Australia's Allegro seeks $449m for Fund IV
Australia-based turnaround specialist Allegro Funds is targeting A$600 million ($449 million) for its fourth fund, more than twice what it raised in the previous vintage.
The vehicle launched in early September and has received A$480 million in confirmed interest – 90% of it from existing LPs – ahead of a first close scheduled for mid-November, according to a source close to the situation. There will also be a co-investment sidecar of unspecified size. Allegro declined to comment on fundraising.
Fund III closed in late 2017 at the hard cap of A$290 million. There was also a sidecar of A$92 million that enabled the firm to write equity checks of A$50 million for individual deals. As of mid-September, Fund III was marked at 4x with an IRR of 100%, the source added.
The most recent transaction is also the largest: an acquisition of Australian logistics giant Toll Group’s express delivery division, supported by A$500 million in equity and debt funding. The portfolio also includes Perth Radiological Clinic, hydraulic specialist Questas, higher education provider Endeavour College, and retailers Ngahuia Group and Best & Less Group.
New Zealand-based Ngahuia was exited in February to Tahua Partners, while Best & Less raised A$100 million through an Australia IPO and parallel strategic investment in July. Allegro realized proceeds of A$91.3 million, while retaining 43.5%. It is sitting on an IRR of more than 500%.
The strategy is unchanged for Fund IV. The private equity firm will pursue turnaround and special situations opportunities involving businesses that are in industries facing temporary headwinds or have over-leveraged capital structures, or where there is scope for operational transformation.
Even as Australia’s economy adjusts to a post-COVID-19 normal, Allegro expects weaknesses to become apparent at the corporate level. Speaking to AVCJ last month, Chester Moynihan, a managing partner, suggested it is a case of when, not if, deep distress emerges.
“The knock-on effects of the pandemic as government stimulus starts tailing off will ripple through, and the whole geopolitical situation with China as a massive trading partner is not healthy. Also, there is a chronic labor shortage that has gotten worse with closed borders and created wage pressure on businesses,” he said.
“All these stresses have not filtered through that much yet, but they will going forward.”
Moynihan established Allegro with Adrian Loader in 2004. The firm assumed management of its first fund in 2008 as a replacement GP. It was fully deployed but every single asset was distressed. Allegro also operated on a deal-by-deal basis ahead of closing its second fund on A$180 million in 2015. The IRR across all vehicles for December 2010 to date is 36%.
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