Firm: Maranon Capital LP
Fund: Maranon Mezzanine Fund LP
Target: $250 million
Chicago-based Maranon Capital is hoping to hold the next close for its first mezzanine fund in the August-September timeframe, Buyouts has learned.
The shop, which launched Maranon Mezzanine Fund LP in early 2008, is targeting $250 million. It held a first close at roughly $93 million in July 2008, and has already secured another $45 million in commitments that it’s yet to close on, according to a source familiar with the situation.
Expectations for the size of the next close aren’t clear just yet, the source said, as the firm currently has roughly four to five other potential pledges in the works. Ideally the firm hopes to avoid holding a second interim close and aims to wrap the fundraising effort in a final swoop this fall.
As Buyouts reported earlier this month, the Teachers’ Retirement System of Illinois made a $25 million pledge to the fund in mid-June as part of its emerging managers program. The pool’s mix of limited partners includes other state pension plan sponsors, insurance companies and family offices, the source said.
Maranon Capital executives weren’t available for comment.
The firm was formed in 2007 by Tom Gregory and Ian Larkin, both of whom previously worked together at business development company American Capital Strategies Ltd. In total, the shop has nine investment professionals.
Maranon Capital invests in lower mid-market companies with annual EBITDA of between $5 million and $30 million and enterprise valuations of $30 million to $150 million. Sectors of interest include business services, distribution, consumer products and services, manufacturing and health care services.
The size of a typical investment varies with where the firm sits in the capital structure. Its basic parameters range from $10 million to $60 million for senior debt and $5 million to $30 million for mezzanine debt; while equity co-investments run from $2 million to $10 million.
The firm’s first investment was in June 2008 when it committed to provide $27 million in financing for the purchase of Kansas City-based information security services provider FishNet Security Inc. by Lake Capital Partners and FishNet’s management team. Maranon Capital also funded $20 million as a co-documentation agent on the $150 million recapitalization of HealthPort Inc., a provider of health care technology products, by ABRY Partners in October 2008.
The progress on the fund follows circulation among LPs earlier this year of a report produced by Maranon Capital that examines the market for mezzanine investing.
In the report, the firm said it expects a significant portion of its investments in the next two years would come from refinancing the “over leveraged and under priced loans” originated from 2005 through 2008, and argued that fundraising for mezzanine funds serving the middle market hadn’t been as robust as commonly accepted. It noted that 69 percent of the overall mezzanine capital raised in 2008 went to three mega-mezzanine funds that don’t participate in the middle market.
By Maranon Capital’s calculations, middle-market mezzanine firms raised just $2.9 billion in 2008, an increase of 15 percent from 2007’s total of $2.5 billion. The firm estimates $26 billion of additional mezzanine funds are required to support the buyout capital raised for the middle market, a figure it puts at around $100 billion. The shop also noted the capital constraints of many prominent business development companies, which in the past have provided much of the mezzanine debt for mid-market buyouts, as part of its rationale for the opportunity in the middle market.