A year and a half after securing $150 million for Libra Mezzanine Partners II, Libra Management has attracted an additional $22 million for a parallel fund, Libra Mezzanine Partners II-A.
U.S. Bancorp, which acquired Libra Securities Inc. in 1999, forming U.S. Bancorp Libra, committed the entire $150 million for LMPII. Therefore, Libra Management decided after the close to raise a co-investment fund in order to attract a more varied limited partner base. Originally, the firm set out to raise $50 million in LMPII-A. “[Prior to LMPII], we were doing under $5 million unsponsored deals, and when we were raising money we’d only had two liquidity events,” said Bailey “Biff” Barnard, a managing director at Libra. “So the objective in the $50 million fund was twofold to get more investors and have a greater diversity of LPs; but also it was an opportunity to introduce ourselves to people who could be interested at a later point in time, when we’ve had liquidity events and invested more of the second fund.”
Despite falling short of its $50 million goal, Barnard said the fund accomplished the firm’s other objectives, attracting Allstate Insurance Co. as a limited partner in addition to a large number of wealthy individuals and nearly all the firm’s previous LPs.
Libra Mezzanine Partners II and II-A have already made seven investments that total approximately $75 million. Barnard said the funds are expected to be two-thirds invested by year-end, at which time the firm will likely be ready to go to market with a new fund targeted between $250 million and $350 million. “We have now had more liquidity events in our first fund, which show an actual return in the high 30s,” he said. “And we think by the end of the year, that fund will show continuing good returns and hopefully we’ll have a liquidity event or two in the second fund. So we think we’ll be in a better position to go out and raise $250 million to $350 million beginning next year.”
Libra Management raised LMPII and II-A and its first fund, the $43 million Libra Mezzanine Partners, without a placement agent. However, Barnard said, it is likely that a placement agent will be retained for the next fund raising.
A New Direction
LMPII and II-A are taking a bit of a detour from the strategy laid out for Libra Mezzanine Partners, which closed in 1997. The earlier fund made small investments under $5 million in mainly unsponsored deals. But with four times the capital under its belt with the two new funds, Libra is aiming higher. A typical investment will be between $5 million and $25 million of traditional subordinated debt. The fund’s sweet spot is between $10 million and $15 million in existing operating companies doing $30 million to $200 million in revenue. Libra is looking for companies that are growing and have positive cash flow with Ebitda margins of 10% or more. While the firm will continue to do unsponsored deals, it is also focusing on increasing its sponsored deals. “The deal flow has improved significantly because we’re doing larger deals and because we’ll do sponsored and unsponsored deals,” Barnard said. “Also, with the tight senior debt markets, mezzanine financing has to be part of every transaction. So we’re seeing a very good deal flow.”
Libra Partners, based in Los Angeles with another office San Francisco, also manages a $53 million buyout fund that makes equity investments between $3 million and $8 million.