Nebraska-born McCarthy Capital targets $700m for Fund VIII

McCarthy Capital is seeking $700 million for an eighth flagship offering to invest in lower mid-market buyout opportunities.

The target for McCarthy Capital Fund VIII was disclosed in pension and Form D documents. McCarthy principals committed $77.6 million through GP and LP interests, Nebraska Investment Council documents said. Lazard is the placement agent.

Rolled out late last year, Fund VIII is set to be 31 percent larger than its predecessor, closed in 2020 at $535 million, ahead of a $425 million target. Along with NIC, the new vehicle secured commitments from Montana Board of Investments.

McCarthy’s history stretches back to the 1980s, when its namesake, Nebraska-based entrepreneur Mike McCarthy, was helping victims of the farm crisis. He began the McCarthy organization, a group of finance shops that eventually included McCarthy Capital Corp, an investor in private and small public companies.

The McCarthy of today sticks close to its roots, investing exclusively in the US lower mid-market. The firm is led by president and managing partner Patrick Duffy, who joined in 2007. He oversees 24 employees, among them 14 investment professionals, in Omaha and Boston offices, NIC documents said.

McCarthy’s flagship strategy makes control and minority investments of $30 million-$125 million in growth, MBO and recap deals backing family and management-owned establishments. These operate in three core sectors: business services, consumer and financial services.

Target companies have EBITDA of up to $30 million and values of $50 million-$300 million, together with characteristics like demonstrated profitability, proven business models and the potential for scalability, NIC documents said. On average, founders/management retain more than 40 percent of ownership after an initial transaction.

McCarthy relies heavily on proprietary networks for dealflow, with almost 70 percent of investments sourced outside of auction processes, according to NIC documents. In more than 80 percent of investments, the firm was the first source of institutional capital.

McCarthy reports investing in more than 70 private companies. Its two latest flagship deals, announced last November, are Navigate Wellbeing Solutions, an employee engagement technology provider, and Omaha Steaks, a marketer and distributor of grain-fed beef and other gourmet foods.

McCarthy Capital Fund VII was generating a 1.1x net multiple and a 3.7 percent net IRR as of September 2023, NIC documents said. Fund VI was earning a 4.4x net multiple and a 49.5 percent net IRR.

Along with the flagship strategy, McCarthy has an emerging growth strategy and a real estate affiliate called Nicholas Street Real Estate Investments.