Firm: Spell Capital Partners LLC
Fund: Spell Capital Mezzanine Partners
Target: $100 million
Amount Raised: $135 million
Placement Agent: None
“Having both these vehicles, equity and mezz, allows us to serve our clients as well as our investors,” William H. Spell, the founder and president of the Minneapolis firm, told Buyouts. “It gives us a lot of flexibility.”
Spell Capital Mezzanine Partners closed in July with $135 million of investable capital, well ahead of the fund’s $100 million target. The fund is anchored by a mezzanine investing team—headed by Mark McDonald, Andrew Leonard and Stacy Harmsen—who joined the firm in January 2012 after their former employer, the leveraged lender Churchill Financial Group LLC, was acquired by The Carlyle Group from Olympus Partners.
The mezzanine fund has already completed four transactions and has two more anticipated to close in September, said McDonald, a managing director at Spell Capital. “We get dealflow from our own network developed over a number of years” in addition to opportunities developed by the private equity team, he said.
Both groups focus on the lower end of the middle market. But where Spell Capital seeks to invest $3 million to $15 million per transaction in its main fund, concentrating on control deals, typically for industrial or manufacturing companies with revenues of at least $5 million, the mezzanine group makes non-control investments across a wide range of industries, in companies with $2 million to $15 million of EBITDA.
Structured as a small business investment company, the mezzanine fund can lever itself two-to-one, so the firm actually raised something approaching $45 million to achieve its $135 million size. That puts the new fund on a par with Spell Capital Partners Fund IV LP, which closed at $40 million in 2011.
The mezzanine group does as much as 60 percent of the unit’s business in sponsored transactions, the remainder going to non-sponsored deals such as management buyouts of family-owned businesses or growth equity to help small companies expand their capacity, Spell said. “Our ability to do non-sponsored transactions separates us from a lot of other mezz firms.”