Two private equity veterans have left AMP Capital Investors to open a boutique in the Pinnacle Investment Management stable, which will seek $300 million from institutional investors for a mid-market fund, a sector the principals say has a strong appetite for deals that promote succession planning and industry consolidation.
The two managing partners of Pinnacle Private Equity Ltd. are Bill Cook, who prior to five years at AMPCI spent 15 years running investments for Consolidated Press, and Peter Ludemann, a lawyer who advised AMPCI on its private equity investments prior to joining full-time in 2006.
The pair worked on AMPCI mid-market private equity funds BDF II and its successor, PEF III, where their investments included mining services group Runge. After guiding the company through a series of acquisitions that expanded its geographic reach, Runge became the most successful float on the ASX in 2008.
The pair boast that by the end of their time at AMPCI, one-third of PEF III’s assets had been sold – another deal was the trade sale of water services business Total Eden to the listed Alesco Corporation – yet almost 80 per cent of the fund’s capital had already been returned to investors.
"The businesses we work with often have a baby boomer as sole proprietor, the business is well established but the owner might be approaching retirement and looking at succession, wanting to take some money off the table," Ludemann said.
Pinnacle Private Equity aims to use its network of mid-market proprietors (defined as those whose businesses have an enterprise value up to $200 million) and transactional/business banking experience to identify opportunities for consolidation, perhaps through a roll-up. Cook said that Pinnacle Private Equity, which will always take a board seat on the companies in which it invests, can also introduce a fiscal discipline that’s sometimes lacking at mid-market firms.
The initial fund will have a ten year closed-end structure, with an investment cycle of roughly five years. However Cook said this time frame could be abridged.
"If you can’t do what you want to do at these companies within the first two years after buying them, you’re probably never going to do it, he said.
Mild leverage will continue to be a hallmark of Cook and Ludemann’s style, typically around 3 to 3.5 times EBIT of the target company.
The director of Pinnacle Investment Management, Ian Macoun, said attractive valuations would help make the 2009 mid-market private equity vintage "one of the best ever".