• Second close likely to coincide with new deals, with two currently underway
• Keen on industrial services, not pushing as hard on public market for Fund II
• Fund I fully deployed and has completed two full exits, sending DPI to 0.8x

Colinton Capital Partners, which pursues private equity buyouts in Australia’s lower middle market, expects to reach an AUD 150m (USD 102m) second close on its second fund by the end of this year, according to Simon Moore, the firm’s senior partner and founder.

The Sydney-based investor targets relatively concentrated fund portfolios, and its closes are generally timed to coincide with when capital is required for new deals. A first close of approximately AUD 50m happened in May 2023, enabling Colinton to complete the acquisition of medicine delivery service Midas Healthcare.

The Fund II second close – which is likely to happen around November – comes as the firm is working on two deals, Moore told Mergermarket, without disclosing the targets. One features a 50-50 ownership structure, and the other is a change of control situation.

He hopes to deploy AUD 250m-AUD 350m across the entire Fund II cycle, including co-investment. Fund I had a corpus of just under AUD 100m, but co-investment took overall deployment to about AUD 230m.

Colinton focuses on control situations, typically writing equity cheques of AUD 20m to AUD 50m for companies with enterprise values of AUD 50m to AUD 150m, Moore said separately in a fireside chat with this news service.

“We intentionally chose this space as the big end of town is crowded and the mid-market of AUD 200m-AUD 750m has smaller domestic firms reaching up and global, and pan-regional firms reaching down,” Moore explained in a follow-up exchange, noting that the space Colinton is playing in doesn’t feature many competitors.

“For transactions of similar size in the US, financial advisors may receive 30-40 NBIOs [non-binding indicative offers], whilst here [in Australia] we typically are involved in situations where there are two or three other firms around the opportunity.”

Colinton is sector agonistic but sees a lot of potential in industrial services. Businesses in this sector will be “highly prospective, supporting the Australian economy’s light industrial nature, which in turn is supporting mining, agriculture and education industries,” Moore said.

When Colinton started in 2017, the team saw many compelling opportunities in the public market, especially on a relative value basis, where it could work with existing boards on operational improvement initiatives. Now, the firm sees a lot of value in the private market.

“We are not pushing as hard to look at public market opportunities for Fund II,” Moore noted.

Dimeo cross-fund deal

Colinton recently agreed to invest in Dimeo Cleaning Services, a commercial cleaning company, alongside global mid-market private equity firm Livingbridge. It is a Fund II transaction, but it facilitates a full exit for Fund I, which acquired a controlling stake in the business in late 2018.

Dimeo is estimated to be worth AUD 400m and the sale process was managed by Miles Advisory, as reported by local media last month.

Without commenting on the deal size, Moore told Mergermarket that Dimeo’s EBITDA has risen from just under AUD 20m to just under AUD 50m during the Fund I hold period. That fund will see an approximately 4.5x return on the Dimeo investment.

It was a robust sale process with two other private equity firms – one pan-regional manager and one global manager – making it to the final round, which is usually a characteristic of much larger transactions, he added. It demonstrates that large-cap investors are willing to come down to size for businesses with strong historical growth and a strong outlook.

“They are finding public-to-private transactions much more difficult to execute. As a result, the AUD 40m-AUD 50m EBITDA space is being very robustly contested by the domestic mid-market firms and international ones,” Moore observed.

Realisations from Fund I

The Fund I investor base primarily comprises family offices and high-net-worth individuals. There is also a significant GP contribution, according to Moore. The likes of Myer Family Investments, Federated Hermes, MLC, QIC and Washington H Soul Pattinson [ASX:SOL] have participated alongside the fund as co-investors.

The vehicle is fully deployed and in its realisation phase, with distributions to paid-in (DPI) of around 0.8x so far, according to Moore. The Dimeo exit follows the sale of a 17% position in IntelliHR, a listed human resources technology business. Accel-KKR-backed Humanforce took the company private last year following a bidding war with The Access Group, which is backed by Hg and TA Associates.

When holding a stake of that size in a public company, Colinton is effectively able to run an auction process if approached by parties interested in a public-to-private transaction, Moore said.

There are two more listed companies in the portfolio: thermal management materials provider Alexium [ASX:AJX] and collision repair and auto parts specialist AMA Group [ASX:AMA]. Colinton is also invested in AMS Group, Fiber Sense, Buildsafe, Moneytech, Clear Dynamics, and Midas, according to its website.

It claims to have around AUD 240m in funds under management deployed across nine active portfolio companies, as per its website.

Prior to founding Colinton, Moore was a managing director and global partner at Carlyle Group [NASDAQ:CG] where he was responsible for establishing the Australia office. He left the firm in December 2016.