The Riverside Company’s recently formed value group is in the market with a first-time turnaround offering that is seeking $350 million.
The target for Riverside Value Fund I was noted this month in a report issued by Arkansas Teacher Retirement System. The pension is committing $30 million.
Fund I held an initial closing in August, securing $140 million, the ATRS report said. Additional closings are planned for early and mid-2022. The placement agent is Jefferies.
Riverside created its value arm with the 2019 hire of managing partner Sean Ozbolt. Ozbolt was previously a partner with Aurora Resurgence, an Aurora Capital Partners affiliate geared to complex situations in the mid-market. Before Aurora, he was a managing director with HIG Capital focused on distressed and restructuring investing.
The New York private equity firm recruited Ozbolt to lead the group, which invests in small and lower mid-market businesses facing special situations or unique challenges.
Other team members include managing partner Ron Sansom, Riverside’s global executive operating partner. Partner Andy Fohrer, who worked with Ozbolt as an Aurora Resurgence principal, also joined two years ago. He was previously with Oaktree Capital Management.
How the value arm invests
Riverside’s strategy is designed to make control investments in underperforming or undervalued North American companies with revenue of $60 million to $300 million, the ATRS report said. The sweet spot appears to be establishments with $75 million or more of revenue, according to the firm’s website.
Businesses will typically have repairable operational and financial issues. They may be in default, encountering covenant pressure or liquidity constraints, or in bankruptcy or preparing for insolvency. They may need management upgrades or an investment in their infrastructure, systems and processes.
No mention is made in the ATRS report about sectors of interest. Riverside prefers to invest in business services, consumer brands, education and training, franchisors, healthcare, software and IT and specialty manufacturing and distribution.
The strategy, which draws on Riverside’s global resources, including deal sourcing capabilities, is expected to benefit from relatively little competition for turnaround dealflow in its space, the ATRS report said.
Building a portfolio
Riverside’s value arm has already begun investing. In late 2019, it led an investment in LMG Holdings, a provider of ignition interlock devices. This year, it acquired Scram Systems, a provider of electronic monitoring solutions to the criminal justice industry that was subsequently merged with LMG.
Ozbolt is also identified with Riverside’s agreement to buy PFB, a maker of insulating building products and technologies. The deal, announced in November, has a purchase price of C$178 million ($140 million).
As Fund I has no track record, the ATRS report references the historic performance of the group’s principals. Collectively, they are said to have managed 21 investments at prior PE firms that over a 12-year span generated an aggregate return of 2.3x.
Turnaround opportunities were expected to be plentiful at the height of the covid-19 pandemic, though this did not materialize in a significant way outside of certain hard-hit sectors. Dealflow could increase, however, if inflation and the prospect of rate hikes inject uncertainty into the market.
Riverside, led by co-CEOs Béla Szigethy and Stewart Kohl, is also marketing a sixth micro-cap buyout offering with a $2 billion target. It did not respond to a request for comment of this story.