Newport Beach-based private equity firm ClearLight Partners LLC has raised a second $300 million fund and is looking for its next investments.
ClearLight’s latest fund follows its inaugural $300 million fund in 2000.
The company, which specializes in leveraged buyouts, could have its next deal by the fall, according to Michael Kaye, founder and managing partner.
“We expect to make one or two deals a year,” he said.
The firm’s second fund is set to be similar to its first by targeting midsize companies.
Tokyo security services provider Secom Ltd. provided the money for the fund.
Kaye has worked with Secom since 1985 when he came on as chief executive of Westec Security Group Inc., which was owned by the Japanese company.
Kaye spent 15 years at Westec, growing it through acquisitions and selling off businesses. What started as a business with $35 million in revenue transformed into a holding company with $250 million in sales.
In 1998, Secom sold most of Westec’s security business, with the proceeds eventually funding ClearLight’s first fund.
“I expected to be with Westec for the long term,” Kaye said. “But we saw the advantage in selling, and it turned us into a private equity player.”
Kaye has made nine leveraged buyout deals with ClearLight’s first fund. Two of those deals were inked this year.
In July, it acquired Katzkin Leather Interiors Inc., a company that makes leather interiors for cars and trucks in Montebello.
Earlier this year, it bought Total Automated Solutions Inc. Ohio-based Total Automated makes testing equipment for auto and plastics manufacturers and drug makers.
“We want companies that are working pretty well and have strong management,” he said.
Expected returns are about 20% annually with an average holding period of about five years, according to Kaye.
ClearLight targets companies valued at $20 million to $250 million, with yearly profits of $5 million to $25 million.
Debt is a big part of its strategy. ClearLight invests $10 million to $50 million of its own money and relies on financing for the rest.
Years of easy credit have allowed more funds to enter bids on companies, which runs prices up, according to Kaye.
“There’s lots of debt available on favorable terms,” he said.
Kaye declined to speculate on whether the days of easy credit are over, as some think.
Future deals for ClearLight likely will be in the education and healthcare sectors, according to Kaye.
“There’s a huge shortage of nurses,” he said.
One of the fund’s holdings is U.S. Education Corp., which runs vocational schools for healthcare workers.
ClearLight looks for durable prospects with room to grow, Kaye said.
“We want time on our side,” he said. “Technology is definitely something we avoid.”
Kaye said he feels he brings companies an understanding of what it takes to grow.
“Most funds are populated by investment bankers who take expenses out of companies by closing a plant or cutting jobs,” he said. “They give companies money and expect the discipline of debt to help them grow.”
Motivating management is key, according to Kaye.
Other holdings of ClearLight include: U.S. Collections West Inc., a company that handles business accounts for hospitals, Richardson Group Inc., a sales training company that works with investment banks, Switchcraft Holdings Inc., an electronics company, and Future Logic Inc., a thermal printer maker.
