Angeles Equity Partners, spearheaded by two executives who helped build an industrials-focused private equity business for Gores Group, closed its debut fund this month at $360 million.
Backing came from a number of U.S. pension funds, including Los Angeles City Employees’ Retirement System and Montana Board of Investments, along with both U.S. and European foundations and endowments. The general partner and close affiliates committed $7 million. Emerging-manager specialist Muller & Monroe Asset Management LLC also backed the fund.
It wasn’t an overnight success: Co-founders and Managing Partners Jordan Katz and Timothy Meyer spent about two years on the road raising money, with help from placement agents Moelis & Co and GCA Savvian Advisors LLC. But in the end the firm beat its original $300 million target. That makes it what the firm considers one of the largest debut funds of the class of 2016, behind AE Industrial Partners Fund I and CenterOak Equity Fund I.
A turning point came after a late 2015 first closing of $90 million enabled the firm to secure its first deal — the purchase of automotive supplier Applied Acoustics International in February 2016. At the time the firm was also courting the seller of what would become its second portfolio company just a few months later — ERP Power, a supplier of components for LED lighting.
Together the two deals gave comfort to investors that the firm could execute on its strategy of investing in complex, special situations in the lower middle market: either struggling companies in need of a rapid turnaround or those that, while not in imminent danger, are failing to realize their full potential.
“It created a much more tangible underwriting for [investors],” said Meyer. “It definitely catalyzed the fundraising in the spring of last year.”
Katz and Meyer founded Los Angeles-based Angeles Equity Partners in 2014 after working together for close to a decade at Gores Group. Their signature accomplishment was to help the technology-focused shop, known for emphasizing both its deal-making and operational acumen, expand into the industrials market. During his 11 years at the firm, Katz served on the boards of such companies as Cosmo Specialty Fibers, Sage Automotive Interiors and United Road Services, while Meyer served as chairman of the board of such companies as Cosmo Specialty Fibers, Lineage Power, Norment Security Group, Sage Automotive Interiors and Stock Building Supply.
The pair worked on successively larger funds, from a debut fund of $400 million through to the $2.1 billion Gores Capital Partners III, closed in 2011. By the time they left, the firm was buying companies with enterprise values in the neighborhood of $300 million. It’s a size that attracted so much competition from financial and strategic buyers that Katz felt assets were “priced to perfection.”
Katz said that both he and Meyer felt there was an opportunity to find better values in the lower middle market, where companies have enterprise values in the $75 million to $150 million range.
When Angeles Equity Partners launched its fund in late 2014, growth equity funds were all the rage, according to Meyer. But over the past couple of years, sensing that latest round of economic growth had run its course, investors have shown a growing appreciation for special situations.
In the end the story Katz and Meyer presented, of a lower-middle-market shop that embraced complexity and that placed an unusually large amount of emphasis on operations, resonated with investors.
The Angeles Equity Partners website lists seven professionals. They include Larry Tate, operating partner, and Bryan Bender, VP-head of business development. The firm reviewed some 300 deal opportunities last year, up about 30 percent from 2015, and it intends to keep the momentum going.
Said Katz: “To add resources [in origination] is something we are contemplating.”
Correction: The attribution for the quote that starts, “It created a much more…” was incorrect in the original version of this story. The story has also been updated with the names of companies for which Meyer served as chairman of the board, and with the name of a third investor.