Marlin Equity’s $1.6 Bln Fund IV 3X Oversubscribed

Firm: Marlin Equity Partners

Fund: Marlin Equity IV LP

Target: $1 billion

Amount Raised: $1.6 billion

Placement Agent: Credit Suisse

Legal Counsel: Kirkland & Ellis LLP

After launching four funds in eight years since its 2005 launch, Marlin Equity is hoping that the bigger fund size will last longer than its previous funds did. That would bring Marlin Equity closer in line with investment cycles of limited partners accustomed to more gradual capital contributions.

“It’s not efficient to be fundraising every two years,” Peter Spasov, a partner at the Hermosa Beach, California, private equity firm, told Buyouts. “The larger fund size will allow us to have a more normal fund cycle of three to five years. And it would allow us to capture more market opportunities that we see for acquisitions.”

It didn’t take long to reach a final close on Marlin Equity IV, which surpassed its target of $1 billion in less than five months. The fund, which will focus on downbeaten names in the technology, business services, healthcare, consumer and manufacturing sectors, was three times oversubscribed.

“We knew we would have a lot of demand going into it,” said Spasov. “It was a function of corralling demand and getting it closed.”

Among the limited partners participating in Marlin Equity IV LP, New Mexico Education Retirement Board’s investment committee recommended a $40 million commitment at its April 25 meeting, according to minutes from the meeting

Marlin Equity founder David McGovern appeared before the investment committee of the retirement fund, along with Marcus Lollie of placement agent Credit Suisse. Adviser Kevin Tatlow of consultant NEPC LLC and portfolio manager Jude Perez of the New Mexico Educational Retirement Board were also present, along with Bob Jacksha, chief investment officer for the $10.3 billion retirement fund.

Marlin Equity disclosed a total of $800 million of investments made through its three previous funds, generating a net investment multiple of 1.9x and a combined net internal rate of return of 36.5 percent as of Dec. 31, according to minutes of the meeting.

“Marlin’s focus is on capturing a void in the market that competition has not filled,” according to minutes from the meeting. “Marlin believes there are few competitors focused on investing in middle-market businesses that require complex restructurings and turnarounds.”

Fund IV will target 15 to 25 portfolio companies, up from 10 to 15 in past funds, with investments of $30 million to $100 million or more.

Marlin Equity underwrites investments with a base case of at least a 3x return of capital. The firm said it exited 12 realized investments in less than three years.

The fundraise for Fund V brings Marlin Equity’s assets under management to more than $2.6 billion, including its three earlier funds. Its Fund III raised $661 million.

In June, Marlin Equity said it paid an undisclosed sum for Worknet Inc as an add-on for OnX Enterprise Solutions Ltd in a bid to boost its cloud and managed services product line.

The same month it it renamed portfolio company Sycamore Networks as Coriant America Inc by grouping it with its Coriant unit. It also completed the purchase of the optical networking business of Nokia Siemens Networks and rebranded it as Coriant.

Marlin Equity’s quick fundraise comes as other mid-market firms take years to raise funds and sometimes fall short of targets.

(Correction: Due to an editing error, an earlier version of this story contained an incorrect time element for the acquisition of Sycamore Networks. Marlin Associates announced the purchase of the optical networking business of Sycamore on Jan. 31 and renamed in June.)