Clairvest Group has set an C$800 million ($625 million) target for its sixth mid-market fund, which would be the largest in the private equity firm’s 31-year history.
Clairvest Equity Partners VI is expected to begin fundraising in Q1 2019, Vice Chairman and Managing Director Jeff Parr and President and Managing Director Michael Wagman told Buyouts.
Closing on C$800 million would give CEP VI 33 percent more committed capital than its predecessor, which raised C$600 million in 2014.
The Toronto firm will do this by expanding its limited-partner base. Prior Clairvest funds were backed mostly by North American institutional investors, such as pension systems, insurers and family offices.
Parr and Wagman say the plan is to sign on three to six new institutions, especially from the U.S.
Clairvest, a listed firm, will also commit a minimum of C$200 million to ensure alignment with LPs, Parr and Wagman said. That’s up from the C$180 million committed to Clairvest Equity Partners V.
Clairvest will launch fundraising with momentum, thanks to a series of lucrative exits.
Over the past 23 months, the firm completed eight full and partial investment realizations.
They include July’s sale of Centaur, an Indianapolis horse-racing and casino operator, to Caesars for $1.7 billion. Clairvest earned more than C$550 million in gross proceeds and over 14x its eight-year investment.
The month before, the firm sold a five-year stake in MAG Aerospace, a Fairfax, Virginia, specialty aviation-services company, to New Mountain Capital. The result was C$140 million-plus in gross proceeds and 9.5x invested capital.
Other examples include 2017 sales of CRS, a Kitchener, Ontario, construction-equipment-rental provider, to Sunbelt Rentals, and Cieslok Media, a Toronto outdoor-media supplier, to Bell Media. CRS generated 3.2x invested capital, while Cieslok’s multiple was more than 8.4x.
These liquidity events added measurably to the firm’s long-term track record.
Since 1994, Clairvest has – under existing management – realized 70 percent of all deals, giving it 3.6x total deployments and a 24 percent pooled IRR.
Parr and Wagman say this performance owes to a core domain approach to investing, focused on businesses capable of becoming dominant or strategic players in their sectors.
Clairvest typically acquires minority stakes in companies with Ebitda of up to C$50 million in such sectors as business services, equipment rentals, gaming, IT services, media and waste management.
With continuous dealmaking, the firm has built up in-house expertise. This enables targeting of industry categories with strong growth prospects.
“Domain knowledge gives us the ability to understand which sectors the revenue growth will come from,” Parr said. “It allows us to develop our own sector thesis and find like-minded owner-operators with whom we can partner and accelerate growth.”
Gaming is an especially rewarding space. Clairvest has fully realized six gaming investments, earning 6x invested capital and a 47 percent gross IRR.
Centaur was among these. In 2010, Clairvest and West Face Capital jointly invested in the company, which had a “balance sheet that was broken but an asset in Indiana that was stable and growing,” Wagman, the firm’s point man on the deal, said.
Another bankrupt casino was bought and merged with Centaur, helping it “build a regional powerhouse,” he said.
Clairvest’s exit activity has benefited from seller-friendly market conditions, including valuations that are “ahead of themselves,” Parr said.
However, frothiness has not prevented the firm from undertaking new platform deals.
Recent examples include GTA West, Clairvest’s 12th gaming investment. It emerged from a partnership struck this year with Great Canadian Gaming to acquire four casino properties in West Toronto for C$134 million.
The firm also closed an inaugural deal in the renewable-energy sector. Last September, it backed Also Energy, a Boulder, Colorado, solar-asset-monitoring provider.
CEP V, which did these deals, holds six portfolio companies and is more than half invested.
Staying the course
CEP VI will maintain Clairvest’s longstanding market strategy, Parr and Wagman said.
With a deeper capital pool, the fund will be able to write larger checks. This is important, they say, because of the larger opportunities available in key sectors of interest.
A bigger fund will be supported by growth in the team, Parr and Wagman said. Clairvest currently has 30-plus employees, 18 of them investment pros.
Last December, the firm announced changes in top management, including the transition of Parr, a 30-year PE veteran, to vice chairman from co-CEO.
Wagman was promoted to president, entitling him to a board seat.
CEO and Managing Director Ken Rotman continues to lead Clairvest.
Other senior team members include Managing Directors Michael Castellarin, Mitch Green and Robbie Isenberg and Principals Sebastien Dhonte, Adrian Pasricha and Angus Cole.