Non-control investor Ironwood Capital targets $500m for fourth flagship fund

Fund V is expected to hold a third close in November, bringing potential commitments to more than $543m.

Ironwood Capital Management, one of the market’s few private equity firms led by a woman, is targeting $500 million for a fifth flagship mezzanine offering.

The target for Ironwood Capital Partners V, as well as its $550 million hard-cap, were disclosed this month in a report issued by Connecticut Retirement Plans and Trust Funds. The pension system is committing $75 million.

Fund V was initially closed in August, securing $166 million, the CRPTF report said. A second close was expected in September, while a third is anticipated for next month, bringing potential commitments to more than $543 million.

If it gets there, the fund will be the largest in the manager’s history. It would, at the potential November total, exceed by 28 percent the $400 million-plus raised by Fund IV in 2018.

Ironwood’s origins stretch back to 1986, when chairman Marc Reich founded Aetna’s investment banking arm. In 1991, Reich, Carolyn Galiette and others bought the unit, creating Ironwood as an independent investment bank. It transitioned to a PE shop in 2001 with the close of an inaugural vehicle.

As part of a succession process, Reich in 2015 stepped down as Ironwood’s president and was succeeded by Galiette, who is also the firm’s CIO. Other members of the partnership team are Robert Roche, James Barra, Dickson Suit, Alexander Levental and Zachary Luce.

Ironwood, based in Avon, Connecticut, was established as a non-control growth investor in the US lower mid-market. It makes subordinated debt and minority equity investments in companies with revenue of $20 million to $200 million and EBITDA of $4 million to $20 million, most often in partnership with a sponsor.

Investing supports owner-operators and sponsors in buyouts, growth and acquisition financings and recap deals. While Ironwood’s strategy is not sector-oriented, per se, activity tends to focus on aerospace and defense, business services, environmental services, manufacturing and transportation and logistics.

Interestingly, Ironwood seeks to invest half of its capital in underserved markets. Opportunities of interest include companies owned or managed by women and minorities and those featuring environmentally responsible business models.

Fund V will build on this strategy, making 28 to 32 investments of $10 million to $30 million, the CRPTF report said. Debt investments, which will predominate, will target a gross IRR of 12 percent to 16 percent, while equity investments will target a gross IRR of 22 percent to 25 percent.

Ironwood has this year been actively making and exiting investments. Recent new investments include Deal Partners, a consumer products re-marketer backed alongside Lorraine Capital, and Southern Design, a landscaping and concrete finishing services provider backed alongside High Street Capital.

In September, Ironwood announced an exit from Lakeshore Recycling Systems, a waste and recycling business. This resulted from the company’s sale to Macquarie Infrastructure Partners, which also furnished liquidity for Goldman Sachs, among others.

Ironwood’s active vehicles (Funds II, III and IV) were as of June earning a combined gross multiple of 1.4x and a gross IRR of 14 percent, according to the CRPTF report. For realized investments, the gross multiple was 1.5x, and the gross IRR, 16 percent.

Ironwood did not respond to a request for comment on this story.