Private debt manager Beechbrook Capital is poised to hold a final close by the end of June on more than €100 million, founding partner Paul Shea told Private Debt Investor.
“There are a number of interested investors that should enable us to reach our target of between €100 million and €120 million,” Shea said. The hard cap on the fund is €150 million.
Investors so far include the European Investment Fund, the British Business Bank and several European private sector insurance groups and pension funds.
Beechbrook has recently closed its fourth deal using capital from the fund and is hoping to agree its fifth next week. Another two deals are due to close in May. Subject to those three completing, the firm will have invested almost two-thirds of the €67 million committed at first close, Shea said.
In its most recent deal, Beechbrook provided a mezzanine tranche to private equity firm Palatine’s buyout of Gusto Restaurant and Bar from Living Ventures.
Mezzanine is the fund’s core product but it has the capacity to provide unitranche financing, a small number of PIK deals and a small number of equity deals. “We are very flexible in what we provide,” Shea explained.
The fund targets transactions with mid-teen returns and all have an equity kicker included in the form of a warrant or performance fee. Loans are three to five years in length and offer total leverage of between 1x and 3x.
The firm focuses on providing debt to lower mid-market companies, with enterprise value of between €20 and €100 million, and in particular companies in the bottom half range of that range.
“In our space, [lending to] businesses with EBITDA less than €10 million, it is not as crowded as we believe it is in the upper mid-market, where typically there is more debt being offered,” Shea said. “People are increasingly looking to us to support buyouts and buy-and-builds,” he added.
The firm’s remit includes Northern European countries, such as Germany, Benelux, the Nordics and the UK and it talks to around 150 private equity sponsors at present. “We are seeing high demand, hence we are able to deploy capital,” Shea said.
If the fund hits its upper target of €120 million, Shea believes it could be well invested by the middle of next year, when there is the chance of Beechbrook raising another fund. “Certainly there are opportunities for direct lending to SMEs,” Shea said.
Another trend Shea sees is more enquiries about the fund from secondary investors.
“Some investors are looking at the fund as an early secondary opportunity, as they see the money is being put to work straight away. The risk-adjusted return is particularly appealing. It’s an attractive return for the low level of leverage,” Shea said.
Target net returns on Fund II are between 10 and 12 percent, in line with Fund I.