Boston-based Accretive Exit Capital is a so-called secondary-direct investment firm founded by Edwin Wang. It was formerly known as
Secondary-direct investing in buyout funds has grown rapidly in the past few years, even more so now because of tightness in the capital markets. The practice is attractive to GPs who need to get some liquidity out of an older fund, perhaps to satisfy antsy LPs. For the secondary-direct firms themselves, the deals give them the chance, if they choose wisely, to participate in a profitable exit in a shrunken timeframe.
Among the more prominent secondary-direct firms are New York-based
The companies involved in the Evercore Capital deal are a diverse lot: Davis Petroleum, a Houston company involved in oil and gas exploration and production; Diagnostic Imaging Group, a Hicksville, N.Y.-based provider of outpatient imaging services; Test Equity, which distributes test measurement equipment and is headquartered in Thousand Oaks, Calif.; Mr. Bult’s Inc. a Burnham, Ill., long-haul transporter of municipal waste; and alliantgroup LP, a tax consulting firm also based in Houston.
Andrew Reilly, managing director of Accretive Exit Capital, said the firm is already lining up exit opportunities for Davis Petroleum, whose other investors include
Accretive Exit Capital purchased the stakes from the vintage 2002
As a general rule, Accretive Exit Capital looks to spend $100 million to $500 million purchasing stakes of roughly 20 percent in portfolio companies. Companies need to generate a minimum of $5 million in EBITDA, post four consecutive quarters of double-digit earnings growth and sport a debt-to-EBITDA ratio of less than 2.5X. The firm is operating on a five-year cycle for its funds, which Reilly said is “perfectly aligned” with that of the vintage funds it targets. The strategy also calls for Accretive Exit Capital to help reposition portfolio companies for exit within 18 to 36 months of the deal’s completion.
Reversing the usual process, Accretive Exit Capital’s method is to line up financing after it finds a deal target. The firm has a group of backers led by Boston funds-of-funds manager
“Funding is not a problem,” said Reilly. “The trick is finding the companies and then the general partners that will let us cherry pick. Our belief is that if we’re providing significant liquidity, we want the best assets.” The Evercore Capital transaction leaves Accretive Exit Capital with $15 million in dry powder to put to work on exit strategies for the holdings.