of attractive deals in the consumer products, manufacturing and industrial, and business services sectors lately. We believe each of the three businesses we recently acquired have the potential for significant revenue growth and profit improvement. While Koroseal Interior Products, ProFusion Industries, and Hunter’s Specialties are in very different end markets, they are all industry leaders with strong competitive positions, unique product portfolios and long-standing customer relationships. We believe that each of these businesses, in addition to our recent purchases of Atlas Paper Mills and Natural American Foods, are excellent independent growth platforms, through both new product development and strategic add-on acquisitions.
What are the main challenges you face looking at the last three quarters of 2014?
We expect the greatest challenge for the remainder of 2014 to be finding attractive values in an increasingly optimistic market. The cost and availability of debt feels much more like 2007 than 2009. Strategic acquirers are active again and private equity funds have significant amounts of dry powder. We would expect transaction multiples and leverage levels to continue on an upward trajectory for a while. However, we are still seeing some great opportunities, including a couple deals we hope to close later this year.