Its first investment was a dollmaker, but the new private equity fund from Gefinor Acquisition Partners wants to prove its not just playing around.
The New York firm is targeting $100 million for its first fund, Kaizen Breakthrough Partnership, a limited partnership that will invest in manufacturing companies in the United States. It has already attracted commitments from investors in the United States, Europe and the Middle East. So far, the U.S. investors have been financial institutions, while the European and Middle Eastern investors have been individuals and institutions, none of which was identified.
The fund is seeking firms where it can improve the company's results by applying quality management techniques based on the system used at Toyota Motor Co. The fund's philosophy revolves on the concept of kaizen, Japanese for "continuous improvement," said Gefinor principal Mohamed Ousseimi.
Kaizen is targeting firms with annual revenue of $25 million to $100 million and transactions worth $25 million to $50 million. The acquisition targets are companies with strong brand identification that have inefficiencies in production, said Mr. Ousseimi. The idea is to acquire firms that are strong in marketing and sales, but weak in manufacturing and that are having trouble delivering product, said William J. Beckett, another principal.
The advantage of Kaizen's approach is that it lets the businesses grow using the existing infrastructure, by improving the manufacturing process without additional spending, he said. Gefinor created a joint venture with TBM Consulting Group, a manufacturing consulting firm that will help Kaizen's management implement the efficiencies.
Kaizen's first acquisition, the June purchase of Alexander Doll Co., New York, is an example of Kaizen at work, said Mr. Ousseimi.
The firm had a lock on the market for collectible dolls, but its production was so inefficient, the company could not keep up with its orders, he said. After buying the firm, Kaizen streamlined its production process, reducing the time needed to produce one doll from three weeks to 90 minutes, said Mr. Ousseimi.
The Alexander acquisition came shortly after the fund's first close in March, where it had raised $15 million.
There is no target date for the final close yet, but the principals of Gefinor recognize the U.S. tax-exempt market will be tough to enter.
The Kaizen fund has an atypical structure that might make it harder to sell to tax-exempts in the United States, said Mr. Ousseimi. It has no reinvestment policy, and it will turn over returns to the investor whenever it exits an investment.
Additionally, it will invest 40% to 50% in mezzanine debt to generate current income.
The fund won't charge investors a management fee, but instead will take a management fee from the portfolio companies. The expenses for a broken deal will be absorbed by the fund up to a cap of $450,000 a year.
The minimum investment is $1 million.
With one deal already completed, Mr. Ousseimi said he expects fund-raising in the United States will be easier. He added Kaizen expects to do about four transactions a year for the next three years.
