Graycliff seals strong exit amid fundraise

The lower-mid market firm has generated a 40% IRR on its equity investment in Information Storage Consolidation Company as it seeks $75m for its Graycliff Mezzanine II fund.

Lower mid-market investor Graycliff Partners has sold its majority stake in storage business Information Storage Consolidation Company to NYSE-listed storage company Iron Mountain.

Financial terms of the transaction were not disclosed, but a source with knowledge of the deal said the equity investment generates more than a 40 percent internal rate of return for Graycliff. The firm invested in Information Storage in October 2008, initially investing mezzanine debt in the company before investing equity and acquiring a control stake. Information Storage is a physical record storage business that provides document imaging and other storage services.

“The thesis here was not about taking costs out of the business and implementing lean, this was more of a consolidation of regional players to form a national player that would then be a target for the larger consolidator like Iron Mountain,” Graycliff managing director Andrew Trigg told Private Equity International, adding that firm received significant interest from both strategic and financial buyers for the business. “In this environment we’re seeing financial buyers step up and really get aggressive on valuations, but not to the level of the strategic side.”

The exit comes as Graycliff targets $75 million for its Graycliff Mezzanine II fund, which is licensed by the US Small Business Administration and will receive an additional $150 million of low-interest rate debt from the SBA, bringing the total amount to $225 million.

Graycliff declined to comment on fundraising, though a source familiar with the situation said the firm is nearing its target for Fund II. In addition to its mezzanine fund, Graycliff manages a $300 million US buyout fund that closed in 2007 and a $200 million Latin American buyout fund that closed in 2009.

Graycliff targets investments between $5 million and $25 million in businesses with revenues of at least $10 million. The firm provides equity and mezzanine financing for buyouts, expansion capital, recapitalisations and real estate investments.

Graycliff spun out of HSBC Capital in late 2011. The Graycliff team has invested more than $1 billion across roughly 80 transactions since 1991, operating as HSBC Capital. The firm is comprised of 16 investment professionals, 13 of which are based in the firm’s New York headquarters, with the remaining three in Sao Paulo, Brazil.