Australian private equity fund Anacacia Capital is poised to raise up to 150 million Australian dollars (US$156.5 million) for its second fund.
The second fund, Anacacia Partnership II, follows the footsteps of the group’s maiden fund which has US$55 million under management.
Research firm Preqin, which ranked firms on funds raised during the period 2006–2008, named Anacacia Partnership I as the world’s best-performing private equity fund in 2011. That fund–achieving a 58% annual gross internal rate of return-has six remaining investment companies, including language services provider Appen Butler Hill, audio service provider Norwest Productions and baby food supplier Rafferty’s Garden.
Anacacia has made two exits to date including selling lab chemicals and consumables provider Lomb Scientific to New York-listed ThermoFisher, which delivered a return of 4.3 times the group’s initial investment owing to earnings growth of 35% during the global financial crisis.
Anacacia’s founder and managing director Jeremy Samuel spoke to Deal Journal Australia about his intentions for the second fund, the merits of taking six months to do due diligence and the types of businesses Anacacia targets.
WSJ: What will your second fund seek to do and how will it attempt to match the returns of the first fund?
Mr. Samuel: We’ll again target well-managed established, profitable small-medium enterprises based in Australia but with links to Asia that need equity to fund succession or growth. We’ll continue our strategy of injecting minimum to modest debt into our portfolio companies so we can collect dividends along the way. Some of our high growth businesses have 0% debt but for more mature companies, we might include debt of between 1 to 2 times earnings. Debt can be helpful in amplifying returns but it can be harmful if you hit a road block. We’d rather give up returns and build business for long-term sustainable growth. We like to back strong management and let them get on and run the business but we are active non-executive directors and speak with our CEOs several times a week to support them achieve our strategic growth plans.
WSJ: Why aren’t you looking to raise more given strong demand from the outset?
Mr. Samuel: We’re not trying to raise the world’s largest fund; we want to keep it small and tight. Australian superannuation funds have less capital to invest in private equity so they’re being choosier and benchmarking Australian funds against global funds. International investors are also looking at how Australian managers stack up against global managers but we don’t have anything to fear given we’re ranked in the global top quartile.
WSJ: How do you find your investee companies?
Mr. Samuel: We do around six months of due diligence before making an investment because we’re very focused on business risks. Of our 8 primary investments and 4 follow-ons to date, all have been exclusive transactions because we like to go directly to the entrepreneur who isn’t looking to sell, rather than an intermediary. Investing is very much a relationship marathon, not a transactional sprint.
WSJ: Which of your investee companies have a particularly global appeal?
Mr. Samuel: Appen Butler Hill derives more than 95% of its revenues from overseas as a language services providers and supplies the software behind the speech recognition function for clients such as Nokia, BlackBerry and other smartphone providers. Its text and search analytics functions are behind Microsoft Office’s Spell Check and Thesaurus as well as global search engine providers. Another of our businesses that is competing on a global stage against names like Nestle’s baby food brand Gerber is Rafferty’s Garden, which has more than 30% share of Australian baby food market. It is now exported to South East Asia and revenues have quadrupled in the past two years despite the high Australian dollar. Norwest Productions has done the audio engineering – which includes ensuring speakers and microphones are perfectly functioning — at most of the Olympic Games opening and closing ceremonies since Sydney 2000 as well as a number of Commonwealth Games, the 2011 Rugby World Cup in New Zealand and Australian concerts for acts like Neil Diamond and The Wiggles. WSJ: What are your thoughts on exits?
Mr. Samuel: We aim to exit typically either by a trade sale or a secondary buyout [a sale to another private equity fund]. In any given month we’ll get approaches. Lately, there’s been a trend of multinationals looking for an Asia Pacific hub due to challenging growth environments in the U.S. and Europe. Oven and range hood retailer Home Appliances, which posted fiscal 2011 sales growth of 30% despite the tough retail environment, has attracted interest from global appliance distribution companies.
© Wall Street Journal 2012