Anacacia Capital is confident succession planning and growth strategies at small and medium businesses will drive its future investments, after the private equity firm tapped strong demand to raise a $300 million fund.
The Anacacia Private Equity III fund has been ruled off this month, oversubscribed amid fast paced subscriptions for a raising that started in only late April.
The company, whose present and previous portfolio investments include ASX-listed Appen, Rafferty's Garden baby food and Yumi's Quality Foods, will use its latest fund to make up to a dozen investments in coming years.
"The investor demand has been truly humbling," Anacacia managing director Jeremy Samuel said. "We will continue to target profitable, established and emerging companies."
The latest fund is double the size of Anacacia's second raising.
Still, Mr Samuel noted that while competition for assets in the middle of the private equity sector had abated as some firms exited, the potential for a renewed wave of superannuation fund mergers could have unintended consequences.
"Superannuation funds in Australia traditionally have allocated far less than their global counterparts (to private equity) … If there is a push for larger and larger super funds that can create inefficiencies in the market, particularly in a small market like Australia.
"There is a lot of pressure for superannuation funds to write large cheques into multibillion-dollar funds so it is increasingly hard for them to play in mid-market private equity."
The Productivity Commission this week released a scathing assessment of the nation's $2.6 trillion superannuation sector, saying it could trigger the merger of dozens of small or underperforming super funds.
Unlike the crowded billion-dollar-plus private equity space where funds have increasingly emerged..., Mr Samuel thinks there are plenty of investment opportunities for firms targeting smaller deals.
"In private equity we are seeing fewer and fewer managers in that sub-$500 million [fund] space. Banks and other firms are no longer active," he said.
"It is very tough for new players to establish credibility with founders who'd prefer to deal with a firm like Anacacia that have demonstrated success."
Anacacia's private equity fund typically invests in companies with revenues of $20 million to $300 million and earnings of at least $5 million.
It's understood Anacacia's latest fund raising comprised a higher proportion of overseas investors than the last time it passed the tin around, but slightly more than 50 per cent of investors were Australian based.
Mr Samuel said funding growth and navigating succession planning were key discussion points for small-to-medium businesses.
"We see about 500 companies a year that are considering staged retirement and partnering with Anacacia to help support their growth plans," he said.
Anacacia's first fund topped its rivals on net internal rate of return for funds established in 2006-16, according to Preqin.
Australian Financial Review