Limited partners' interest in the lower mid-market is still strong, as fundraising for the recent Angeles Equity Partners' debut fund illustrates.
The Los Angeles-based firm raised $360 million for its first fund, Angeles Equity Partners I, exceeding its $300 million target, it said on Monday.
“LPs were very responsive and our first fund was oversubscribed,” said Jordan Katz, co-founder and managing partner of Angeles Equity Partners. “LPs like firms focusing on value and generating return through operating transformation, as opposed to financial engineering.”
He added that the lower mid-market is an attractive place to invest, thanks to lower valuations, fewer strategic players and greater opportunities to build companies. “That really resonated with our investors,” he said.
A source familiar with the matter said the firm increased the fund's hard-cap to $360 million from $350 million and that there was demand for up to $400 million. “Multiple investors didn't receive their desired allocation and some potential investors didn't receive any allocations,” that person added.
Katz noted that the closing of the firm's first two acquisitions in the first part of last year strengthened the fundraising process, which was conducted by Moelis & Company and GCA Advisors. “At some point it was clear some investors were looking for some proof of concept,” he said.
In February, it purchased Applied Acoustics International, a carve-out in the automotive space, and in April it bought ERP Power, a maker of electronics for LED lighting, which was a proprietary deal. The money for both deals came from the first closing.
Katz and Timothy Meyer, co-founder and managing partner of Angeles Equity Partners, launched the firm in April 2014 and spent about six months building its team and back office and refining its strategy. The firm launched fundraising in October 2014 and held a first close roughly a year later on $90 million.
The source familiar with the fundraising said that investors included a dozen former company executives, as well as local and state pension funds, which represented about 25 percent of total LPs. Endowments and foundations represented about 15 percent of LPs.
“There's an abundance of capital out there but it comes with strings attached,” said Meyer. “Our focus was to build a strategic LP base.”
Meyer previously worked at the Gores Group for eight years, most recently as managing director. Katz was also most recently a managing director at the Gores Group, where he spent more than 11 years.