NewSpring Capital is the latest firm to jump into a growing mezzanine market, holding a final close on its second mezzanine debt fund, which exceeded its target and landed on a $200 million hard-cap.
NewSpring Mezzanine Capital II will invest between $4 million and $10 million of mezzanine capital in small to mid-sized companies, with a focus on the business services, healthcare, information technology and specialty manufacturing sectors.
The firm launched the fund last year and held a first close in October, 2010. NewSpring has already made five investments with the fund, said general partner Steve Hobman, including investments in information solutions provider Emtec and Quantum Global Technologies, a tool and parts cleaning service for the semiconductor manufacturing industry.
Mezzanine strategies have become increasingly popular as financing for private equity deals has dried up, particularly on the lower end of the market. Several firms, including Kohlberg Kravis Roberts and The Carlyle Group, have raised mezzanine-specific funds to capitalise on investor demand for the asset class, which boasts a return profile in the high teens amid weak credit markets and lower risk than straight equity investments
NewSpring’s limited partners included insurance companies, pension systems, endowments, banks and family offices, Hobman said. A majority of the fund’s LPs were new investors.
“We found pretty positive reception this go-around compared to when we raised our last fund in 2004 and 2005,” Hobman said, adding that market conditions have made the strategy especially appealing. “The leverage levels have inched back up a bit, but not to the crazy levels [seen before the economic downturn].”
NewSpring manages over $700 million, with a focus on investments in the Mid-Atlantic region. In addition to its mezzanine business, the firm also commits equity capital to growth and expansion investments, with a separate strategy for the healthcare sector.