Penfund closes fifth mid-market fund above hard cap, raising C$724 mln

  • Penfund beat its original C$525 mln target
  • Fund V is the largest in the firm’s history
  • Firm brought on new LPs

Penfund, one of Canada’s oldest private equity firms, wrapped up its fifth mid-market fund, raising C$724 million ($550 million) in committed capital with the help of an expanded investor base.

Penfund Capital Fund V shot past its original goal of C$525 million earlier this year. Last week it closed above its hard-cap target of C$700 million.

The fund is the largest in Penfund’s 37-year history, exceeding by 57 percent the C$460 million secured by its predecessor in 2012. Its close brings assets managed by the Toronto-based firm to more than C$1.2 billion.

Penfund achieved this by recruiting a larger and more diversified group of limited partners, Partner John Bradlow told Buyouts.

Penfund raised bigger commitments from its existing Canadian LPs. It also signed up a number of new investors located in the United States, Europe and the Middle East. The firm was assisted in the latter task by placement agent Park Hill Group.

In all, some 50 LPs, most of them pension funds and other institutional investors, committed to Fund V.

Hungry for debt strategies

Bradlow said Penfund succeeded on the fundraising trail because of its track record and growing LP demand for the “attractive returns” offered by mid-market private debt.

Penfund operates as a specialty lender and equity investor in North America. Most of its activity is focused on providing junior capital to deals led by some of the market’s best-known sponsors, including Leonard Green & PartnersOMERS Private EquityONCAP and Thomas H. Lee Partners.

This investment strategy, which the firm has pursued over four funds, has delivered “equity returns with bond-like risk,” Bradlow said.

Since the close of Fund I (2000), Penfund reports achieving an annual net return of about 15 percent. LPs have typically benefited from early distributions, as the firm’s debt orientation has meant “no deep J-curves,” Partner Adam Breslin said.

Staying the course

Fund V’s strategy will show continuity with prior funds, most often targeting companies with EBITDA of C$20 million to C$75 million.

With a larger capital pool, Penfund will be able to participate in larger-sized deals than in the past. It is also likely to undertake more investments.

Along with sponsored deals, the fund will continue to invest directly. Penfund’s longest-held portfolio company, GoodLife Fitness Centres, reflects this approach. Since 2004, Penfund has provided or arranged for C$330 million of debt financing to the fitness chain.

Partner Richard Bradlow said Penfund receives “a lot of inbound opportunities,” both sponsored and non-sponsored, because of its experience as a “knowledgeable lender” to certain sectors. These include the auto aftermarket, food processing, healthcare and industrial distribution.

Out of the gate with high profile deals

Fund V is already about one-third invested. To date, Penfund has deployed some C$230 million to seven transactions, many of them with a high market profile.

They include Fund V’s debut investment, made in August 2015, to back the acquisition of Capital Vision Services, an optometry-practice-management platform, by Altas Partners.

Penfund has been even more active in 2016. In February, it provided $47 million of debt and equity in support of OMERS’s buy of Forefront Dermatology, a services provider to dermatology clinics.

Fund V also invested in PSA Healthcare, a home nursing specialist owned by J.H. Whitney Capital Partners, and Plews & Edelmann, a maker of automotive parts owned by Eigen Capital.

And last month, the fund provided a second-lien loan facility to Give and Go Prepared Foods, a baked-goods maker acquired by Thomas H. Lee.

Founded in 1979, Penfund was acquired from CIBC in 2000 by John Bradlow and another partner. Since then, the current partnership team, which includes Jeremy Thompson, has invested more than C$1 billion.

With Fund V’s close, the firm plans to return to full-time deal-making with an expanded team. “We’re in the market for two new vice presidents,” Breslin said.

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Photo courtesy of Penfund