Comvest Seeks Growth With Debt Fund

Firm: The Comvest Group

Fund: Comvest Capital II

Target: $250 million

Amount Raised: $250 million

Louis Colosimo, a partner at Comvest, told Buyouts that executives of the West Palm Beach, Fla., buyout shop contributed $32 million of the commitments.

Comvest is better known as an investor in distress; the firm closed its latest turnaround fund last fall at $580 million, well above its $500 million target. In both strategies, it targets the lower mid-market, but the debt fund focuses on growth companies, Colosimo said.

The firm uses a “barbell strategy” for its credit investments, providing senior secured debt to companies with strong growth prospects while also taking an equity participation of up to 30 percent, typically in the form of warrants, Colosimo said. Comvest does not have an industry focus; it said in its announcement that the fund would include, but not be limited to deals in health care, technology, transportation, financial services, media and manufacturing.

Although the firm only announced the close in March, it actually held the final close in January, and it has made put $150 million of the fund to work already, Colosimo said. “We’re already more than halfway invested in that, because we’ve been investing for a year.”

And the firm has scored a realization of sorts in CVC II. Digital Domain Media Group Inc., a special effects shop for movie makers, went public in November, after taking out a loan facility with Comvest last July. The credit deal involved a $12 million senior note with a $15 million revolving credit line and an $8 million convertible note, convertible into 2.8 million shares valued at the time at $17.8 million, along with warrants for 400,000 shares of common stock at a fair value of $3.9 million, its IPO filing showed.

The DDMG IPO, however, was something of a disappointment. The stock priced at $8.50, well below the company’s expected $10 to $12 range, and shares have since drifted toward $5.50 on the New York Stock Exchange. (Digital Domain has been involved in more than 80 movies, from “Apollo 13” and “Titanic” to the “Transformers” series, but the company seems to be hoping for a future as a producer. It is developing a movie based on the cult science fiction novel Ender’s Game, planned for a 2103 release.) Even at the lower price, Comvest’s warrants appear to be in the money.

At $250 million, the new debt fund is only slightly larger than its predecessor, a $235 million vehicle that Comvest raised in 2005 and 2006 and finished investing two or three years ago, Colosimo said. But with its primary distress fund in the market at the same time, and oversubscribed, executives chose to hold back on the secondary strategy. “We really backed off on the debt fund,” he said. “We didn’t want to confuse investors.”