Riverside Co’s new Strategic Capital team finds its footing

  • Buys stake in Alcohol Monitoring Systems Inc
  • First investment came in September
  • Riverside Strategic Capital Fund now fundraising

Michael Kessler, partner at Riverside Co, said the firm first heard about AMS through colleagues at the Riverside Capital Appreciation Fund, the firm’s flagship lower-middle-market buyout series. Riverside Co was impressed with the company, liked the management team and tracked its progress for about a year, he said.

Based in Littleton, Colorado, AMS hired Stephens Inc to advise on finding an institutional partner to help the company expand but allow management to remain in control.

“The company has exhibited historical growth and we expect it to continue,” Kessler said.

AMS offers corrections departments, probation officials and state and county jails suffering from jail overcrowding a way to reduce expenses through electronic monitoring. Keeping non-violent offenders out of jail so they can work and continue to pay taxes also helps cut incarceration costs, Kessler said.

The AMS deal comes as Riverside’s Strategic Capital Fund is in fundraising mode, with no disclosed dollar target, according industry sources. Riverside declined to comment on fundraising.

The deal was a good fit because the the Strategic Capital Fund seeks to “really provide entrepreneurs and closely held businesses a non-control investment option to fund their corporate growth initiatives,” said George Cole, a managing partner at Riverside Co. 

Riverside had seen opportunities it liked but didn’t work for its control-stake funds, so it set up the strategy to capitalize on them, he said. The Strategic Capital Fund’s sweet spot will be investments in companies with EBITDA of $5 million to $25 million.

Riverside classifies the deals as non-control junior capital investments, usually with a combination of debt and preferred equity securities.

In its first minority deal from the fund, Riverside Co invested in Medical Payment Exchange Inc in September for an undisclosed price.

The dedicated Riverside Strategic Capital team includes Cole and Kessler, along with Hal Greenberg, managing partner, Jeff Gordon, principal, and Jay Reynolds, vice president. The team reports to Pam Hendrickson, chief operating officer of Riverside Co.

Ongoing dispute

Cole, Greenberg, Kessler, Gordon and Reynolds were previously members of the Veronis Suhler Stevenson structured capital team. In late 2013, Veronis Suhler Stevenson filed a lawsuit accusing the group of breach of contract and demanding $10 million in damages in addition to clawbacks of salary and carried interest. The suit came after Cole filed a wrongful termination suit seeking at least $650,000.

A spokesman for Riverside Co said the litigation is ongoing but declined to comment further. A spokesman for VSS declined to comment.

Last June, VSS hired Patrick N.W. Turner as managing director, assuming responsibilities of the firm’s structured capital and private equity funds, according to a press release. He is also on the firm’s investment committee. Turner joined VSS after working as a managing director and a member of the management committee at Crescent Capital Group LP. Before joining Crescent in 2005, Turner co-founded and was a managing partner of Canterbury Capital Partners.

Riverside Co has been active on the fundraising front, with the $350 million Riverside Micro-Cap Fund III and the $1.5 billion Riverside Capital Appreciation Fund VI wrapping up in the past year. In 2012, the New York and Cleveland-based firm raised about $230 million for Riverside Asia-Pacific Fund II.