JZ Capital Partners calls EGM to approve deals – JZ Capital Partners has arranged a meeting on 26 June 2018 to approve its acquisition of a stake in Deflecto Holdings LLC and an investment in JZI Fund IV LP.
Deflecto Holdings
JZCP intends to acquire from Edgewater Growth Capital Partners a 27.696% interest in Deflecto for approximately US$23.175m. Following the acquisition, Edgewater will retain a 52.3% interest, the balance is set aside for Deflecto’s management team.
Deflecto is a “diversified, highly scalable and global US company” that designs, manufactures and sells plastic products used for literature displays, signage, reflectors, floor mats, office products and air distribution. The business is headquartered in Indianapolis, Indiana, USA and has operations elsewhere in the United States, Canada, the United Kingdom, China and India. It serves a range of customers across multiple channels including big box retailers, drug and convenience stores, wholesalers and distributors, and original equipment manufacturers.
Prior to its acquisition by Edgewater in 2017 and since 1985, Deflecto was owned by Jordan Industries International LLC, a company owned approximately 50% by David Zalaznick and Jay Jordan together being also the founders and principals of JZCP’s investment adviser, Jordan/Zalaznick Advisers.
Deflecto had gross assets of US$153.480 million as at 31 December 2017 and net sales and EBITDA of US$151.347 million and US$15.082 million respectively for the financial year ended 31 December 2017.
JZCP will invest, alongside Edgewater on a pro rata basis, in:
- firstly an initial working capital contribution to Deflecto of about US$5m from JZ
- thereafter additional joint investments of up to US$31.825m from JZ, principally to help fund complementary acquisitions to be made by Deflecto.
JZCP’s total commitment should not exceed US$60 million.
Edgewater is a substantial shareholder in JZ Capital Partners, which complicates maters a bit, it means that this is classified as a related party transaction under the Listing
Rules – hence the need for shareholder approval.
Fund IV Proposal
The investment adviser, intends to establish Fund IV which will be a Cayman Islands exempted limited partnership. The general partner of Fund IV will be JZI Fund IV GP, L.P. which will also be a Cayman Islands exempted limited partnership and of which the investment adviser will be the general partner. Fund IV will be managed by JZ Asset Management, LLC, acting through JZ Asset Management UK LLP. The adviser is JZAM’s managing member. [QD comment: clear as mud?]
Fund IV will be a new pan European microcap buyout fund, following-on from EuroMicrocap Fund 2010, L.P. and JZI Fund III, L.P. It is being established to expand and diversify JZCP’s investments in Western Europe with acquisitions intended to be made with a focus on buyouts and build-ups of companies and in growth company platforms in the microcap market. Key individuals important to Fund IV are the founders and principals of the adviser, David Zalaznick and Jay Jordan, as well as Miguel Rueda who is the managing partner of JZ International Ltd.
It is intended that the adviser will target aggregate capital commitments to make investments in Fund IV of approximately EUR650 million (subject to a hard cap of EUR800 million). The first closing of Fund IV is targeted to occur in or around Q3 2018.
JZCP’s initial commitment will be cEUR64 million. At or around the same time, David Zalaznick and Jay Jordan would also undertake a capital commitment to make investments in Fund IV of up to EUR20 million. There is an overall limit of EUR80m for the combination of these sets of investors. Again, this is a related party transaction.
[QD comment: the fortunes of JZCP and its advisers are very deeply intertwined which investors may see as a good or bad thing, depending on their point of view]
JZCP : JZ Capital Partners calls EGM to approve deals