Riverside-spinout Align Capital closes sophomore fund at $450m hard cap

Align kept a rapid investment pace over three years, completing 24 platform and add-on deals, helping to validate its strategy, Managing Partner Steve Dyke said.

Align Capital Partners, founded by former executives of Riverside Co., wrapped up fundraising for its second lower mid-market vehicle, raising $450 million.

Align Capital Partners Fund II closed this month at its hard cap, surpassing a $400 million target after little more than three months of marketing, Managing Partner Steve Dyke told Buyouts.

Align also raised its inaugural pool at a fast clip. Following the firm’s launch in 2016 by Dyke and Managing Partners Chris Jones and Rob Langley, it took only four months to reach Fund I’s $325 million hard cap.

Fund II was backed by existing limited partners, many of which re-upped with larger commitments, as well as new investors, Dyke said. They included about 20 US-based institutions, among them endowments and foundations, family offices, funds of funds and pension plans.

Dyke and Jones were partners and Langley a principal with Riverside prior to creating Align. Their goal was to pursue a niche strategy of investing in small companies in North America focused on B2B business services, specialty manufacturing and value-added distribution.

Align makes control investments in businesses with EBITDA of $3 million to $10 million and less than $150 million of enterprise value. It typically writes checks of $20 million to $50 million for deals engaging family-owned companies, as well as companies undergoing management buyouts, spinning out of large organizations and held by other PE investors.

Target businesses possess “key attributes,” Dyke said, including histories of high growth. Align sources opportunities with profiles of 30 percent-plus gross margins and 15 percent-plus EBITDA margins. Partnering with owner-operators, it looks to build on track records organically and through add-on acquisitions.

Align’s specialized strategy, and the initiatives it deploys to support expansion, Dyke said, is attractive to entrepreneurs and management teams operating in sectors of interest. He noted Align is often a portfolio company’s first institutional investor.

Staying the course

Align has sustained a rapid deal pace since raising Fund I, Dyke said, completing 24 transactions, eight of which were platform investments.

This activity is reflected in Align’s most recent deal, the mid-2019 acquisition of E Source, a Boulder, Colorado, provider of market research, data and consulting for utilities. Within seven months of the acquisition, E Source completed three add-ons, including this month’s purchase of Trove Predictive Data Science and UtiliWorks Consulting.

Other portfolio companies include Louisville, Kentucky’s Pleatco, a maker of consumable aftermarket filtration products, and Protegis, a provider of fire and life safety services and parts.

Going forward, Align intends to “stay on strategy,” Dyke said, with Fund II making 13-14 platform investments, slightly more than its predecessor, and putting more equity to work.

Align has since Fund I identified additional sector themes for the strategy, Dyke said, enabling new platform opportunities as well as capabilities for existing platforms. These themes include training, inspection and certification, dental, veterinary and vision practice management and tech-enabled businesses.

Align’s 18-person investment team, located in Cleveland and Dallas, includes Operating Partners John Dupuy and David Perotti, Chief Technology Advisor Eric Dirst and Chief Marketing Advisor Sally Schriner. With Fund II’s close, the firm expects to add to the team, including bringing on a third operating partner.

Dyke was an investment banker with JD Ford & Company before going to Riverside in 2000. Jones joined Riverside three years later after working with Keystone Capital, while Langley came on board in 2010 after working with American Capital Strategies.

Action item: See Align Capital Partners’ ADV filings here.