GRAND RAPIDS — A new mezzanine fund based in Grand Rapids seeks to raise $100 million to invest in growing companies, MiBiz has learned.
Charter Growth Capital Fund LP wants to back lower middle-market companies in the Great Lakes region that need $1 million to $5 million in capital to grow, recapitalize the business, or make an acquisition. The fund will target profitable companies with annual revenues of $10 million to $50 million.
Executives at Charter Capital Partners, working through Growth Capital Management LLC, sought to create the new mezzanine fund after seeing a need within their own work at the investment banking and M&A firm, said Dale Grogan, a manager of the new fund.
“The market has spoken,” Grogan told MiBiz. “There is a demand in the market.”
Charter Growth Capital Fund aims to fill that demand with loans and equity investments at a level below where traditional mezzanine funds typically invest. Grogan expects the fund to complete four to six deals annually over four years.
To date, the fund has received commitments from investors totaling $22 million, Grogan said.
A recent federal regulatory filing indicated the fund had raised $10.5 million from 18 investors from July 1-29. Two additional institutional investors — including Grand Rapids-based Mercantile Bank — lifted commitments to $22 million, according to Grogan.
The fund has been seeking investments from high net worth individuals, banks, family offices, and institutional investors.
The mezzanine fund has already looked at nearly 75 potential deals and has one under a letter of intent. Grogan expects the deal with a Michigan-based contract medical device manufacturer will close in late August or early September.
That deal would include debt and an equity investment in the business, whose owner has held the company for 10 years and wants to take out some cash, Grogan said.
Prospects have come through referrals from banks, attorneys and accountants whose clients require capital, and other mezzanine funds that handle larger transactions, as well as from Charter’s own professional network.
As Charter Capital Partners prepared to launch the new mezzanine fund, it bulked up its management team with two additions that give the firm five senior investment professionals with a combined 120 years of experience in fund management and investment.
That included adding Mike Palm, who previously served as vice president at Driehaus Private Equity LLC in Chicago. Palm joined Charter as a director.
As well, the firm added Hector Bultynck as a managing director. Bultynck retired two years ago as a partner at Peninsula Capital Partners LLC, a Detroit-based provider of subordinate debt.
During his 20 years at Peninsula Capital Partners, Bultynck said he often saw prospects with capital needs in the $2 million to $4 million range that the firm could not serve or he was unable to refer anywhere else “because that sort of capital is not readily available.”
Most established mezzanine funds have a minimum deal size of $5 million, “if not $10 million,” Bultynck said. Finding mezzanine capital of even $4 million or $5 million “is very, very difficult to do,” he said.
“I just thought this was a perfect opportunity to raise a fund to focus on doing deals close to home in a bite size where there is a lot more demand than there is supply,” Bultynck said. “There is a lot of demand for it.”
Charter Growth Capital Fund comes to market as another mezzanine lender in Michigan starts to raise funds as well. Grow Michigan LLC, seeded seven years ago with state money, planned to begin seeking investors this summer for a second fund totaling nearly $60 million.
As MiBiz reported last month, the provider of mezzanine and subordinated debt will solicit investors for Grow Michigan II, which aims to raise $50 million to match the nearly $9.6 million equity investment from the Michigan Strategic Fund.
The Michigan Strategic Fund board in October authorized the formation of a second Grow Michigan fund for state-based companies with annual revenues of $3 million to $75 million that have strong growth potential. The fund will generally provide loans of $1 million to $3 million for three- to five-year terms, but can go up to $5 million, according to a staff memo to the Michigan Strategic Fund board for the October meeting.
Grogan sees Grow Michigan as a potential partner in funding growing companies that need capital.
“There is more than enough demand in the market than we have supply of capital — we being the finance community,” he said. “This is a very collaborative area and there’s plenty of deals and few funders. There’s no reason to compete.”
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