Direct Capital IV Raises $325 Million

Direct Capital today announced that it had successfully completed fund raising for its Direct Capital IV fund raising $325 million (US$230m) in committed capital from investors. This included $75m in over-subscriptions above the firm’s fund target of $250 million (US$175m).

Existing investors in Direct Capital III re-committing to Direct Capital IV on average more than doubled their commitment levels and its cornerstone investor, the New Zealand Superannuation Fund increased its commitment by two and a half times. Direct Capital also attracted 16 new investors.

“We are absolutely delighted with the support we received from our investor base”, commented Direct Capital’s managing director, Ross George. “While 2009 was an obviously difficult fund raising environment, we believe there were several key factors that underpinned our success,”

  • A fifteen year track record of delivering consistent annual cash returns exceeding 20%
  • Our investment team has been together an average 13 years of our 15 year history
  • We maintained our investment style of low-leverage investment into wellperforming mid-market companies in support of succession and expansion initiatives
  • A continuing focus of investing in companies with operations in both New Zealand and Australia providing diversified revenue exposure of approximately 50:50

Investor confidence was also supported by the performance of Direct Capital III, a 2005 vintage fund, which despite the recession has continued to perform extremely well, maintaining a net IRR of 25.7%.

Liquidity events of Direct Capital III portfolio companies have achieved an average 4.0 times investment multiple. This includes the sale of Express Logistics to ASX listed Toll Holdings during the third quarter of 2009 for an investment multiple of 3.8 times.

“Consistency in performance is critical for our investors and we’ve invested through multiple economic cycles now,” said Mr George. “We deliberately chose not to follow the high leverage model through 2005-2007 and the Direct Capital III portfolio has maintained average debt to EBITDA of less than two times, leaving it very wellpositioned for growth in this downturn.”

“And Direct Capital IV will continue to leverage key advantages in this market,”

  • A high ratio of privately owned companies but low available capital
  • An aging business owner population leading to succession investments
  • New Zealand and Australia effectively operating as a single market with most medium to large organisations operating in both countries providing a natural growth and value advantage
  • Both the New Zealand and Australian economies have weathered the global recession well. Both are large exporters to Asian and global economies - New Zealand in food, and Australia in mineral commodities

“We’ve been delighted with the response to Direct Capital IV. There’s been a fundamental shift in understanding the size of the private company market and the opportunities that exist for investors to make consistent returns from well managed, mid-sized New Zealand companies,” concluded Mr George.

“Direct Capital IV will continue what the firm has been doing since 1994, investing in private companies valued between $25 million and $200 million. There are more than 1,500 companies in New Zealand with annual revenues exceeding $20m and Direct Capital’s market comprises about 850 of these. It includes companies in which Direct Capital has invested previously such as EziBuy, Ryman Healthcare (in which Direct Capital invested prior to the company’s IPO), New Zealand King Salmon, Express Logistics and many others.”