GRAND RAPIDS — Closing fundraising for a $50 million private equity fund gives Auxo Investment Partners a year-long breather before preparing to raise capital for a second fund.
Presuming Grand Rapids-based Auxo Investment Partners maintains its present pace of investments, Managing Partner Jeff Helminski expects the firm to return to fundraising mode as soon as a year from now.
“Mid to second half of ’19, we’ll start fund two if we can continue on this pace,” Helminski said.
Auxo Investment Partners closed this month on Auxo Growth Holdings I after netting $50 million from family offices and institutional investors.
Investors came from “all over” the U.S., from West Michigan to the east and west coasts, and markets in between including Detroit, Pittsburgh, Cleveland, Indianapolis, Chicago, St. Louis, and Dallas.
The family offices that invested in the Auxo Growth Holdings I are involved in the sectors and industries in which the fund invests, or have backgrounds in building private equity funds, Helminski said. That gives the fund added expertise and insight both internally and in growing the companies it acquires.
“We strategically built out a network,” said Helminski, who formed Auxo Investment in 2016 with partners Jack Kolodny and Fred Tedori.
“We wanted people that could be strategic in addition to the capital they’re entrusting us with,” he said. “When we think about the kinds of companies we invest in, and the places where these kinds of companies tend to be, we wanted an investment base that reflected that. They’re people who understand these industries. They can be helpful with customer connections, diligence, connecting with industry experts, and they are people that are in the markets where the kinds of businesses (Auxo invests in) exist and are located.”
Auxo Investment Partners invests in North America-based companies in manufacturing, industrial, value-added distribution and the business service sectors that have annual earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.5 million to $15 million. The private equity firm seeks to acquire companies whose owners want to transition to retirement over time, may lack a next generation in the family to take over the business, or need capital to grow.
The fund will hold the companies for a period of five to seven years or more. Investors who put money into the fund also invest separately in acquisition targets alongside Auxo.
When the private equity firm begins raising capital for a second and presumably larger fund, Helminski hopes to return to investors in Fund I.
“If we do a good job, we give them a good return and a good experience through that process, we hope they will continue to support us with additional capital as we raise additional funds,” he said.
Auxo Investment Partners already has invested $30 million to acquire three die manufacturers, plus New Orleans, La.-based M/G Transport Services, a barge company.
The fund has two more deals in process that should close within a couple of months and push the total capital deployed to $65 million, plus “some interesting opportunities in the pipeline,” Helminski said.
Across the U.S., activity in the middle market that Auxo targets has been strong this year.
Pitchbook counts 1,358 deals in the middle market through the first half of 2018, a 16-percent increase over the first six months of 2017, for a collective investment of $178.5 billion.
“The dealmaking environment remains healthy,” according to Pitchbook’s midyear private equity report on the middle market. The company expects volumes for 2018 to match 2017’s record of 2,589 deals for $346.3 billion.
As Auxo Investment Partners scouts for new prospects, Helminski reports strong deal flow and “a lot of competition” for acquisitions in the lower end of the middle market.
“In our world, it is without a doubt more competitive than I’ve ever seen it, but in spite of that we’re finding really good opportunities and people are selecting us as their successor, even when they have higher-priced offers from other people,” he said.
Helminski credits Auxo’s deal success to sellers who prefer the fund’s strategy of holding companies for longer terms, its willingness to partner with sellers who are transitioning toward retirement within a few years and want to stay with the business in the interim, and investors in the fund “who can really help these companies grow.”
Auxo Investment Partners closed fundraising for Auxo Growth Holdings I at the target $50 million after the fund was oversubscribed.
While raising capital is “always difficult,” Auxo Investment Partners found success as investors looked for alternative investments, Helminski said.
“There’s a lot of capital looking for homes outside of the public markets right now. Times are good, the economy’s strong and the public markets have had a run up in the last number of years, and so people only want a certain allocation into the public markets,” Helminski said. “When they get more value there, they’re looking for other places, so there’s a lot of capital looking for good opportunities.”
Nationally, the fundraising environment for middle-market private equity has remained strong this year as well, according to Pitchbook.
Seventy-two funds raised $61 billion through the first half of 2018, and Pitchbook expects “fundraising figures to remain solid through the year.”
First-time middle-market funds “have seen stable fundraising activity” during 2008, with eight funds raising $3 billion, according to Pitchbook.