Buyouts: Chicago’s Kinzie Capital Sets Stage for Likely Institutional Fund

Written by David M. Toll for Buyouts Magazine

Suzanne Yoon, an ex-managing director at Versa Capital Management and founder last year of Kinzie Capital Partners, finds that the lower-mid-market companies she vets for investments can often be woefully behind when it comes to technology.

Among the problems she might encounter: companies lacking chief information officers or chief technology officers; companies whose e-commerce websites are so slow that they lose a significant percentage of customers at checkout; fast-growing companies trying to get by on bare-bones e-commerce platforms or without enterprise-resource-planning systems; and companies with sophisticated ERP systems but executives who nonetheless don’t know how to extract basic financial information from them, leading to weeks of wasted time generating quarterly reports.

Many midsized companies subscribe to software platforms provided by third-party vendors. But that can create additional challenges, such as making sure the systems generate data that is high-quality enough to be used by machine-learning tools and other cutting-edge technologies. “You go into lower-mid-market companies [and] they don’t even know if they own their own data,” Yoon told me.

Small companies can get by for a time with an appealing product line and strong sales people. But their lack of sophistication about technology, she said, eventually catches up with them, particularly given the accelerating pace of innovation. Said Yoon: “It stifles their growth.”

Early last year Yoon began to work full-time on the launch of a Chicago-based private equity shop that will acquire companies she described as “in need of technology support, not just operational support.” Look for targets to be located in the Midwest and to generate $2 million to $15 million of EBITDA in industries such as consumer products, manufacturing and services. The firm expects to invest $5 million to $30 million per transaction.

Bringing additional technological expertise to deals will be consultants at Chicago-based Clarity Partners, a 150-person systems-integration firm with which Kinzie Capital has a strategic partnership. The two co-founders of Clarity Partners, David Namkung and Rodney Zech, are also co-founders and partners in Kinzie Capital.

Yoon said she met Namkung seven years ago through the not-for-profit Council of Korean Americans, where they both served as board members. Yoon and Namkung have made two investments together personally to help prove out the strategy.

Since its official launch last June Kinzie Capital has reviewed more than 200 transactions and expects to complete two to three by the end of the year, Yoon said. The firm also expects to hold a first closing of between $10 million and a hard cap of $20 million on a co-investment fund this month. The money comes from friends and family. In any given deal Kinzie Capital expects to make a contribution from the co-investment fund and then syndicate out the remainder of the equity.

“The fund allows us to show the market over time that we can manage a fund professionally, and it created quite a bit of momentum around the firm and deal flow,” Yoon told me. The firm is likely to try to raise a conventional private equity fund from institutional investors down the road.

Yoon brings years of deal-making and operational expertise to the firm. After completing the credit training program at early employer ABN AMRO/LaSalle Bank, she went on to work in the bank’s special assets group. It was the mid-1990s, and Yoon got experience in debt trading, debt-to-equity conversions, debtor-in-possession financing and portfolio management.

After a stint in Ernst and Young’s restructuring advisory group, where she worked on several large restructurings, including those of Hawaiian Airlines and Rand McNally, Yoon returned to LaSalle Bank to co-found its corporate restructuring and lending group.

Just prior to founding Kinzie Capital Yoon for seven years worked at special-situations buyout firm Versa Capital. As a managing director there she sourced deals in North America, in addition to leading both debt and equity investments. Yoon said she wasn’t at liberty to discuss individual transactions that she worked on at Versa Capital. According to its website, the firm has backed a number of companies with brand-name products, including Black Angus Steakhouse and Polartec.

Yoon said that opportunities to invest in relatively large, distressed companies had slowed by the time she left Versa Capital in late 2016. At the same time, she realized that she preferred working with smaller companies — those that had less than $250 million in revenue, had gotten into some kind of operational trouble and faced technological challenges.

Said Yoon: “We’re not saying technology is everything. But it’s a critical component of every area of operations in a company.”

Original article found here.