- Firm: Aurora Capital
- Year Founded: 1991
- Investment Strategy: Middle market private equity buyouts; debt and equity investing for Aurora Resurgence
- Key Executives: Gerry Parsky, John Mapes, Matt Laycock, Josh Klinefelter, Michael Marino, Steve Smith, Sean Ozbolt
- Office Location: Los Angeles
- Assets under management: $2 bln
- Fundraising status: Currently in the market with Fund V, according to market sources; firm declines to comment
- Number of active portfolio companies: 22
- Web Address: http://www.auroracap.com
Aurora Capital founder and Chairman Gerry Parsky sees opportunity for the middle market in credit as well as longer hold periods for portfolio companies in the face of a challenging deal environment.
Not thrilled with rich purchase-price multiples for traditional buyouts nowadays, Parsky preaches patience.
“You need to be very cautious about the prices being required to buy businesses today, especially in the industrial space, where the slowdown in the economy has already been felt,” he said in an interview with Buyouts in late October. “Buying companies at incrementally higher multiples creates risk. You need to be cautious.”
Upbeat about credit
He’s more upbeat about prospects for credit investments. The firm runs the Aurora Resurgence Fund series, which invests in equity and debt in middle-market companies. Parsky declined to comment on any specific investment activities by the firm, but said the debt marketplace offers some promising returns.
“The mezzanine or junior capital space is something that I’m particularly interested in because it offers an opportunity to create yield for investors that they can’t achieve in fixed income,” Parsky said. “If you are careful, you can receive a good ‘current pay’ return and also buy some equity at the same time. In other words, you participate in the upside but have the downside better protected as well.”
On another front, holding companies longer than the three-to-five year cycle in a traditional PE fund also appeals to Parsky.
As an example, he said the Pritzker family built up Marmon Group, an industrial holding company that owned companies for the long term, and ultimately sold it to Berkshire Hathaway, which also has a long-term horizon.
“There’s room in the middle market for what I call long-term capital: create a program to buy middle-market companies and not be compelled to sell them at all,” Parsky said.
Prior to founding Los Angeles-based Aurora Capital in 1991, Parsky served as assistant secretary of the treasury for international affairs from 1974-1977 under Gerald Ford. His lengthy resume includes service as a member and chairman of the University of California Board of Regents from 1996 to 2008.
Through the lens of his experience in both the public and private sectors, Parsky has been focusing his attention on the potential harms of frothy deal prices.
“The problem right now is a combination of too much debt available cheaply and money being poured into this category of investing where people feel pressure to put the money out. That creates a bubble that can result in a lot more risk than people think.”
Focus on operating expertise
Parsky credits the firm’s operating partners with boosting its success by working closely with the CEOs of portfolio companies, but not in an obtrusive way.
Larry Bossidy, former CEO of Honeywell and a member of Aurora’s board, excels at this, he said.
Bossidy “has helped us recruit executives to our program, and he would take it upon himself to call our CEOs about once a month,” Parsky said. “Once they knew that he understood the distinction between being a CEO and a non-executive chairman, they welcomed it. It’s been a tremendous help.”
Along with Bossidy, the firm’s advisory board includes William Harrison, former CEO of JP Morgan Chase, and John Myers, former CEO of GE Asset Management.
The firm lists 22 portfolio companies on its website including 10 in its private equity funds and 12 in its two Resurgence funds. The names include Dubois Chemicals, Industrial Container Services and Zywave.
Aurora Capital’s vintage 2004 Aurora Equity Partners III fund generated an IRR of 15.7 percent and an investment multiple of 1.7x as of March 31, 2016, for State of Rhode Island Investment Commission.
The firm’s vintage 2007 Aurora Resurgence Fund LP rang up an IRR of 17.6 percent and an investment multiple of 1.8x as of December 31, 2015, for San Bernardino County Employees’ Retirement Association, data from the pension system shows.
On the fundraising front, Aurora has been in the market for Fund V, which reached $650 million in commitments toward an $800 million target, according to market sources cited by Buyouts in February. Parsky declined to comment on fundraising.
Action Item: Contact Aurora Capital, http://www.auroracap.com/private-equity/contact.php
Photo of Gerry Parsky courtesy of the firm.