NOVA Infrastructure has closed its first fund targeting the North American middle market on $565 million.
The New York-based outfit was launched in 2017 by Chris Beall and Allison Kingsley, who first worked together between 2001 and 2003 at Lehman Brothers. Beall went on to become a partner at Highstar Capital, working on deals with Kingsley when she was working in infrastructure debt with Reformation Capital.
NOVA Infrastructure Fund I was launched in July 2019, reaching a first close of about $160 million in January 2020. At the time, it had a target of $800 million, although this was re-sized as the effects of covid-19 began to take hold.
“Covid changed our plans and we had to re-evaluate and we started to congeal around a $500 million to $600 million number in the early to mid-2020 timeframe, when we saw this wasn’t going to be a short-term dislocation,” Beall told Infrastructure Investor.
“It’s always challenging as a first-time fund, despite the fact the data is pretty clear first-time funds outperform. We knew it would be difficult but we had conviction in our investment strategy,” added Kingsley. “We were able to raise capital and invest in deals when covid shut down fundraising travel. There was also a concentration of capital into larger mega funds and people were doing re-ups into those.”
At close, the fund has made six investments comprising a waste management platform; a US flag maritime logistics business; a fixed-base operator; a port-centric storage and logistics platform; and fibre-to-the-home and fixed wireless businesses. Beall said the fund is targeting a gross IRR of 18 percent and a net of 12-14 percent, targeting sectors such as environmental services, transportation, energy and energy transition, and communications.
“One feature of the market is that valuations have gone up, especially for the large-cap investments as you look at more public-to-privates and as you focus more on telecoms, which tends to be higher multiples,” he said. “We look for portfolio companies with $3 million to $20 million EBITDA, and then we attempt to add capital and grow organically. We try to build onto a platform that already has operations and avoid pure greenfield risk.”
Kingsley also hailed the growth prospects of the mid-market, believing some of it to be underserved as a result of the concentration of mega funds in the sector.
“Structurally, the mid-market is very attractive. Those companies tend to have stronger growth trajectories,” she maintained. “The opportunity set is larger and the structural characteristics of the asset class, where money was concentrating at the top, means the mid-market is an advantageous position.”