Category: Mezzanine Finance
Founded in 2000, HCAP Partners ("HCAP") is a private equity firm focused on the lower middle market. HCAP seeks to generate above market rate returns while facilitating a positive impact in underserved businesses, their employees, and their communities. HCAP is currently operating two institutional limited partnerships and is investing its latest institutional fund, HCAP Partners III, L.P. HCAP generally invests in established lower middle market businesses generating between $10M-$100M in revenues across a select group of industries. Investments are typically structured as mezzanine debt and preferred equity securities and are used to finance growth, acquisitions, buyouts, and recapitalizations with investments ranging between $2M and $10M. HCAP's impact intentionality is operationally focused and based around creating high quality jobs using a framework called The Gainful Jobs Approach. HCAP measures job quality standards at the time of investment and works with portfolio company leadership to build and implement strategic roadmaps with the intent of improving job quality and measurable outcomes for employees.
Firm Headquarters: US & Canada
Years of Operation:
Total Assets Under Management:
$51 – 99MM
Total Number of Investors: More than 25
% of Capital from Top 3 Investors: Less than 25%
HCAP aims to invest the majority of its capital in companies underserved by traditional capital sources, including those companies located in low and moderate income areas ("LMIs") and companies employing individuals residing in LMI areas or earning LMI wages.
HCAP's investment strategy focuses on building a diversified portfolio across a number of key sectors including manufacturing, healthcare, business services, and IT services/software, taking into consideration company size, historical and projected performance, and transaction structure. HCAP aims to invest the majority of its capital in companies underserved by traditional capital sources, including those companies located in low and moderate income areas ("LMIs") and companies employing individuals residing in LMI areas or earning LMI wages. HCAP seeks to invest into small businesses with $10M-$100M in revenue, $1M-$5M in EBITDA, and $2M-$10M in capital requirements. Investments will typically be structured in the form of loans and, under certain circumstances, HCAP will consider making opportunistic structured equity investments of up to approximately 25% of deployed capital. Funds will generally be used for growth-oriented working capital, recapitalizations, acquisition of another company, or capital investment.
Founded in 2008, Arizona-based Cubex provides clients in the medical and veterinary markets with an automated medication dispensing system. The system helps accurately dispense medication, supports pharmacy workflows, and drives clients' adherence to regulatory requirements. HCAP invested growth capital in 2014 that has helped support job creation at the company resulting in a doubling of headcount to 64 employees. In addition, HCAP implemented its Gainful Jobs Approach to understand the existing workplace practices and worked with management to develop a tailored strategic roadmap including actionable steps in an effort to improve job quality standards. Since time of our investment the Cubex team has implemented the following workplace practices:
- Implementing a broad based profit sharing program and stock option plan
- Formalizing education benefits
- Instituting career road mapping
- Expanded flexible work schedules
- Expanded diversity hiring
- Implemented wellness initiatives
The HCAP team works actively with our portfolio companies to implement their strategic roadmaps.
Target Financial Returns Relative to Benchmark:
Above Market Rates
Actual Performance Relative to Target Financial Returns in the Past Three Years:
In line with initial target returns
Financial Reporting Frequency to Investors or Donors
Percentage of Total Assets Under
Management that are Impact Investments:
75% – 99%
Primary Impact Outcomes:
Increasing access to financial services
Increasing access to healthcare services and improving health
Value-added Services Offered:
Business and legal training
Investments systematically include social and environmental sustainability practices in the due diligence process:
HCAP seeks to provide capital to "underserved" businesses that tend to employ low-to-moderate income and ethnic minority employees, are located in LMI zones, and/or are owned and operated by ethnic minorities. Since inception, 83% of capital invested in HCAP Partners III has been in underserved businesses illustrating our commitment to source and invest in deals which align with our impact focus. In addition confirming value alignment with management teams during the diligence process, HCAP also conducts a detailed analysis of workplace practices of prospective investments. HCAP also includes language in its term sheets and reporting requirements around participation in our impact initiatives to further align our impact focus with our invested capital.