Fund focus: Anacacia eyes middle-market harvest

Private equity firms operating in Australia’s lower middle market may represent a dwindling pool, but as Anacacia Capital found when it hit the road with its third fund, that certainly isn’t due to lack of investor interest. The GP took a matter of weeks to hit the hard cap of A$300 million ($225 million), with both existing and new LPs lining up to invest.

Investors include endowments, pension funds, foundations, family offices and fund-of-funds, with a mix of Australian and overseas LPs. In fact, Anacacia Private Equity III includes the largest proportion of foreign investors in any of the firm’s funds to date. Jeremy Samuel, a managing director of Anacacia, believes the strong LP demand indicates the difficulty of finding a good manager at this end of the market.

“It’s very different from both the larger buyout market and the smaller venture market, and I think sophisticated LPs are very choosy about which GPs they’re prepared to back to access that end of the market,” he says. “While there’s a great opportunity there, unfortunately not everybody does well in this space.”

Samuel sees Anacacia’s quick fundraise as an endorsement of the firm’s strategy, which focuses on small to medium-sized family-owned enterprises facing succession issues and looking for a buyer to take them public. The firm plans to make up to 12 investments in such companies from the new fund.

Achieving success in the lower middle market buyout space is complicated by families that are often wary of turning over their legacies to strangers. Anacacia’s history in the space, working with companies such as baby food manufacturer Rafferty’s Garden and snack maker Yumi’s Quality Foods – both of which have expanded into Southeast Asia – helps to elevate it over other bidders that can only compete on price.

“There are factors beyond price that drive family businesses to decide who they’re going to partner with,” Samuel says. “They want a fair deal, but they also want to make sure they have a good fit with a fund manager who’s got a track record of helping other family companies manage succession and growth.”

The new fund is double the size of Anacacia’s previous vehicle, but the firm has no plans to write larger checks. It will follow the same strategy as the previous fund, investing in profitable companies with revenue of A$20-200 million – but it plans to back twice as many as in the previous vintage. Deals are expected to follow the same steady pace of two to three per year.

“We work extremely hard to ensure the investments we’re making are the right investments, and sometimes it takes a bit longer, sometimes a bit quicker,” says Samuel. “We have a bigger team now than we’ve ever had before, so the capacity is there to do more deals, but we’re very comfortable with the investment pace today.”   

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• Topics
• Australasia
• Fundraising
• Buyout
• GPs
• Australia
• Anacacia Capital