Private equity fund managers tend to form larger pools of capital with each fund they raise. So there are times when heading in the opposite direction may make sense as well.
A recent example is Archer Capital, an Australian private equity firm based in Sydney’s Walsh Bay. The firm’s latest vehicle, Archer Capital Growth Fund I, closed in June on A$200 million ($146 million) – significantly below the amount the firm garnered the last time it came to market.
While Archer III continues to make investments, the new vehicle will take the firm into new territory and away from the mid-market space populated by local rivals such as Pacific Equity Partners, CHAMP Private Equity and Ironbridge Capital.
Competition for medium- to large-size LBOs in Australia has been on the rise, as regional and international investors such as The Carlyle Group and KKR have entered the market recently.
“A smaller fund makes sense because there is less competition for smaller deals,” said Andrew Rothery, Archer’s founding partner. As everyone wants to get bigger, there will be good investment opportunities in small buyouts or growth capital. We will stay focused on buyouts of businesses with enterprise values ranging from A$20 million to A$80 million.”
Rothery said the new fund will target divisions of publicly listed companies as well as family-owned businesses, especially those founded by immigrants after World War II that are now facing generational management changes.
The fund is expected to make equity investments between A$10 million and A$25 million, compared to the A$30 million to A$90 million investment in enterprises worth up to A$500 million sought by Archer III.
Because Archer Capital Growth Fund will be tapping different target companies compared to Archer III, a separate dedicated team with two partners and two investment professionals will be investing the new fund. In total, Archer currently has eight partners and seven more junior investment professionals.
This article first appeared in the July issue of Private Equity International Asia, the new monthly magazine for private equity in Asia, Australia and the Middle East.