With the launch of its new private equity group, New York-based Cavalry Investments LLC – one of the largest acquirers and servicers of distressed consumer loans in the U.S. – plans to invest in the specialty finance sector. Specifically, the private equity group will seek opportunities to leverage its partners’ knowledge of the consumer collections business and their experience with past equity investments in the consumer finance industry.
Andrew Zaro, Cavalry’s president and CEO, said the new private equity group will give his firm enhanced deal flow. Zaro explained the timing of the endeavor by saying his firm feels well-equipped now to expand into new areas, especially as specialty finance companies are still recovering from a shakeout that began with the liquidity crisis of 1998.
“The companies that will ultimately be successful are beginning to reemerge, but, until liquidity returns to the sector, those companies are finding capital to be scarce, despite their prospects for success,” he said, adding that Cavalry has been in the specialty finance area for last 12 years. “With the amount of capital we have at our disposal, we have the flexibility to be able to make different types of debt and/or equity investments in companies in the segment due to our familiarity with it.”
Zaro said his firm not only has the ability to supply capital to companies, but the ability to assess and help improve their operations.
“We can improve what they do technologically, we can take a look at how they approach their acquisition and underwriting, [and] help them with their human resource management,” he said, adding that Cavalry doesn’t need to raise any new money for the private equity group, and can make equity investments up to $20 million.
Cavalry won’t be adding any staff. Michael Godner, a 17-year veteran of the private equity business and Cavalry’s chief financial officer, and John Plum, with 10 years of experience in the specialty finance industry, will lead the new division.
Cavalry, which is ranked in the top 10 of the nation’s debt buyers by Thomson Financial, has a $3 billion portfolio of receivables. The firm expects its investments to take a variety of forms, including subordinated debt and preferred and common equity, as well as outright acquisitions.
Cavalry’s client roster includes national banks and consumer finance companies, automotive companies, retailers, utilities, telecom and health-care firms. The firm offers collection strategies and a proprietary credit scoring system that pinpoints “recoverable” loans, as well as a national legal network. Cavalry has offices in Hawthorne, N.Y., and Phoenix.
Zaro founded Cavalry Investments and has directed the firm’s operations since 1991. He has overall management responsibility for the firm. From 1975 to 1990, Zaro was president of Azor Bake Shops, known to the public as Zaro’s Bread Baskets, a chain of retail bakeries in the New York metropolitan area. He founded, built and managed the company with his father and two brothers. Under his direction, the start-up grew into 15 stores, 800 employees and $25 million in annual sales.
After selling his interests in Zaro’s, he was lead investor and president of Zirmak Investments LP (predecessor to Cavalry Investments LLC) and of Zirgo LP, an originator of sub-prime auto loans based in the Midwest.
Contact H.M. Werner at: Holly.Werner@tfn.com