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JZ Capital sells part of US Microcap portfolio

JZ Capital announces tender offer

JZ Capital sells part of US Microcap portfolio – JZ Capital Partners Limited has agreed to sell its interests in certain US microcap portfolio companies to a secondary fund led by Hamilton Lane Advisors, L.L.C. The sale will be structured as a sale to a newly formed fund, JZHL Secondary Fund LP, managed by an affiliate of the investment manager, Jordan/Zalaznick Advisers, Inc and part owned by David W. Zalaznick, John (Jay) Jordan II and various members of the US microcap investment team. This complication means that the deal needs shareholders’ approval.

The US microcap assets being sold include interests in each of Flex Pack, Flow Controls, Testing Services, Felix Storch, Peaceable and TierPoint. In return, JZ Capital will receive US$90m in cash (less any fees and expenses), subject to certain adjustments and a special limited partner interest in the Secondary Fund.

The special limited partner interest gives JZ Capital a share in the upside on any subsequent sale of these companies after the investors in the Secondary Fund have made 15% a year or 40%, whichever is the lower. This is being valued at $40m. The stakes in these businesses are currently valued at $158.7m so this implies an immediate $28.7m writedown in the value of these assets.

The proceeds will be used to repay a substantial portion of JZ Capital’s senior debt.

[Nothing ever seems to be straightforward with this trust and, over and over, it seems as though the investment managers are on the other side of many deals. Taking a step back, JZ Capital has $158.7m of shares in some nicely profitable companies and it is exchanging that for $90m and a warrant. It is not clear where the $40m valuation for this warrant comes from, but assuming that the value of the companies hasn’t changed, the warrant has an intrinsic value of $32.7m and the rest must relate to the time value (hope value). That’s $122.7m of real value now in exchange for assets worth $158.7m. The $36m difference is being handed to the investors in the Secondary Fund, including the managers and the managers are still getting a management fee on these assets. Investors might want to think twice before approving this.]

Sale of Greenpoint

JZ Capital has also completed on the sale of its Greenpoint property located in Brooklyn, New York. The company received approximately US$13.6m all in cash for its interest in the site which corresponds to a write down to the NAV of approximately US$20m. The approximate write down has already been included in the updated valuations applied to the real estate investments as earlier announced in September and October 2020.

Information relating to the US Microcap Portfolio Companies

Flex Pack

Flex Pack is incorporated in Delaware and is a provider of a variety of custom flexible packaging solutions to converters and end-users.

The Company’s ownership interest in Flex Pack consists of 42,500 common units and a 50.0 per cent. interest in 8 per cent. preferred equity. The net asset value (“NAV”) of the Company’s ownership interest in Flex Pack was US$11.5 million as at 29 February 2020, as set out in the Company’s annual report for the year ended 29 February 2020 (the “2020 Annual Report”).

Flex Pack has gross profits of approximately US$15.2 million and total gross assets of approximately US$58.1 million for the 12 months ending 31 December 2019. These figures are attributable to the whole of the Flex Pack business and not the ownership interest held and proposed to be disposed of by the Company pursuant to the Secondary Sale.

Existing members of the management team of Flex Pack run the Flex Pack business and the key individuals important to the business are Chris Wrobel who is the Chairman of the Board and Chief Executive Officer of Flex Pack and Glen Jensen who is the Chief Financial Officer of Flex Pack.

Flow Controls

Flow Controls is incorporated in Delaware and is a manufacturer and distributor of high-performance, mission-critical flow handling products and components utilised to connect processing line equipment.

The Company’s ownership interest in Flow Controls consists of 44,561.77 common units and a 49.6 per cent. interest in 8 per cent. preferred equity. The NAV of the Company’s ownership interest in Flow Controls was US$15.5 million as at 29 February 2020, as set out in the 2020 Annual Report.

Flow Controls has gross profits of approximately US$10.4 million and total gross assets of approximately US$54.8 million for the 12 months ending 31 December 2019. These figures are attributable to the whole of the Flow Controls business and not the ownership interest held and proposed to be disposed of by the Company pursuant to the Secondary Sale.

Existing members of the management team of Flow Controls run the Flow Controls business and the key individuals important to the business are Phil Pejovich who is the Chairman of the Board and Chief Executive Officer of Flow Controls, Keith Whisenand who is the Chief Financial Officer of Flow Controls and Todd Lanscioni who is a Senior Vice President of Flow Controls.

Testing Services

Testing Services is incorporated in Delaware and is a provider of safety focused solutions for the industrial, environmental and life science related markets, and testing, certification and validation services for cleanroom, critical environments and containment systems.

The Company’s ownership interest in Testing Services consists of 421.5469 common units and a 48.1 per cent. interest in 8 per cent. preferred equity. The NAV of the Company’s ownership interest in Testing Services was US$23.9 million as at 29 February 2020, as set out in the 2020 Annual Report.

Testing Services has gross profits of approximately US$40.2 million and total gross assets of approximately US$103.7 million for the 12 months ending 31 December 2019. These figures are attributable to the whole of the Testing Services business and not the proportionate ownership interest held and proposed to be disposed of by the Company pursuant to the Secondary Sale.

Existing members of the management team of Testing Services run the Testing Services business and the key individuals important to the business are Christopher K. Kuhl who is the Chief Financial Officer of Testing Services and Todd Lanscioni who is a Senior Vice President of Testing Services.

Felix Storch

Felix Storch is incorporated in Delaware and is a leading provider of specialty refrigeration and custom appliances to residential small kitchen, professional, life sciences, food service and hospitality markets. Felix Storch is a second generation family business, founded in 1969 and based in The Bronx, NY. Felix Storch’s products now include a wide range of major appliances sold both nationally and internationally.

The Company holds an approximate 45.0 per cent. ownership interest in Felix Storch. The NAV of the Company’s ownership interest in Felix Storch was US$24.5 million as at 29 February 2020, as set out in the 2020 Annual Report.

Felix Storch has gross profits of approximately US$31.7 million and total gross assets of approximately US$52.9 million for the 12 months ending 31 December 2019. These figures are attributable to the whole of the Felix Storch business and not the proportionate 45.0 per cent. ownership interest held and proposed to be disposed of by the Company pursuant to the Secondary Sale.

Existing members of the management team of Felix Storch run the Felix Storch business and the key individuals important to the business are Paul Storch who is the President of Felix Storch and Marty O’Gorman who is the Chief Operating Officer of Felix Storch.

Peaceable

Peaceable is incorporated in Delaware and is a specialty finance platform focused on making structured investments in small and mid-sized income producing commercial real estate. The company is built on a foundation of know-how, creatively structuring preferred equity to provide senior equity in complex situations. With extensive investment experience throughout the United States and Canada, Peaceable’s underwriting and decision making process is designed to deliver creative, flexible and dependable solutions quickly. Peaceable focuses on a diverse portfolio of property types including multi-family, office, self-storage, industrial, retail, RV parks, mobile home parks, parking health care and hotels.

The Company holds an approximate 29.4 per cent. indirect ownership interest in Peaceable. The NAV of the Company’s ownership interest in Peaceable was US$36.5 million as at 29 February 2020, as set out in the 2020 Annual Report.

Existing members of the management team of Peaceable run the Peaceable business and the key individuals important to the business are Dave Henry who is the Co-Founder of Peaceable, Fred Kurz who is the Chief Executive Officer of Peaceable and Jim Bruin who is the President of Peaceable.

TierPoint

TierPoint is incorporated in Delaware and is a leading provider of information technology and data centre services, including colocation, cloud computing, disaster recovery and managed IT services. TierPoint’s hybrid IT solutions help clients increase business agility, drive performance and manage risk. TierPoint operates via a network of 43 data centres in 20 markets across the United States.

The Company holds an approximate 4.6 per cent. indirect ownership interest in TierPoint. The NAV of the Company’s ownership interest in TierPoint was US$46.8 million as at 29 February 2020, as set out in the 2020 Annual Report.

TierPoint has gross profits of approximately US$194.7 million and total gross assets of approximately US$1,627.2 million for the 12 months ending 31 December 2019. These figures are attributable to the whole of the TierPoint business and not the proportionate 4.6 per cent. ownership interest held and proposed to be disposed of by the Company pursuant to the Secondary Sale.

Existing members of the management team of TierPoint run the TierPoint business and the key individuals important to the business are Jerry Kent who is the Chairman and CEO of TierPoint, Mary Meduski who is the President and CFO of TierPoint, Wendy Knudsen who is the Executive Vice President, Chief Legal Officer and Secretary of TierPoint, Gus Haug who is the Executive Vice President (Corporate Development) of TierPoint, Pete Abel who is the Senior Vice President (Marketing and Communications) of TierPoint and Matthew Kent, Mike Pizzella and Frederick Ricker who are each Vice Presidents of TierPoint.

JZCP : JZ Capital sells part of US Microcap portfolio

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