H.I.G. Capital unveiled its first vehicle dedicated exclusively to distressed transactions. The firm wrapped up the fund raising in three months, and held its first and final close at the start of June at $500 million. The firm’s newly formed affiliate, Bayside Capital, will manage the fund, Bayside Opportunity Fund LP, which had originally earmarked $400 million as its stated target prior to hitting the market.
The fund was fashioned to invest in financially or operationally challenged companies in the lower middle-market. In a press release, H.I.G. identifies its bandwidth as companies with a total enterprise value of between $50 million and $300 million. Bayside Capital defines its investment mandate as providing liquidity to troubled companies, as well as acquiring the debt obligations of struggling performers. Additionally, the firm said its positions would not necessarily be passive in nature, and when possible, Bayside will use its “operating expertise” to restructure and improve the performance of the companies in its portfolio.
“Historically our focus has always been on healthy companies and growth investments, and we worked a little bit in the distressed arena,” said H.I.G. Co-founder and Managing Partner Sami Mnaymneh. “We put together this fund to focus on the distressed space… This is not taking our overall firm into that area, but Bayside will be specifically dedicated to focus on distressed opportunities.”
While there may be some questions- with the economy on the rise-as to why the time is right to raise a distressed vehicle, H.I.G. believes its lower, middle-market focus will provide ample investment opportunities. “The lower end of the middle market represents a significant opportunity that is not currently being addressed by the market,” Mnaymneh said, adding, “In the large cap sector, the opportunity is much more cyclical [to the economy], but the middle market is much less [irregular].”
H.I.G. also kept its investment mandate fairly broad, so as to not pigeon hole itself in any one niche. “Purchasing distressed debt,” Mnaymneh said, “is just one mechanism we have at our disposal. This fund gives us flexibility to do that, but there is a significant amount of other opportunities [through which to invest].”
While H.I.G. could not comment on the fund terms, Mnaymneh identified it matched the standard fee structure of its other funds, and was “along the lines” of an 80/20 split, with an investment horizon of seven years. The management at Bayside will be made up of a mix of H.I.G. crossovers in addition to Limited partners primarily came from H.I.G.’s existing investor base, with Yale University, Massachusetts Institute of Technology, TIAA CREF, J.P. Morgan Chase and Morgan Stanley returning as investors in the vehicle.
Firm: H.I.G. Capital
Fund: Bayside Opportunity Fund, LP