Imperial Capital’s Fund V crosses $250 mln finish line – and keeps going

Imperial is not done yet. In an exclusive interview with peHUB Canada,  Jeff Rosenthal, the firm’s co-founder and managing partner, said he expects a final close nearer to $300 million before the end of 2013, a considerable achievement in one of the toughest fund-raising markets on record.

Even more impressive, the investor base of its latest fund, made up primarily of high-net wealth (HNW) investors and family offices, totals 165. Imperial has since its founding in 1989 had a close rapport with HNW investors. That rapport has contributed to an entrepreneurial and partner-oriented culture that Rpsenthal and co-founder and managing partner Steve Lister have cultivated. It’s reflected in Imperial’s governance, its market relationships, and its investment style.

“Steve and I both have entrepreneurial backgrounds, and we cut our teeth in the private equity business by working with HNW investors,” said Rosenthal. “These are very creative, very successful people” who bring more than just capital commitments, he noted. They “add value in a host of ways”, which includes an important contribution to the firm’s deal-making opportunities.

Imperial typically makes control-stake investments in lower mid-market companies in Canada and the U.S. with EBITDA in the range of $5 million to $15 million. They tend to be led by managers with strong entrepreneurial instincts who feel a resonance with Imperial “because they recognize that we are fellow entrepreneurs, rather than coming from a large institutional environment,” said Rosenthal.

Imperial’s investment pros know a thing or two about the sectors in which they operate. The firm has staked out a niche focus on three key sectors – branded consumer products, business services, and healthcare.

The firm’s sector practice is seen in Kenra, an Indianapolis, Indiana-based producer of professional hair care products – bought in 2007 following research facilitated by Imperial’s CEO Partner Program, an initiative that allows its deal team to tap the expertise of seasoned executives. Partnering with a revamped company management team, Imperial helped create a more profitable and focused Kenra, and solidified its market position at a time of severe economic downturn, said Rosenthal. The enterprise’s sale in 2010 generated a multiple of 3.1x invested capital.

Imperial saw similar potential in Markham, Ont.-based AIM Health Group, a healthcare services provider taken private in 2011 with founder and CEO Dr. Lu Barbuto. Rosenthal said the deal freed AIM from a “liquidity trap” and gave it new strategic direction. Within two years, two of AIM’s divisions were spun out. This included the clinical services division, which was acquired by a strategic buyer in July. Since then,, the partners have been able to concentrate on the company’s corporate services unit, now operating as Workplace Health and Cost Solutions.

Imperial has to date made a dozen platform investments, and completed around 30-40 add-on acquisitions. The firm usually aims for a 30 percent net IRR on its deals, though its track record has shown net IRRs “considerably in excess of that,” said Rosenthal. Realizations have tended to triple the firm’s original capital investment.

There will be no “strategy drift” with Fund V, he said, despite its larger capital pool. Imperial will instead undertake a few more sector-specific investments at consistent size ranges, keeping resources available for follow-ons. The firm made its first Fund V investment in May, and is currently planning for two new acquisitions and another exit in the coming months.

Kirk Falconer is Director of Research for peHUB in Canada