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New Jersey delays pledge to Roark’s fifth fund

  • Roark raising sidecar vehicle for co-investments
  • Co-investors would get exposure to Buffalo Wild Wings deal
  • New Jersey tables commitment to flagship to explore opportunity

New Jersey’s state pension system delayed a recommended commitment to Roark Capital Group’s new fund as it explores a potential co-investment opportunity with the firm.

New Jersey was set to make a commitment to Roark Capital Partners V, which is targeting up to $5 billion.

The system’s investment council planned to review the commitment at its meeting Nov. 29. But the investment, which was included on an earlier version of the meeting agenda, was not included on a revised version.

Willem Rijksen, a spokesman for New Jersey’s treasurer, said the system does not comment on individual investments.

New Jersey committed $100 million to Roark’s third fund in 2012.

Sources said the delay involved Roark’s Nov. 28 announced acquisition of Buffalo Wild Wings Inc, a deal valued at $2.9 billion. News of Roark’s offer leaked around Nov. 14, according to a CNBC report.

New Jersey is exploring potential exposure to the deal through a co-investment sidecar fund for which Roark is targeting $2 billion, according to the sources and regulatory filings. Investment staff wanted to further study the transaction before committing to Roark funds, the sources said.

One separate source said the council tabled the commitment until January.

The delayed commitment to Roark comes amid sexual-assault allegations involving the firm’s Massage Envy portfolio company. Buzzfeed reported Nov. 26 that more than 180 women alleged sexual assault by massage therapists at Massage Envy locations across the country. On Wednesday, Illinois Attorney General Lisa Madigan subpoenaed the company as part of an investigation into its handling of the complaints, the Chicago Tribune reported.

Massage Envy issued a statement that has run in several media publications:

“Each of these incidents is heartbreaking for us and for the franchisees that operate Massage Envy locations, and we will never stop looking for ways to help our franchisees provide a safe environment at Massage Envy franchise locations.

“The [Buzzfeed] article references 180 reported incidents. These occurred over a span of 15-plus years and 125 million massages. But, we believe that even ONE incident is too many, so we are constantly listening, learning, and evaluating how we can continue to strengthen our policies with respect to handling of these issues.”

Roark has not commented on the situation. The firm, with offices in Atlanta and New York, acquired Scottsdale, Arizona-based Massage Envy in 2012 for an undisclosed amount from Sentinel Capital Partners. Last year, Massage Envy hired ex-Radio Shack CEO Joseph Magnacca as its chief executive, succeeding Dave Crisalli.

Fundraising

Roark was launched in 2001 by Neal Aronson and Scott Pressly. Pressly left in 2007. Roark is led by Aronson and President Paul Ginsberg. Other senior executives include General Counsel Stephen Aronson, Chief Investment Officer Ezra Field and Senior Managing Director Erik Morris.

The firm is in the market targeting up to $5 billion for its fifth private equity fund, according to fundraising documents the firm filed in October. If it hits target, Fund V would double the amount Roark raised for Fund IV, which closed on $2.5 billion in 2014.

Fund IV was generating a negative 2.4 percent net internal rate of return and a 1x total value to paid-in multiple as of June 30, 2017, an investment report by Hamilton Lane prepared for Teachers’ Retirement System of Louisiana shows.

Roark closed its third fund on $1.56 billion in 2012 and $1 billion for Fund II in 2008. It closed its debut fund on $413 million in 2005.

Fund III was generating a 13.5 percent net IRR and a 1.4x TVPI as of June 30, 2017, Hamilton Lane said. Fund II was producing a 29.9 percent net IRR and 3.6x TVPI and the debut fund was generating a 17.5 percent net IRR and 3x TVPI — both as of that date, according to Hamilton Lane’s numbers.

Action Item: Roark’s Form ADV: http://bit.ly/2Bow8o3

The Buffalo Wild Wings restaurant in Superior, Colorado, on July 26, 2017. Photo courtesy Reuters/Rick Wilking