Audax launches strategy to help managers continue growing select companies

The goal is to back treasure assets that sponsors are trying to hold and grow, even when they run up against structural fund issues like tapping out reserve capital.

Audax Group revealed its new strategy that is a kind of hybrid between secondaries continuation funds and straight-up non-control M&A investing.

The goal is to back treasure assets that sponsors are trying to hold and grow, even when they run up against structural fund issues like tapping out reserve capital or boosting portfolio companies beyond concentration limits.

The firm hired Kumber Husain and Daniel Green earlier this year to run the new strategy, which it is calling Audax Strategic Capital. The hires led to speculation that Audax was moving into secondaries since both Husain and Green formerly worked at DWS Private Equity building out its secondaries focus.

Instead the team, which is growing, will target non-control investments with sponsors looking to extend their holds over certain assets but need help completing add-ons.

The strategy uses elements of continuation fund deals with Audax working with other sponsors to take minority stakes in deals in its target sectors, including business services, consumer, financial services, healthcare, industrial services and technologies and software and tech.

“We’re targeting deals where we can put capital to work for M&A purposes, add-ons and growth in companies in collaboration with sponsors,” Green told Buyouts in an interview this week.

“A good example might be a company that’s been under ownership of the manager for a couple years that finds a sizable peer it would like to acquire… but needs additional equity to execute the deal,” Green said.

The opportunity set could include secondary continuation fund deals, Green and Husain said, but the strategy is not primarily focused on secondaries, which are generally understood to include a liquidity option for limited partners.

It’s not clear how Audax will fund the deals – whether from the balance sheet or from a separate externally raised fund. Green and Husain declined to comment on fundraising.

The firm sees opportunity to back GPs on these deals, especially as the market has turned down and debt markets have come constrained.

“Sponsors are interested in investing more in some of their better performing companies. One of the constraints is… their funds could be tapped out, and the company that has grown nicely now becomes an over-concentrated position in the fund,” Husain said.

“In today’s market, because of a confluence of constrained debt markets, and the M&A slow down that’s going on, there’s been an uptick in opportunities over the past several months. We think this is a pretty wide opportunity in all types of markets, but it’s arguably more interesting given what’s going on at a broader macro level,” he said.

In addition, because of pricing expectation discrepancies between buyers and sellers, GPs may not want to exit into today’s environment, Green said.

“This is a great way to keep driving value in your best companies,” he said.

Correction: An earlier version of this report called Audax a non-control investor. The firm does both control and non-control deals. The report has been updated.