Clearspring Capital Partners has secured $260 million for its third private equity fund, Clearspring Capital Partners III, earmarked for investments in mid-market companies in Canada.
Clearspring, formerly known as Callisto Capital, closed the fund at the upper end of its target earlier this month, Managing Director Joe Shlesinger told PE Hub Canada. It is the largest fund in the firm’s 14-year history, bringing total assets under management to more than $500 million.
Toronto-based Clearspring spent much of last year marketing Fund III after an initial close in late 2014.
The initial close was anchored by commitments from repeat LPs, most of them Canadian pension funds and other institutional investors, Shlesinger said.
They were later joined by a mix of institutional and high-net-worth investors, including several based in the United States. Individual LPs included a few CEOs of past and current portfolio companies.
Shlesinger believes Fund III received a warm response from LPs because of Clearspring’s success with its differentiated investment strategy.
The firm reports achieving a gross return of more than 30 percent on realizations to date. Shlesinger said exits have shown an average multiple of about three times invested capital, a result he expects to see or improve on with unrealized investments.
Fund III’s strategy is consistent with prior funds, with the firm targeting companies that typically have EBITDA of $10 million to $30 million.
Clearspring looks for opportunities in industries like healthcare, pharmacy, security and retail. It targets investments in the range of $20 million to $50 million.
In all cases, the new fund will source deals using Clearspring’s proprietary networks across Canada.
“We have a home-field advantage in the Canadian mid-market, which has an attractive competitive dynamic and is a little less frothy,” Shlesinger said. “That has allowed us to be selective about opportunities and focus on what we do best: creating market leaders.”
Fund III made its debut investment in November, acquiring a majority stake in DME Brewing Solutions, a Charlottetown, Prince Edward Island, maker of equipment for the craft brewing industry.
Led by the founder, Peter Toombs, DME is “one of a handful of regional leaders in North America,” Shlesinger said. Clearspring’s strategy is to help build the business “to the top in its space,” partly by focusing on acquisitions. DME will also selectively pursue global growth opportunities.
Clearspring will be hunting for more platform deals in the months ahead, with the aim of closing one or two per year. Shlesinger feels bullish about Clearspring’s “robust” pipeline, which he says reflects “more velocity in the market” at present, as well as “more companies nearing inflection points.”
The firm will also keep working on Fund II’s remaining investments.
They include a few high-profile names, such as branded-footwear retailer Town Shoes, which Clearspring and Alberta Investment Management Corp (AIMCo) acquired in 2012. Two years ago, DSW bought Town Shoes stakes held by AIMCo and other minority investors. It also agreed to buy Clearspring’s 50 percent interest no later than 2018.
Clearspring will look for opportunities to realize Fund II’s other companies, including Medical Pharmacies Group, a provider of pharmacy services to senior-care facilities. Shlesinger is not in a hurry: “When you grow a great business, the exit takes care of itself.”
Clearspring is led by Shlesinger and Managing Director Larry Stevenson, who have spent almost 30 years working together, beginning with their time at Bain & Co, as well as Bain Canada, which they co-founded in 1989.
Stevenson subsequently became CEO of Canadian book retailer Chapters, with Shlesinger serving as a director. Chapters was sold to Indigo in 2001.
Shlesinger says Clearspring’s portfolio has benefited from this experience, including the analytical perspective obtained at Bain: “The Bain toolkit is regularly applied to our mid-market companies to support decision-making.”
Clearspring’s investment pros include partner Josef Prosperi, formerly of Beringer Capital Partners and Ontario Teachers’ Pension Plan.
Partner Marie-Claude Boisvert, formerly of Kilmer Capital Partners, is the firm’s newest executive, joining last year to head its office in Montréal.
Photo of Joe Shlesinger and Larry Stevenson courtesy of Clearspring Capital Partners
Photo of executive crossing finish line ©iStock/Brian Jackson