NZ’s Direct Capital closes oversubscribed fund on $270m

The Auckland-based firm beat its target for Direct Capital V which will invest in mid-sized businesses in New Zealand and Australia.

New Zealand firm Direct Capital raised NZ$375 million ($270 million; €254 million) for its fifth mid-market fund against an initial target of NZ$325 million.

The firm took only two months to raise capital for Direct Capital V – it launched the vehicle in November last year and held a ‘one and done’ in mid-December.

Gavin Lonergan, a director with Direct Capital told Private Equity International: “We were oversubscribed and indeed we could have raised significantly more capital from the local market but we were happy to close the fund at NZ$375 million.”

The fund saw a high re-up rate from Direct Capital’s existing investors. Although Lonergen did not name its limited partners, PEI data indicated that the New Zealand Superannuation Fund, the Government Superannuation Fund Authority, and Wellington-based insurance company The Accident Compensation Corporation were investors in the firm’s previous funds. The firm’s investor base also includes community trusts, church groups and Maori trusts, it said on its website.

The firm will use capital from Direct Capital V, the firm’s largest vehicle to date, to acquire mid-market companies or companies that have annual revenues of between NZ$50 million to NZ$350 million in New Zealand and Australia. Its predecessor, Direct Capital IV, closed on NZ$325 million in 2010 and currently has five investments in its portfolio including specialist technology provider Hiway Group and engineering services company Energyworks.

Lonergan said that the investment mandate for Fund V is similar to earlier funds, whereby it will target between 10 to 15 companies, investing in both minority and majority positions.

“New Zealand is a relatively small market so it’s difficult for funds to specialise in particular sectors, our focus tends to be more on the types of situations we’ll invest into, which are mainly growth and succession opportunities across all industries,” Lonergan pointed out.

Although the firm does not invest in direct property or mining, in over 23 years its portfolio spans food exports, forestry services, pharmaceuticals, and wool scourer servicing.

“We looking to invest through cycles – the current market is buoyant and the economy performing well at 3.5 percent per annum. The quality of opportunities we are looking at is very good, and there’s certainly more activity than 12 to 18 months ago,” Lonergan said.

Direct Capital, founded in 1994, manages approximately NZ$1.2 billion of assets.