Riverside & Co. has closed its fourth fund above target.
In June, the firm launched its 2003 Riverside Capital Appreciation Fund (RCAF ’03) with a target of $600 million. Just seven months later, in January, the fund closed-oversubscribed to the tune of $750 million, marking an 82% increase over its last fund of $412.75 million, the RCAF 2000.
“We provide a mechanism by which [limited partners] can invest in some of the smallest companies,” said Stewart Kohl, a managing general partner with Riverside based in Cleveland. “We have always stuck to that focus, and I think investors appreciated that.”
Riverside got considerable support from existing investors, who accounted for 63% of the total amount raised and collectively increased their commitments by 73% compared with the last fund. Those investors include the State of Oregon, Credit Suisse First Boston, TIAA-CREF, Massachusetts Mutual Life Insurance Co., Liberty Mutual Group and several others. New investors came on board as well. They included NIB Capital, Stanford University, Allianz Private Equity Partners, Northwestern Mutual, Wilshire Private Markets Group and the Alfred I. duPont Testamentary Trust. Riverside employees commit five percent of each fund.
Ultimately, the firm said it had to turn investors away and limit the proposed commitment size of LPs in order to adhere to its $750 million hard cap.
Riverside has made three acquisitions so far this year and plans to make a total of 10 to 15 investments in 2004. It will invest its new fund in North America and diversify its commitments in different industries where the firm finds opportunity. Riverside focuses on transactions with an enterprise value between $10 million and $100 million, with an average platform enterprise value of $28 million.
“The small end of the middle market offers some unique opportunities, albeit with some risk,” said Kohl. “It’s not as competitive in terms of the total dollars focusing on it. It doesn’t have as many well-funded and highly professional acquirers operating in it.”
He said that Riverside considers itself the expert on buying small companies and building them into a platform that will make for a highly profitable exit. “When you buy a small company there’s more you can do to make it bigger and better,” he said. “When you succeed at making it bigger and better, you can realize a pretty natural arbitrage that has existed for an extended period of time. Companies, for example, with north of $10 million in EBITDA typically get valued at a higher multiple than companies with less than $10 million.”
Firm: The Riverside Co.
Fund Name: 2003 Riverside Capital Appreciation Fund
Fund Size: $750M
Fund Target: $600M
Select LPs: The State of Oregon, Credit Suisse First Boston, TIAA-CREF, Massachusetts Mutual Life Insurance Co., Liberty Mutual Group