HIG Capital spinout American Pacific closes inaugural fund at $450m hard cap

Investors backed American Pacific Group’s first offering, founder and managing partner Fraser Preston said, because of its niche focus on lower mid-market companies “the market has passed over.”

American Pacific Group, founded last year by former HIG Capital executive Fraser Preston, completed fundraising for its debut buyout vehicle, collecting $450 million.

American Pacific Group Fund I closed in February at its hard cap of $425 million, exceeding an original target of $400 million, Preston told Buyouts. The general partner team committed an additional $25 million, he said.

The launch of American Pacific, together with the marketing of Fund I, was accomplished in less than four months. Preston founded the San Francisco private equity firm last November, shortly after departing HIG. The fund was unveiled in late December, held an initial close in January, and reached a final close in mid-February.

As an emerging manager, American Pacific was lucky, Preston said, to have wrapped up fundraising in advance of the covid-19 outbreak, “before tailwinds turned into headwinds.” “We were in the right place at the right time,” he added.

Fund I secured commitments from a dozen institutional limited partners based in the US and Europe. They include endowments and foundations, family offices, insurers and pension plans.

Investors backed American Pacific’s first offering, Preston said, because of its niche strategy, which focuses on lower mid-market businesses “the market has passed over.”

American Pacific was set up to make control-stake investments in North American and select UK companies with EBITDA of up to $20 million. Target opportunities will generally have EBITDA of $10 million to $20 million. The strategy is industry-agnostic, Preston said, though the firm is expected to give some priority to investments in software and technology.

A key to the strategy is an emphasis on complex transactions. American Pacific will invest in corporate carve-outs, take-privates and other situations where businesses face challenges, such as operational under-performance. The firm will write checks of $40 million to $50 million per deal and deploy value-adding initiatives to help portfolio companies navigate challenges and pursue growth.

The strategy closely aligns with Preston’s nearly two-decade experience as a PE investor and especially his time as an HIG senior managing director.

Joining HIG in 2008, Preston led or participated in deals in business services, consumer products, and technology, media and telecommunications, most of them carve-outs and take-privates. They include the 2016 acquisition of Quicken, a personal money management software provider, which Preston continues to chair.

Other HIG-backed companies chaired by Preston include Dent Wizard, sold in 2015 to Gridiron Capital; HelpSystems, sold in 2018 to HGGC; and Matrixx Initiatives, sold in 2018 to Gryphon Investors.

Preston expects a pandemic-spurred market downturn to create potential opportunities for American Pacific. They include carve-outs, as corporations re-examine core assets and need to raise money, as well as take-privates, especially where micro-caps encounter difficulties sustaining listings.

Fund I will back about 10 businesses, Preston said. Its inaugural platform investment is expected to be made this spring.

As American Pacific’s managing partner, Preston leads a team of seven members at present. They include managing director and COO Nick Wall, formerly a director with Lazard’s private capital advisory group.

American Pacific will now begin recruiting additional personnel, including up to four more investment professionals, Preston said. It will also soon bring on a first operating partner, with a second to follow later this year.

Action item: See American Pacific Group’s ADV filings here.