Australia's Allegro reaches first close on Fund III

Allegro, which specializes in turnaround and distressed investments, launched the fund less than three months ago with a target of A$250 million. It is also raising a committed sidecar vehicle of no more than A$100 million that will invest alongside the main fund, enabling the firm to write equity checks of A$50 million for individual deals.

In addition to announcing the first close, Allegro has appointed Menno Veeneklaas to its team of operating partners. Veeneklaas was most recently head of digital at consultancy Partners in Performance. Before that he was COO at iSentia – a media monitoring company that Quadrant Private Equity took public in 2014 – and worked for Macquarie and Boston Consulting Group.

Adrian Loader, a managing director at Allegro, said the strategy for Fund III would be the same as Fund II, focusing on “mid-market businesses experiencing headwinds where we can deploy capital and expertise to help transform and drive future growth.” Equity investments will be in the A$10-50 million range.

Loader and Chester Moynihan established Allegro in 2004 and the firm assumed management of its first fund in 2008 as a replacement GP. This was the A$300 million ABN AMRO Capital Australia Fund II, which fully committed but every single asset was in distress. Allegro spent two years recovering value from the portfolio and, based on the reset value, generated an IRR of 25%.

The firm also operated on a deal-by-deal basis – including being appointed by creditors as a replacement sponsor for I-Med, Australia's largest private diagnostic imaging network, prior to its acquisition by EQT Partners in 2014 – before closing its second fund at A$180 million in 2015.

Allegro has already secured a sizeable exit from Fund II. The GP acquired Great Southern Rail (GSR) in 2015 when the company was unprofitable and its future uncertain, turned it around and sold it to Quadrant Private Equity for an enterprise valuation of more than A$100 million. As part of the deal, Allegro took a minority stake in the experiential tourism platform of which GSR is now part.

Other investments made by the fund include seismic surveyor Terrex Seismic, flooring retailer Carpet Court, drilling business JSW Australia, health food retailer Healthy Life, bus body-building company Custom Bus, and restaurant chain Pizza Hut Australia.

More deal flow is expected to come following changes to insolvency legislation. Specifically, directors will no longer be held personally liable for debts incurred while a company is insolvent – provided debts are incurred as part of efforts intended to help the company – and moratoriums can be imposed during voluntary administration to give businesses more time to explore a turnaround.

The new regime, which is modeled on the Chapter 11 system in the US, is likely to create investment opportunities for distress specialists as more companies seek third-party investors to provide capital and transformation plans rather than proceeding directly to liquidation.

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• Topics
• Australasia
• Credit/Special Situations
• Restructuring
• Fundraising
• Allegro Funds
• Australia
• Distress