Ironwood closes mezz fund on $307m

The firm raised $135m more than its predecessor fund by expanding its LP base beyond banks and insurance companies to include pension funds, endowments and fund of funds.

Connecticut-based mid-market firm Ironwood Capital has closed its third mezzanine fund on $307 million.

Ironwood came to market with Fund III in late 2011 targeting $300 million with a $325 million hard-cap. Fund III will continue the firm’s strategy of investing between $7 million and $20 million in companies in a variety of sectors with annual revenues of $20 million or more. While Ironwood invests primarily in mezzanine debt, the firm also makes small equity investments in many of its portfolio companies.

“We have the ability to deploy up to 20 percent of the total capital in the form of equity,” president of Ironwood Marc Reich told Private Equity International. 

Ironwood did not use a placement agent for Fund III, which attracted commitments from roughly two dozen institutional investors, including the New Hampshire Retirement System. The firm has deployed roughly $50 million from the fund in five investments.

Ironwood’s previous fund closed on $172 million in 2007. While Fund I and II received commitments from banks and insurance companies, the firm expanded its LPs base with Fund III, attracting commitments from public and corporate pension funds, endowments and fund of funds. 

“With our first fund we were heavily weighted towards New England and the mid-Atlantic states,” Reich said. “In the second fund we doubled the capital and started doing more in the mid-west and more in the Southeast.”

One of the reasons the firm targets the Southeast US has to do with the proportionally low amount of private equity capital that goes into the region, according to Reich.

“Roughly 25 percent of our GDP comes out of the Southeast and about 8 percent of private equity goes into the Southeast.”

In the fourth quarter of 2012, the firm opened an office in Birmingham, Alabama staffed with one investment professional.

Ironwood was formed as a subsidiary of Aetna in 1986 and rebranded under its current name in 1991 when it was acquired from the insurance company. The firm has invested more than $400 million in roughly 90 US-based mid-market companies.