Crown Capital Partners seeks combined $400 mln from IPO, Fund IV

Specialty finance firm Crown Capital Partners has launched a process for raising funds via an IPO and a fourth partnership that if successful will give it unprecedented investment resources.

Last month, the Calgary-based mezzanine provider filed a prospectus for an IPO of its common shares on the Toronto Stock Exchange.

It has since priced the offering to raise $100 million in proceeds, and closer to $115 million if an over-allotment option granted to underwriters is exercised. If the maximum amount is raised, the firm is expected to net about $108 million.

Crown Capital has also begun raising a fourth institutional partnership, according to the prospectus. Crown Capital Fund IV is targeted to bring in $300 million in committed capital. The firm is shooting for $100 million in an initial close expected to occur in the third quarter.

If Crown Capital succeeds on both fronts, it may achieve a new hybrid capital pool of over $400 million. That’s more than the $350 million invested in total by the firm in the past 13 years.

Once listed, Crown Capital plans to develop its market activity beyond its well-known role as a mezzanine provider to private equity and non-sponsored deals.

Crown Capital provides customized debt and quasi-equity financing to mid-market companies. Companies are usually in growth mode or undergoing a key organizational change, such as an acquisition or a management buyout. The post-IPO firm plans to continue making these types of investments.

It also wants to expand to include direct loans with longer terms, but without equity features. Crown Capital believes the new investment product will be complementary to the traditional one, with deal opportunities coming from largely the same source.

The firm believes this enhanced menu of financing options fills an important need in Canada’s mid-market. It provides an alternative to banks and private equity firms “whose financing terms and dilutive financing structures” are “often ill-suited to meet the demands of many mid-market companies.”

Founded in 2000, Crown Capital began life as the private investment arm of Crown Life Insurance Co. In 2002, the firm’s managers bought the business from Crown Life, and began raising a series of partnerships. Its last, Crown Capital Fund III, raised about $170 million.

In its first two funds, the firm reports generating gross internal rates of return of about 20 percent and 12.4 percent, respectively, and multiples of about 1.6 times and 1.3 times.

Fund III, which is not fully realized, is currently showing a gross return of about 10.4 percent and a multiple of about 1.2 times.

Along with fundraising, Crown Capital has kept an active deal pace in recent months. In June the firm extended mezzanine financing to Corrosion Service, a provider of corrosion protection and engineering solutions. The deal supports the company’s sale to management.

And last December it invested US$20 million in CRH Medical, a specialist in treatments for gastrointestinal diseases that was at the time completing an acquisition.

Crown Capital is led by President and CEO Chris Johnson and Executive Vice-President Brent Hughes. It has a second office in Toronto.

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