Audax Mezz Fund Nears Target Of $750M

Audax Group’s Audax Mezzanine Fund III LP, a subordinated debt fund launched in December, has gathered $700 million so far toward its $750 million target.

Using the fund, the firm intends to make 25 to 40 mezzanine investments in mid-sized companies generating between $10 million and $60 million of EBITDA. The firm typically invests alongside private equity firms sponsoring leveraged buyouts, recapitalizations and structured financing deals. Industries of interest include consumer products, consumer services, manufacturing, energy, health care services, aerospace and defense. Expect most of the portfolio companies to be located in North America.

Limited partners include Alaska Permanent Fund Corp., Arkansas Teachers’ Retirement System, City of Philadelphia Board of Pensions and Retirement, Connecticut Retirement Plans and Trust Funds, Kansas Public Employees Retirement System and New Hampshire Retirement System.

As for key financial terms of the fund, the firm plans to charge a management fee of 1.5 percent of commitments during the investment period. After that, management fees are 1 percent of net invested capital. In addition, the management fees are reduced by 100 percent of transaction or break-up fees. The fund’s carried interest is 20 percent after the limited partners get an 8 percent preferred return.

Audax Group raised $440 million for its first mezzanine fund in 2002, and $700 million for its second in 2005. As of Sept. 30, 2009, Fund I had generated a gross IRR of 21.5 percent, a net IRR of 12 percent and a gross ROI of 1.5x, according to a board document of the Arkansas Teachers’ Retirement System. Fund II had generated a gross IRR of 7.3 percent and a gross ROI of 1.1x.

Geoffrey Rehnert and Marc Wolpow founded Audax Group in 1999. The firm has offices in Boston, New York and Shenzhen, China.