Credit-focused Victory Park Capital is seizing a unique opportunity in the US lower mid-market, investing both debt and equity in businesses too small to attract capital from large debt providers.
Last week, the firm made a $75 million debt investment in online financing company Kabbage alongside venture capital firm Thomvest Ventures, an existing investor in the business. Victory Park is investing from its $480 million VPC II Fund, which makes credit and equity investments. VPC II targets primarily distressed companies in the lower mid-market but also will back healthy companies.
“The sorts of deals we’re looking for fall below the radar of the larger alternative providers of debt,” Victory Park partner and co-founder Brendan Carroll told Private Equity International. “We would never buy just equity, but if there’s a situation where we think we can generate additional return that’s attractive, we’re willing to look at partnering in the equity.”
In February, the firm invested up to $100 million in Buccaneer Energy, which focuses on developing oil and gas assets in Alaska.
“We’re still seeing businesses with less than $50 million of EBITDA that need to grow, restructure [or] have some sort of special scenario or issue to deal with,” Carroll said.
Victory Park is also investing its debut SBIC fund, which invests debt and equity alongside private equity funds of $250 million or less. Victory Park declined to disclose the size of its SBIC fund, though a source with knowledge of the situation said the firm collected $75 million from limited partners and has access to an additional $150 million of low-interest rate debt from the US Small Business Administration.
Victory Park made its debut investment from its SBIC fund last November, investing both debt and equity in O.Keller Tool Engineering Company alongside Chicago-based private equity firm KR Abraham and Company.
“For the most part, banks aren’t being aggressive in looking for that sort of capital,” Carroll said. “The reason we did this fund in the first place is because in our distressed and special situation strategies we were seeing deal flow that was SBIC eligible but we just didn’t have the appropriate product to take advantage of it.”
Victory Park invests in a variety of sectors, including industrials, services and consumer products, but does not target real estate, technology or early-stage biotech investments.
The firm was founded in 2008 by Carroll, Richard Levy, Matthew Ray and David Valentine, all of whom were members of multi-strategy investment firm Magnetar Capital.