Searchlight launches $4bn Fund IV as turnaround dealflow set to rise

Searchlight Capital Partners is seeking $4 billion for a fourth flagship vehicle earmarked for buyout and special situations opportunities.

The target for Searchlight Capital IV was disclosed in a report prepared for Plymouth County Retirement Association. The firm declined to comment.

Fund IV comes nearly two years after the close of its predecessor at $3.4 billion, ahead of a $2.75 billion target.

Most of Fund III’s capital was raised prior to covid-19 and was subsequently upsized with the pandemic’s onset. The idea, founding partner Erol Uzumeri then told Buyouts, was to help Searchlight capitalize on the dislocation “it was built for.”

Searchlight was established in 2010 by Uzumeri, formerly Ontario Teachers’ Pension Plan’s head of private equity, alongside Oliver Haarmann, an ex-partner with KKR, and Eric Zinterhofer, an ex-senior partner with Apollo Global Management.

The trio designed the mid-market shop to be an all-weather investor. The value-oriented strategy is flexible, emphasizing stressed and distressed deals when economic headwinds prevail and switching over to traditional private equity investing in periods of recovery and growth.

Complex dealflow

Volatility this year, fueled by high inflation, rate hikes and supply-chain bottlenecks, has perhaps created opportunity for Searchlight to deploy its turnaround playbook. If mounting fears of a recession next year are borne out, it could encounter a still greater volume of complex dealflow.

A July survey of finance professionals by AlixPartners found a recession will drive “not just company restructurings” but “a new round of industry consolidation and reinvention.” More than three-quarters of respondents said M&A involving distressed assets will rise, while 12 percent said these will reach a new high.

Searchlight makes mostly control investments in mid-market companies on a transatlantic basis, sourcing opportunities outside of auctions across North America and Europe. Its core sectors of interest are communications, media, business services and financial services.

Fund IV is expected to make 15 to 17 investments in the $100 million to $350 million range, according to PCRA documents.

As of March, Searchlight Capital III was performing strongly, with a 1.6x net multiple and a 53 percent net IRR, while Fund II was earning a 1.9x net multiple and a 25 percent net IRR. A potential weakness noted in PCRA materials is the latter vehicle’s loss ratio of 26.4 percent. Fund III’s loss ratio is 0.0 percent.

Buying and selling

Searchlight has been an active buyer and seller in 2022. New investments include a minority stake acquisition in Synergy, a ship manager and end-to-end maritime solutions provider, and a partnership with Rêv Worldwide to buy the Netspend consumer business of Global Payments for $1 billion.

Together with WaveDivision Capital, PSP Investments, BCI and CPP Investments, it also backed a $450 million growth financing of telecommunications network company Ziply Fiber. Ziply emerged in 2020 with Searchlight’s $2 billion carveout of assets from Frontier Communications.

Searchlight also recently sold TouchTunes, an in-venue interactive music and entertainment platform, to TA Associates, and M&M Food Market, a specialty frozen foods retailer, to Parkland Corp. The purchase price for M&M was $322 million.

Haarmann, Uzumeri and Zinterhofer oversee Searchlight personnel of roughly 100, including 17 additional partners, operating from offices in New York, London and Toronto.

Along with Fund IV, the firm is raising a second opportunistic structured credit solutions vehicle.