Private Eye: Delos splits fast-growing flea-market company between first and second funds

How do you continue fueling a rapidly expanding platform company when the fund that owns it has exhausted its capital? If you’re New York-based Delos Capital, you split the opportunity between your first two funds.

Between closed and hard-circled capital, Delos Capital is believed to be about halfway to the $300 million target on its second fund.

The firm closed its maiden fund in 2014 at $250 million, shortly before it acquired its first two companies in its United Flea Markets platform: Mile High Flea Market in Denver and Flamingo Island Flea Market in Bonita Springs, Florida.

The Denver-based platform quickly became a favorite of Delos Capital, according to Sanjay Sanghoee, chief operating officer, chief financial officer and chief compliance officer.

Surprising scale

Among the reasons are the company’s multiple revenue streams. These include rental income from vendors (the flea markets own the land), admission fees from shoppers, parking fees and concessions.

Another is the surprising scale. Mile High Flea Market, the biggest of the first eight flea markets in the platform, covers 80 acres, hosts 2,000 vendors and attracts a million visitors per year. A typical family might come for four to five hours on a Sunday and spend $200 between visiting the farmer’s market for groceries, entertaining the children, and shopping for clothes and other goods, according to Michael Rakiter, a partner at Delos Capital who’s working to build the platform along with Partner Robert Scaramella.

For many customers it’s also a weekly opportunity to socialize with friends while enjoying live bands, petting zoos, kiddie rides, and other entertainment. “It’s a great experience,” said Rakiter. “You can’t really get that from an Amazon or Walmart.”

It’s not a particularly fast-growing market: Rakiter put revenue growth for United Flea Markets in the low single digits. But it’s recession-resistant and highly profitable, with margins on the vendor rental income in the 40 percent to 50 percent range and overall profit margins, including concessions, in the 30 percent to 50 percent range. According to Delos Capital Co-Founder Matthew Constantino, the company generates EBITDA well into the double digits.

Delos Capital ran out of money on Fund I before running out of the desire to keep building United Flea Markets. According to Sanghoee, United Flea Markets is organized as a holding company, with the first eight flea-market companies held by Fund I and future ones earmarked for Fund II.

The firm plans to continue adding flea markets at a pace of one per quarter for the foreseeable future, said Constantino, who sizes the actionable target market at some 1,200 flea markets in the United States.

Said Constantino in a prepared quote: “As we grow this promising Delos platform, we continue to explore a variety of structures, including co-investments, to unlock the potential and value of the flea markets business.”

Delos’s holdings

United Flea Markets is one of nine portfolio companies listed on the Delos Capital website. Others include ICP, an Andover, Massachusetts, provider of coatings and adhesives that the firm formed in late 2015; and Exela, an Irving, Texas, provider of transaction-processing software that the firm acquired in early 2014.

Delos Capital was founded in 2013 by Constantino, Sanghoee and a third principal who has since left the company. Before co-founding Delos Capital, Constantino was managing partner and head of the Americas business at Vision Capital. Before that he spent seven years at Apollo Management, where he was head of private investments for the firm’s distressed debt and special situations fund.

Other platform companies in Delos Capital’s second fund include Sage Metals, a New Delhi manufacturer of specialty metal components; and US Fitness, a McLean, Virginia, fitness-club company with outlets in the mid-Atlantic and southeastern United States.

Its latest additions, announced this summer, are HOP Energy, a White Plains, New York, distributor of heating oil, propane and related products, and Edgard Construction Materials, a St. John the Baptist Parish, Louisiana, provider of building materials.

Action Item: Learn more about Delos Capital from its Form ADV