Turnaround specialist Z Capital closes Fund II at $750 mln

Although investor demand could have supported a $1 billion fundraise, President and Chief Executive Officer James Zenni said the firm opted to close the vehicle after 12 months upon reaching its $750 million hard-cap. Several limited partners, including the New Mexico Educational Retirement Board, increased the size of their commitments during the fundraise, he said.

Z Capital Special Situations Fund II drew pledges from between 80 percent and 90 percent of the firm’s prior LPs, Zenni said. The fund also picked up commitments from 30 new LPs, a group that included sovereign wealth funds, pension funds, family offices and insurance companies. “LPs want niche strategies these days, and I think we certainly fit into that description,” Zenni added.

Fund II is earmarked to provide growth and turnaround capital to mid-market companies with enterprise values below $500 million.

One early portfolio company is MSD Performance, acquired in late 2013. Z Capital purchased a majority of the auto parts manufacturer’s bank debt before the company filed for Chapter 11 bankruptcy in September. After buying out MSD Performance’s remaining creditors, the firm assumed control of the company in a bankruptcy sanctioned auction later in the year. The firm is considering two add-on acquisitions, Zenni said.

“We’re always going to be looking to take advantage of the platforms (and) look at acquisitions,” he said. “That’s part of the daily routine.”

Altogether Z Capital has considered 70 deals since the start of the year, Zenni said, characterizing most of the pipeline as companies that “may not be as well understood” by the rest of the market. “A lot of LPs want to be in a size range that is really less competitive and more opportunistic, and that’s frankly the mid-market.”

Z Capital maintains offices in Lake Forest, Illinois and New York City. The firm has $1.7 billion in assets and committed capital under management, according to its website.