PE shop Align Capital raising debut pool to back independent sponsors

Align Capital, formed by two ex-Riverside Company dealmakers in 2016, is doing something unique: the mid-market-focused private equity firm is raising an ancillary fund to invest alongside independent sponsors in the lower mid-market, according to sources and documents.

That’s not something you see every day from a traditional buyout shop. But what Align sees is an opportunity to back talented dealmakers with capital and support as more of them choose to invest deal-by-deal rather than test the brutal fundraising markets.

The strategy, called Align Collaborate, is new for the firm, which targets traditional private equity investments in mid-market business services, technology, specialty manufacturing and distribution sectors out of its flagship funds.

The firm is raising the pool at a time when interest among LPs in gaining direct exposure to companies is on the rise and the capital pool for independent sponsors is growing. This is especially true as raising a traditional blind-pool private equity fund is tougher than ever in the slow fundraising market.

“The independent sponsor ecosystem is busier than ever,” said Scott Reed, partner with HighVista Strategies, which backs small and emerging managers and works with independent sponsors. “It’s easier for managers to raise capital on a deal-by-deal basis right now than to raise a blind pool.”

Another firm, Pacenote Capital, recently closed its debut fund to invest alongside independent sponsors, Buyouts reported.

Align is led by co-founders Rob Langley and Chris Jones, both of whom previously worked at The Riverside Company. The firm has raised three flagship private equity funds, closing on $620 million last year for its most recent pool. It managed around $1.5 billion as of December 2023, according to its Form ADV.

The firm announced its independent sponsor strategy last year. It hired two executives who ran their own deal-by-deal shop to run the strategy: Grant Kornman and Michael Kornman. The Kornmans co-founded fundless sponsor NCK Capital, which completed five platform acquisitions.

Align’s fund is targeting $150 million to invest alongside independent sponsors, according to a Form D fundraising document filed at year-end. It’s not clear how much the fund has raised so far.

Fund I targets deployment of $5 million to $30 million of equity per deal to support platform companies with between $2 million and $15 million of Ebitda, the firm said in a statement last year.

Align’s thesis, sources said, is to not only back independent sponsors with capital –obviously a vital part of the process – but also to provide operational support and expertise where needed.

The strategy and team are separate from Align’s traditional private equity operation, according to sources. But synergies between the two strategies can come from a sharing of resources around functions like recruiting, or vendors, sources said.

Align’s fund comes as fundraising woes continue, especially for emerging managers. The market challenges could keep more new firms sticking with deal-by-deal investing as more capital pools emerge to back these strategies.

First-time funds globally raised around $25 billion last year, compared with $47.6 billion in 2022, according to Buyouts data. Buyout, growth equity, venture capital, secondaries and other private equity funds raised $88 billion of capital by the end of March, down 34 percent from $133 billion a year earlier, according to Buyouts data. This marked the first time that quarterly inflows have fallen below $100 billion since 2020.