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Local Equity Fund Seeks Targets
“We still have a lot more money to raise,” said John Meilner, Bridge Street managing partner. “But we’re going to take the next couple of months and stay pretty focused on investment opportunity.”
With a target of $50 million, Grand Rapids’ first private equity fund — formed in conjunction with The Right Place Inc. — is on the smaller side of the private equity arena. Meilner says Bridge Street was designed to be just that.
With its smaller size, Bridge Street will seek out investment opportunities ranging from $2.5 million to $7.5 million with companies ranging in value from $5 to $50 million, the majority being in the $15 million to $20 million range.
Although that may seem like a large spectrum, Bridge Street’s high end is the low end for many private equity funds, which rarely become involved with businesses valued at less than $50 million.
A prime example is the most recent employer of Meilner’s partner, Chicago-based Bill Kaczynski. Trivest Partners’ private equity fund didn’t look at anything below $50 million.
To date, three out of every four opportunities Bridge Street has investigated have been involved in the transition of ownership.
“We’re looking at entrepreneurs and founders of companies who for reasons other than the business, such as retirement or health, are seeking to sell,” Meilner said. “Many owners thought about selling in the late ’90s, but times were good. They were growing, profitable; but the last couple of years have not been nearly as much fun, and some of the folks are just flat out tired.
“We want to be a solution to that business owner today.”
He said many owners fear selling their business to companies that may consolidate or dismantle their firms. Many times they want to sell to management, but although management was well compensated, they don’t have the capital to purchase the company.
Sometimes the only option is to maintain partial ownership — essentially giving away the upside of the business and retaining the risk.
Bridge Street’s strategy is to provide the owner an exit strategy and possibly assist management in buying the company. One such method, Meilner explained, involves the owner retaining 25 percent or so of his investment in the company. The idea is to allow a more orderly transition, as the owner is able to stay involved but with only a quarter of the risk. The owner could also partner with Bridge Street in acquiring the company, investing in the company he or she helped build.
Bridge Street may also acquire companies in situations where the owner makes an immediate exit, and could do this either as a single investor or as a joint venture.
Meilner said most of Bridge Street’s ventures are likely to be transitional or buy-out. The firm also seeks where companies need “a shot of capital to execute their plan.” He said such firms will trade an equity stake to Bridge Street in return for being able to build a new facility or otherwise expand.
Meilner emphasized that Bridge Street will not become involved in start-ups, saying traditional venture capitalists would be better suited for such investments.
“We want to hit the singles and doubles, we want to hit them in the corners, in the gaps,” he said. “If we clear the fence, that’s great, but we want to make sure that we have a better risk-return measure. Many venture capitals try to hit the ball out of the park, and if they are successful on one of those, it carries the entire portfolio.”
Part of Bridge Street’s strategy is that every investment must have some minimum control levers.
“Our fund represents investors. We need to be able to ultimately exit that investment when we feel it is the right time,” Meilner said. “Obviously we will be working with management teams and anyone else, but everyone will know exactly what the game plan is when we go into that investment. Ultimately, we need to be able to liquidate our investment at some point in time in the future.”
He said Bridge Street looks for short-term involvement. It plans to make six to 12 investments over the course of the next four or five years, and after deploying the capital; the intention is to exit each venture over a similar time period. Meilner expects that a good number of the liquidations will be done with a larger private equity firm as the benefactor.
Not only does Bridge Street have a specified time period to generate returns for its 32 investors, but it also has additional concerns for success.
Meilner, Kaczynski and fund board members John Kennedy, of Autocam Corp., Michael Jandernoa, formerly of Perrigo Co., and George Jackoboice Jr., of Monarch Hydraulics Inc. account for a full 20 percent of the over $30 million in capital raised to date.
“We’re investing our money side by side,” Meilner said. “There are many points of alignment between us and the investments. Unlike managing partners of other funds, who make $20 million no matter if the fund performs or not, for Bill and I to make anything near what we’ve made historically, the fund has to be successful.”
Jandernoa and Kennedy have given equity shares of their companies to private equity investors in recent years. Autocam is currently being acquired from Aurora Capital Group by a partnership of other investors, Kennedy amongst them.
Over half of Bridge Street’s current opportunities are within the state of Michigan, with the other half dispersed amongst the Great Lakes region. It will not pursue opportunities outside the Great Lakes.
The majority of opportunities have been within manufacturing though others have been consumer products, technology and health care.