• ESOP-focused sponsor closed Fund II last month with USD 205m total capital
• Assets with USD 5m-USD 8m in EBITDA are the ‘sweet spot’
• Exited eight companies from Fund I, with five investments remaining

Mosaic Capital Partners has so far funded Employee Stock Ownership Plans (ESOPs) but expects to broaden its employee ownership strategy as it deploys its recently closed Fund II, said partner Ian Mohler.

The Charlotte-based private equity firm closed Fund II last month with USD 205m in total capital, including leverage. It expects to invest at least 50%-60% of the fund on ESOPs but will now also consider other forms of employee ownership, such as Employee Ownership Trusts (EOTs) and potential majority control investments, Mohler said.

Mosaic specializes in lower middle market companies with USD 5m-USD 15m in EBITDA, with USD 5m-USD 8m being its “sweet spot,” he said.

Fund II is only a slight increase in size—up from USD 165m in its first fund—but marks a notable evolution in the composition of its investor base, Mohler said. “We dramatically increased our institutional investor base in Fund II,” he said, noting that insurance companies, banks, fund-of-funds, and impact investors now make up a significant portion of its LPs.

Employee ownership has become an emerging theme within impact investing, and Mohler positions ESOPs as a commercial solution to wealth inequality, offering life-changing outcomes for employees at no cost to them. While there are other firms that focus on funding ESOPs, Mosaic has a first-mover advantage, he said.

The firm invests across three verticals: business services, which make up more than half of its portfolio; niche manufacturing; and consumer. It seeks companies where human capital is integral and employee ownership can drive value, believing that this model reduces turnover and fosters a strong company culture, Mohler said.

Fund II is comprised of a parent fund with two 2021 platform investments, and a drop-down Small Business Investment Company (SBIC) fund, licensed from the US Small Business Administration in September 2024 that has three platform investments, Mohler said.

NuSource was one of the two parent fund investments and is Mosaic’s first realized investment from Fund II with last month’s sale. Since the firm doesn’t own any equity in its existing investments—that’s all owned by the ESOP trust—and it doesn’t control the board, its exits typically happen on the maturity date of the debt security, Mohler explained.

Mosaic’s investment thesis in NuSource focused on the ongoing transformation of retail banking, with technology like interactive teller machines driving efficiency and service improvements for community banks and credit unions, Mohler said. While the firm sees continued opportunity in services businesses to create value from employee ownership, it is not actively seeking new investments in ATM services, he said.

Other notable realized investments include Mosaic’s ESOP buyouts of Advanced Diagnostic Group, a provider of MRI and X-ray as well as other imaging services throughout Florida; ETAK, a provider of maintenance and installation services for telecommunication industry; and Galfab, a manufacturer of roll-off hoists and related equipment for the waste industry.

Earlier this year, it invested in the ESOP buyout of Ickler Electric, a commercial electrical contractor developing power systems for the mission-critical life sciences industry.

Mosaic has nine employees. It has exited eight companies from Fund I, with five investments remaining, Mohler said.