Comvest secures more than $800m for mid-market companies

The firm will look to deploy the capital across a relatively benign credit market.

Comvest Partners has closed its fourth direct lending fund on $836 million, easily surpassing the $450 million raised by its predecessor, the West Palm Beach, Florida-based firm said on Monday.

The mid-market lender’s Comvest Capital IV cleared its $650 million goal and will have more than $1.2 billion in total deployable capital after accounting for fund-level leverage.

Among the limited partners that made contributions to the plan were public and private pension plans, financial firms, insurance companies, foundations and family offices, according to Robert O’Sullivan, a Comvest managing partner.

Public pension plans committing to Fund IV, which will target businesses both with and without private equity sponsors, are the Arizona Public Safety Personnel Retirement System ($50 million); New Hampshire Retirement System ($50 million); and the Detroit General Retirement System ($30 million).

Kirkland & Ellis served as legal counsel to the fund.

Overall, Comvest’s direct lending platform offers senior secured, unitranche, second lien and mezzanine loans, as well as equity co-investments to publicly and privately-owned companies in the lower mid-market with revenue greater than $20 million and EBITDA of at least $5 million, with exceptions for high-growth or specialty finance companies. Its typical hold-size is $20 million-$200 million.

The fund, which has both levered and unlevered sleeves, will shoot for a 7-8 percent unlevered return and a 9-10 percent levered return. Comvest attracted more commitments to the levered sleeve, according to a source familiar with the situation.

While the firm remains flexible, the predominant focus of the deals made through the fund – which is now 20 percent deployed – have been unitranche, the person said. The investment period for Fund III will end in April.

The 2018 credit outlook for many remains relatively benign, with corporate default rates among remaining low, at around 2.5 percent, remaining on par with last year’s 2.4 percent rate. That is slightly above the par-weighted non-recessionary rate of 1.8 percent.

Direct lending as a strategy though remains a mixed bag, according to some, with two larger alternative asset managers hold differing views.

KKR remains more muted on the strategy, as the firm predicts liquid credit markets will give direct lenders a run for their money and decreased its specified direct lending asset allocation down to 2 percent this year, down from a high of 10 percent in 2016. Partners Group, on the other hand, remains bullish on both fundraising and dealflow, specifically pointing to private equity deals that will soon need to be refinanced.