Apis & Heritage Capital Partners has commitments of $85 million toward its goal of raising a $250 million second fund to create 3,000 worker-owners over five years (see, “Apis & Heritage aims to help business owners ‘exit responsibly’ — to their employees”).
A&H has also formed a strategic partnership with Maryland-based Calvert Impact to anchor and lead a sidecar facility of up to $50 million to provide the senior debt in employee-led buyout transactions.
With its inaugural $58.1 million fund, the Washington DC-based firm financed the employee-led buyouts of five companies that created more than 400 worker-owners. The larger second fund will finance employee-ownership transitions at larger companies.
“We hope this facility accelerates A&H’s innovative strategy to convert companies to employee ownership,” said Calvert’s Catherine Godschalk. “Their model aligns with our vision of delivering more equitable financial outcomes for working people.”
‘Unitranche’ model
The speed at which A&H can close on these deals will be critical, the firm’s Todd Leverette told ImpactAlpha, especially as private equity buyers often make more lucrative offers to sellers. With the senior debt facility, Leverette says A&H will no longer need to seek partnerships with local banks to finance the employee-led buyouts. “We want to close the transactions by ourselves.”
And because the senior debt tranche offers a different rate of return than A&H’s mezzanine debt, the facility will allow the fund to maintain its return profile.
“It will basically help us to keep speed, scale and allow our investors to sit more in that mezzanine position,” Leverette said. “We have had a lot of great senior lending partners, but that process was sometimes slow and added a lot of complication to the transaction.”
Fundraising
A&H kicked off fundraising for the second fund earlier this year. Investors from its first private credit fund have brought new limited partners into the second fund. Some of the $85 million committed is subject to achieving certain fundraising milestones.
“We are keenly aware of the difficult fundraising environment that all managers are currently in,” said Leverette. “That’s why we feel extremely blessed and humbled to see so many of our Fund I investors not just increase their support, but also bring others along with them.”
Leverette declined to share names of LPs in the first close. He says A&H will announce a larger second close in October.
