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Scorpion Lands $120M, Snatches SBIC License –

After the Small Business Administration put the SBIC Participating Security program up on blocks at the end of last year it appeared private equity would be cut off from the subsidies the government used to provide to supplement certain funds. Scorpion Capital, however, managed to beat the deadline, and was issued what will be one of the last SBIC licenses for at least the next year.

The New York-based firm was able to corral $40 million for its inaugural fund, which will be bundled with $80 million of SBIC funding, giving the fund $120 million of total capital.

While it appeared that the SBIC license somehow slipped through the cracks, Scorpion was always confident the firm would receive the funding. “We were well into the system by that time [when the SBA shuttered the Participating Security program], so we were not really concerned. We were basically grand-fathered into the program,” Scorpion Founder Nuno Brandolini told Buyouts. The firm had started paperwork for the SBIC license roughly a year and a half ago, while the actual fundraising did not begin until sometime in the second quarter last year.

Going forward, to remove the uncertainty regarding the SBIC program’s return, Brandolini knows that the firm will need to produce exceptional returns in order to lure new investors and keep the capital for future funds at a level commensurate with $120 million in the inaugural vehicle. “Performance is the key,” he said, “That’s the name of the game. The SBIC program could still come back, but you really need to perform if you expect to find institutional capital.”

Brandolini has targeted an IRR of at least 25% for the fund, and he expects to deploy the capital in no longer than five years time. The firm will invest in both buyouts and growth financings, with an allocation model that is roughly split in half between the two. Scorpion has a predilection for investments in the financial services, healthcare, energy, manufacturing, industrial equipment and restaurant sectors.

The terms of the fund stipulate that there will be an 80%/20% carried interest split, and the general partner will not pocket any returns until investors are fully repaid for their commitments. The $40 million of limited partner capital came exclusively from wealthy individuals and families, Brandolini said, although he would not divulge the identity of any of the firm’s LPs.

While this is just the first fund for Scorpion, the firm has been around since 1995, as Scorpion

Holdings, and has traditionally invested on a deal-by-deal basis. According to the firm’s Website,

Scorpion invests $2 million to $8 million of equity in each deal and seeks out companies with revenues of between $5 million and $250 million.

Since the fund’s close, Scorpion has made two investments, both growth financings, in specialized shipping company Velocity Express Corp. and pharmacy delivery company Wellpartner Inc.

Snapshot

Firm: Scorpion Capital Partners

Fund: Scorpion Capital Partners, LP

Capital Under Mgmt: $120M

Placement Agent: None

Legal Counsel: Pepper Hamilton LLP

Website: www.scorpioncap.com

Founders: Nuno Brandolini and Kevin McCarthy