In a testament to the industrial sector’s reshoring following pandemic-induced global supply chain shocks, the industrial-focused private equity firm Angeles Equity Partners LLC announced it oversubscribed its second series of funds. Total capital commitments reached more than $540 million, bringing the firm’s total assets under management close to $1 billion.
Drawing from institutional investors spanning North America, Europe and Asia, the Santa Monica-based firm is backed by endowments, public pension plans, foundations, family offices and funds-of-funds.
Angeles’ trajectory follows the typical growth model for healthy private equity firms; its latest fund, which closed earlier this month, is 50% larger than its 2017 predecessor, the first fund Angeles launched.
“While fundraising is not easy, there’s tremendous validation across investors on multiple continents for the institutional nature of our firm and our desire to be (the) leading middle market industrials investor,” said Jordan Katz, co-founder and managing partner at Angeles.
Katz and his cofounder, managing partner Tim Meyer, both left The Gores Group LLC, based in Beverly Hills, in 2014 after developing the industrials vertical there. In less than a decade, the duo’s Angeles has now surpassed Gores for assets under management.
According to Katz, three of the companies from Fund II are in the Los Angeles area, including third-party logistics provider Custom Goods LLC, Westlake Village-based lighting tech company ERP Power LLC and Downtown-based pharmacy distributor Mini Pharmacy Enterprises Inc.
With money flowing from faraway places, investors rely heavily on the firm’s operational involvement in companies.
Angeles’ pitch to quell international investors’ oversight limitations lies in its robust in-house team involved from day one.
Made up of three operations partners and four operations vice presidents, Angeles has a long leadership vertical the company claims to integrate into asset management teams, not just sit on their boards.
“Those operating professionals are involved beginning to end and have equal footing as our investment team professionals,” Katz said. “That’s a rarity within private equity.”
The firm has already deployed capital to four companies within its portfolio and will continue to expand its platform investment model. Angeles combines related businesses under one umbrella to generate a cheaper wholesale supply chain and aggregate executive leadership.
Its model has put the relatively young firm on the market map. Angeles ranked No. 32 on the Business Journal’s list of local PE firms, which was published in May. If it had $1 billion or nearly so in assets, it would have ranked No. 26.
The firm has had two full exits of portfolio companies and a third confirmed pending from its initial fund. Leadership also confirmed several other exits are in the works.
Shock back to reality
Looking at its portfolio, about half of Angeles’s investments are companies serving the industrial supply chain, a system severely crippled amid macroeconomic and geopolitical headwinds during the Covid-19 pandemic. Angeles is embedding itself into a shocked logistics system’s reinvention and bringing on investors antsy to avoid another disruption.
“There’s tremendous tailwinds around this space that make investing in industrials very interesting right now, and will for the next 10 years,” said Meyer.
Trade turbulence has a real effect on where companies source both manufacturing and raw goods. According to a report released last year by accounting firm McKinsey & Co. Inc., 40% of companies are reconsidering supplier bases, with many opting for regionalized chains.
For a country that became increasingly reliant on imports from the rest of the world, the U.S. market is shifting the weight of consideration for the cost of labor to the need for resiliency and transparency.
Steady sector
Shortages spurred by manufacturing closures during China’s strict lockdowns, geopolitical pressure cutting off trade to Russia amid the war in Ukraine and growing logistical complexity for cargo transports have elevated the United States into a safe haven for industrials.
“It’s good for U.S. manufacturing,” Los Angeles-based investment banker Lloyd Greif said. “It’s good for Mexican manufacturing, even good for Canadian manufacturing. If you’re a company here in the U.S., there’s more focus on what you can do domestically.”
The majority of Angeles’ Fund II balance came from investors in the United Kingdom and Europe, who looked to diversify the U.S. portfolio away from the turbulent tech sector and into what Angeles sells as a steady, predictable industrial sector.
Manufacturing plants in the United States can operate in more remote places for investors to see – think of the industrial zoning east of the Los Angeles County line. Angeles pitched itself as the money manager that can keep tabs on these facilities.
“These businesses tend not to be sexy. They tend to be in harder-to-reach places,” Katz said. “Investors are looking for active managers who rely on that level of operating-value creation as opposed to financial engineering.”
Angeles Equity’s fundraise coincides with the city’s emergence as a private equity hub.
According to Crunchbase data, almost 80 alternative asset managers have put down roots in the region over the past 20 years. Investing in local unicorns such as Snap Inc., Space Exploration Technologies Corp. and Activision Blizzard Inc. brought legitimacy to a city’s growing entrepreneurial sector often second to Silicon Valley.
Outside of the industry giants with assets in the hundreds of billions, most of Los Angeles is made up of middle-market firms.
Alternative asset managers’ leveraged buyout strategy remain lucrative for investors constrained in a tight capital market, with managing partners putting higher scrutiny on how to assess a company’s potential value.
“As we underwrite an investment, we’re more mindful of what we’re paying for debt and therefore what kind of cash-generation characteristics we are looking for in businesses that we acquire,” Katz said.
Angeles intends to make approximately 10 investments with its new fund. In line with typical private equity timelines, the firm hopes for exits within three to seven years.
