Z Capital seeks up to $1.25bn next fund

The firm, known for its investment in the Mrs Fields cookie brand, could round up as much as $ 1.25 billion for Z Capital Partners III, according to a November letter to investors reviewed by WSJ Pro Private Equity. Z Capital expects the pool to surpass the $ 750 million private equity fund the firm raised in 2014.

Z Capital’s ambitions reflect confidence that investors will pledge money to firms poised to jump on market swings. Donald Trump’s US presidential victory and the UK’s decision to leave the European Union have put trade and economic policies in play – and dealmakers are champing at the bit at the prospect of profiting from volatility.

The firm has drawn demand of close to $ 1 billion so far, said a person familiar with the matter. Z Capital officially will launch marketing efforts in 2017 and plans to wrap up fundraising by the second quarter.

It expects a quick fundraising on the heels of delivering a more than two-times return on capital for realised deals made out of its last private equity fund, Z Capital Partners II, as of June 30, according to an investor memorandum. Launched in 2013, the pool’s realised and unrealised deals delivered a roughly 1.75 times return on invested capital.

Although the firm’s latest private equity fund is anticipated to dwarf its previous pool, Z Capital expects to continue targeting equity investments of roughly $ 100 million in total size and focusing on companies with enterprise values of less than $ 1 billion.

Z Capital’s private equity team takes control stakes in companies in a variety of ways, from snapping up assets in bankruptcy auctions, to spinning them off from corporations, to participating in balance-sheet restructurings, to taking them private.

The firm gained a stake in Famous Brands International, the owner of the Mrs Fields cookie brand, through a debt restructuring in 2011, and became the sole owner of the company in 2013. Z Capital sold auto-parts maker MSDP Group in 2015 at a profit after acquiring the business through a bankruptcy auction in 2013.

As rising interest rates threaten to create new ripples in markets, the firm is gearing up to exploit the dislocations ahead. It will have a ripe opening in the consumer retail sector, where brick-and-mortar businesses have come under stress as people shop more on their phones and via the internet.

Z Capital was founded in 2006 by James Zenni, one of the pioneers of the collateralised loan obligation market. The firm in 2015 renamed its private equity funds – which were previously branded as special situation pools – to more sharply distinguish them from its credit offerings.

This year, the firm launched fundraising for Z Capital Credit Tactical Fund, a new offering to pursue non-control investments and provide senior secured debt. Z Capital is seeking up to $ 500 million for the vehicle and closed on roughly $ 100 million as of the beginning of December, said a person familiar with the matter.

Write to dawn.lim@wsj.com

This article was published by WSJ Pro

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