Spell Capital raises largest fund yet focusing on smallest side of market

Spell Capital Partners, a Minneapolis firm launched in 1988 that focuses solely on small deals, closed its fifth fund on $65 million, beating its $50 million target, according to William Spell, founder and president.

Fund V held a first close in October and was essentially done fundraising by Jan. 1, but left the fund open for certain limited partners, Spell said in a recent interview.

“We’ve intentionally always stayed in the very low end of the market; we believe that’s where the most compelling investment opportunities are,” Spell said. “You haven’t seen multiple expansion in the size deals we do. [You can still find] low-hanging fruit in terms of operational improvements you can make in companies of that size.”

Spell Capital chases deals of companies ranging from $10 million to $50 million of enterprise value. Its first fund raised $25 million in 1997, before which the firm was operating on a deal-by-deal basis.

Fund II closed on $20 million in 2001, Fund III raised $56 million in 2006 and Fund IV closed on $32.5 million in 2012.

The firm briefly considered targeting $150 million for its fourth fund before lowering ambitions on the target after talking to LPs, Buyouts previously reported. “We determined that the target was too big of a jump,” Jim Rikkers, a senior managing director, said at the time. “We’d have to change the way we do business and do bigger deals.”

Spell also raises capital for mezzanine investments. The firm closed its debut mezzanine fund, structured as a small business investment company, on $135 million in 2013.

Spell Capital’s LP base is made up mostly of high-net-worth individuals and family offices. Family offices “tend to be more flexible, more accommodating for smaller funds doing smaller transactions,” Spell said. “Families tend to have genesis in more entrepreneurial endeavors.”

Spell closed one deal from Fund V so far, investing in Atlas Wire LLC, which makes insulated wire used in various industries. The firm expects to close its second deal this month and has a third deal lined up.

The smaller side of the market remains busy, Spell said. “We’re very busy; there’s a tremendous amount of deal flow,” he said.

Action Item: Check out Spell’s Form ADV here: http://www.adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=162258

Photo courtesy of Spell Capital