Imperial Capital Group, a specialist in industry-focused “back-buy-and-build” deals, secured $800 million for an eighth flagship fund, the biggest in its 32-year history.
Imperial Capital Acquisition Fund VIII closed this month at its hard-cap, ahead of a target of $750 million, managing partners Jeff Rosenthal and Justin MacCormack told Buyouts.
Imperial, which raised its prior flagship in under five months, beat that record with Fund VIII, “completing hard marketing in six to seven weeks,” Rosenthal said. He attributed the pace to “a lot of demand” from limited partners as well as “the efficiency of Zoom.”
Fund VIII was “significantly oversubscribed,” MacCormack said, with more than 400 new and existing LPs signing up. The vast majority are high-net-worth individuals, many repeat investors in Imperial’s offerings.
The Toronto private equity firm also diversified its traditional Canadian LP base, introducing several US institutions, Rosenthal said. Other first-time LPs include the clients of multi-family offices.
Fund VIII is 52 percent larger than Fund VII, which collected about $525 million (C$650 million) in 2019. Its close brings managed assets to more than C$2.7 billion.
Imperial makes control investments in lower-mid-market companies in healthcare and business and consumer services sectors across North America. It writes checks of up to $100 million for deals involving entrepreneurial or founder-owned businesses.
A key aspect of Imperial’s strategy is the use of domain knowledge to target consolidation opportunities in fragmented spaces. Along with buying mature establishments with EBITDA of up to $30 million, it works with operating partners to assemble management teams to create a platform company to pursue acquisitions in an industry niche.
This “back-buy-and-build” model is a cornerstone of the strategy, helping to drive 150 to 200 add-on acquisitions per year. “It is the creation part of our strategy,” MacCormack said, “and it has been very successful.”
Imperial’s latest investment, Hera Women’s Health, a women’s medical practice business, is an example of a BBB-style deal. Fund VII’s fifth platform company, Hera was launched this year. Another of the vehicle’s BBBs is Certus, a pest control services provider set up in 2019.
Imperial reports strong results from its approach to dealmaking. For investments in Funds V, VI and VII, it cites an average compound annual growth rate in revenue of 53 percent. In addition, Funds IV, V and VI were as of March earning a combined gross multiple of 3.8x.
Recent exits added to this performance. Among them was last year’s sale of VetStrategy, a veterinary clinics operator, to Berkshire Partners.
In 2018, Imperial also generated a 50 percent return on the sale of its interest in Dentalcorp, a dental clinics network, Buyouts reported. The buyer was L Catterton. Imperial retained a piece of the business, which in May went public.
Staying the course
Fund VIII will maintain the strategy, using a larger pool to deploy more capital per deal, Rosenthal said. The fund is likely to back eight platform companies, five or six of them BBBs. An inaugural investment is expected later this year.
Imperial was founded in 1989 by Rosenthal and ex-managing partner Stephen Lister. Then in their twenties, the pair met in a real estate deal and shortly afterward decided to start a PE firm. MacCormack joined in 2007 from Onex Corp.
Rosenthal and MacCormack oversee a deal team of 16, including partners Chris Harris and Gene Shkolnik. The newest addition, principal Eugene Polevoy, was hired this year from ONCAP. The portfolio management team is led by vice president Josh Gartner, who joined in 2017 from Bain & Company.
Along with Fund VIII, Imperial manages a preferred equity vehicle that supplies portfolio-focused bridge financing. It closed last year, bringing in $230 million.