Milwaukee-based private equity firm Generation Growth Capital is raising its third fund in less than 10 years. And this time, it’s upping the ante, with plans to raise $50 million to finance its next eight to 10 acquisitions.
Generation Growth Capital Fund III LP this month completed its first close, at $29.3 million. The plan is to complete another close in the first half of 2017, before the fund is finished with a third close later next year.
The four-employee company, led by founder Cory Nettles and managing director John Reinke, already has signed three letters of intent for acquisitions from Fund III. Like most of Generation Growth’s portfolio companies, the new targets are a varied bunch. One is a food manufacturer, another is a value-added distributor, and a third is a market intelligence and marketing services firm.
While the pair wouldn’t reveal exactly where the firms are located, they nailed down the geography for all three as: outside Wisconsin, in a contiguous Midwest state. They expect to complete the deals in early November.
“For the most part, we remain open-minded and industry agnostic,” Reinke said. “It really comes down to, ‘What does the business look like and what do we think we can do with it?’”
Half of the GGC portfolio will always be manufacturing with an emphasis on aviation, Nettles said, but the other half is opportunistic.
Before the end of the year, Generation Growth Capital also plans to sell several of its eight portfolio companies left over from Funds I and II. The ideal investment horizon is four to five years and the perfect GGC portfolio size is six to eight companies, Nettles said, so the firm needs to exit a few companies to make room for the new additions.
Founded in 2007, Generation Growth has quickly raised and invested two other funds—Fund I was $25 million, invested in six companies; and Fund II was $32 million, which GGC invested in six platform companies and three add-on acquisitions within the space of about three years, Reinke said.
“For the most part, through funds one, two and three, we’ve had really good support from our founding investors—large local institutions that have supported us from day one,” Reinke said.
Those original and continuing investors include Northwestern Mutual Life Insurance Co., Robert W. Baird & Co. Inc., Marshall & Illsley Corp. (now BMO Harris Bank) and the Helen Bader Foundation.
“The genesis of Generation Growth Capital was really started with those first four,” Reinke said. “It was kind of a wish or a dream of those institutions to see some private equity getting involved in the lower middle market.”
Other large institutional investors are Associated Banc-Corp, WEC Energy Group Inc., Johnson Controls Inc., West Bend Mutual Insurance Co. and Church Mutual Insurance Co.
But when it comes to portfolio acquisitions, Generation Growth isn’t investing in the largest companies in the Midwest. The firm has carved out a niche among companies with $1 million to $5 million in EBITDA and $10 million to $50 million in revenue, where it saw a void in capital investment.
“We’re really the only institutional investor in Wisconsin in our space,” Nettles said.
Usually, GGC’s target companies haven’t gone through an ownership change yet. The private equity firm comes in and repositions the company to take advantage of growth opportunities in its markets, and eventually sells the company at a profit.
The GGC team works to improve a company’s people, processes and systems, which may involve hiring a new CEO and building out the right management team around that person, or adding new equipment or processes to make a product more efficiently.
“What we really say our business is, is the professionalization of ‘mom and pop’ businesses,” Nettles said.