The Boca Raton, Fla.-based private equity firm had been expected to come to market for its fourth pool in 2012. Brockway Moran told investors a year ago that it did not plan to launch a new fund, a source tells peHUB. The PE firm has raised three funds: A debut fund in 1998 collected $200 million; Fund II closed at $410 million in 2001; and Fund III collected $700 million in 2006. Nearly 75 percent of Fund III has been called, the source says.
Brockway Moran, which invested in Gold’s Gym and Cosmetic Essence, was known as a hot firm ten years ago, a placement agent says. “The first two funds were really strong, and then the last fund fell off a cliff.”
Fund I produced a net IRR of 21.3% as of March 31, while the second pool generated an 18.7% net IRR, sources say. We couldn’t find an IRR for the third fund.
Is Brockway Moran a zombie? More than $116 billion of assets are trapped in these so-called funds that lie dormant but still rake in fees from investors, Reuters recently reported. By one definition Zombies are poor-performing funds that have been retained beyond their planned life span and whose managers have little hope of raising more money. Some at Brockway Moran do not think they fit this description. While all of Fund I has been realized, and nearly all of Fund II, most of Brockway Moran’s Fund III has not, the source says. “There is a lot of newness [in Fund III],” the person says. “It’s not done yet.”
A second placement agent says Brockway Moran may just need to be restructured. The firm also has options. It could use a SPAC to exit its portfolio companies. Or, the firm could raise money deal-by-deal if it wants to invest in new portfolio companies. Brockway Moran, however, doesn’t plan to do either, the source says. Brockway Moran “is a definite zombie,” the first placement source says.
Brockway Moran’s fundraising issues were not unexpected. In January 2012, Michael Moran, a co-founder, announced he would be transitioning out of the firm.
Fund III has invested in nine portfolio companies, six of which were acquired in the last two-and-a-half years, the source says. Portfolio companies include Turning Technologies, DayMen Groupl, the Crisis Prevention Institute and MD Now Medical Centers. It also backed the Country Vitner; now called Vitner Group, the company has done 4 add-on acquisitions in the last six months.
One bump in Fund III was Brockway Moran’s investment in Pacific Crane Maintenance Co., which provides on-dock equipment maintenance and repair services, in 2007. Brockway Moran “disposed” of its equity in PCNC and the deal did not return capital, the source says. Another problem occurred when Brockway Moran invested in Latham International, a maker of swimming pool accessories, in 2005. Four years later, in 2009, the company filed for chapter 11 bankruptcy protection. Latham, however, was a Fund II transaction.
Some deals have done well. Brockway Moran in 2011 sold MW Industries, a Fund III investment, to Genstar Capital. “MW was a successful deal,” the source says.
The firm also scored a major exit when it sold Air Medical Group to Bain Capital for $1 billion in 2010. “It was a very good deal,” the source says. Air Medical came from Brockway Moran’s second pool. As part of Bain Capital’s buy of Air Medical, Brockway Moran’s Fund III purchased a minority stake in the company, the source says.
There is still lots of activity brewing at Brockway Moran, the source says. Two of the firm’s portfolio companies, including Air Medical, paid out dividend recaps this year. Brockway Moran plans to continue building out its portfolio companies, the person says. “Just because a firm isn’t raising another fund doesn’t mean they’re not active,” the source says.
Meantime, several former Brockway Moran executives have joined Blue Sea Capital, a Palm Beach, Fla.-based PE firm that targets the lower middle market. James Davis and Richard Wandoff, Blue Sea partners, are former Brockway Moran partners, according to the firm’s web site. Mark Silk, also a Blue Sea partner, is the former president and CEO of Tri-Star Electronics and Integrated Aerospace, which were both Brockway Moran portfolio companies.
All of Blue Sea’s six executives have ties to Brockway Moran. (Nathan Dapeer, a Brockway Moran associate, is joining Blue Sea as a senior associate.) Notably, Peter Brockway is listed as a senior advisor at Blue Sea, the firm’s web site says. Brockway isn’t leaving the PE firm he cofounded in 1998 and will continue in both roles at both PE firms, I’m told.
Officials for Brockway Moran declined comment.
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