JZ CAPITAL PARTNERS LIMITED (the
"Company")
(a closed-ended investment company incorporated with limited
liability under the laws of Guernsey with registered number 48761)
LEI 549300TZCK08Q16HHU44
Notice of
Extraordinary General Meeting
and
Recommended Proposals to
approve
The Company's proposed acquisition of a 27.696% ownership interest
and related investments
in Deflecto Holdings, LLC and
The Company's proposed investments in JZI Fund IV, L.P.
6 June 2018
Notice of Extraordinary General
Meeting
Notice is hereby given that the Extraordinary General Meeting
("EGM") of the Company will be held at the offices of Northern
Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port,
Guernsey GY1 3QL, Channel Islands at 1.30
p.m. on 26 June 2018 (or as
soon thereafter as the Annual General Meeting of the Company
convened for the same day and place has been concluded or
adjourned).
The purpose of the EGM is to consider and, if thought fit,
approve the Company's proposed: (i) acquisition of a 27.696 per
cent. ownership interest and related initial and additional
investments in Deflecto Holdings, LLC ("Deflecto") (the "Deflecto
Proposal"), and (ii) investments in JZI Fund IV, L.P. ("Fund IV")
(the "Fund IV Proposal" and together with the Deflecto Proposal,
the "Proposals").
Both of the Proposals would be considered related party
transactions under Chapter 11 of the Listing Rules (with which the
Company voluntarily complies and insofar as the Listing Rules are
applicable to the Company by virtue of its voluntary compliance)
and therefore shareholder approval is required for the Proposals
which will be sought at the EGM.
Deflecto Proposal
The Company intends to acquire from Edgewater Growth Capital
Partners ("Edgewater") a 27.696 per cent. ownership interest in
Deflecto for an amount of initial consideration of approximately
US$23.175 million payable to
Edgewater upon completion of the acquisition. The initial
consideration comprises approximately US$22.5 million payable to Edgewater plus an
additional amount of approximately US$675,000 as reimbursement to Edgewater for
costs incurred by it since the acquisition of its ownership
interest in Deflecto in 2017. Following completion of the
acquisition, the ownership interests in Deflecto will be held
52.304 per cent. by Edgewater, 27.696 per cent. by the Company, and
20 per cent. in aggregate by existing and future management of
Deflecto.
Deflecto is a diversified, highly scalable and global US company
that designs, manufactures and sells innovative plastic products to
multiple industry segments, including
point-of-purchase/point-of-sale, safety, floor protection, office
products and air distribution. The business is headquartered in
Indianapolis, Indiana, USA and has
operations elsewhere in the United
States, Canada, the
United Kingdom, China and India. It serves a range of customers across
multiple channels including big box retailers, drug and convenience
stores, wholesalers and distributors, and original equipment
manufacturers. Prior to its acquisition by Edgewater in 2017 and
since 1985, Deflecto was owned by Jordan Industries International
LLC, a company owned approximately 50 per cent. by David Zalaznick and Jay
Jordan together being also the founders and principals of
the Company's investment adviser, Jordan/Zalaznick Advisers, Inc.
("JZAI") with the balance of the company's ownership interests
being owned by their respective affiliates which included a small
minority stake of less than 0.1 per cent. owned by the Company.
JZAI is therefore intimately familiar with the Deflecto business
and its operations for over the past 25 years.
Deflecto has gross assets of US$153.480
million as at 31 December 2017
and net sales and EBITDA of US$151.347
million and US$15.082 million
respectively for the financial year ended 31
December 2017. These figures all of which are unaudited are
presented as the total gross assets of and net sales and EBITDA
attributable to the whole of Deflecto and not the proportionate
27.696 per cent. ownership interest proposed to be acquired by the
Company. Existing members of the management team of Deflecto run
the Deflecto business and the key individuals important to the
business are Jim Farrell and
Bob Flynn as a senior leader and
chief financial officer of Deflecto respectively.
In addition to the initial consideration payable by the Company
to Edgewater, the Company intends to make investments in Deflecto
jointly with Edgewater on a pro rata basis according to their
respective ownership interests (as between themselves and excluding
Deflecto management), being joint investments in the proportions of
34.62 : 65.38 economically (the "Deflecto JZCP/Edgewater Ownership
Proportions"). The joint investments are intended to be made:
- firstly in the form of the Company making an initial working
capital contribution to Deflecto in an amount of approximately
US$5 million with Edgewater also
making its own contribution to Deflecto's working capital pro rata
according to the Deflecto JZCP/Edgewater Ownership Proportions. The
working capital contributions are to be made by the Company and
Edgewater at the same time as the payment of the initial
consideration; and
- thereafter in the form of the Company making additional joint
investments in Deflecto from time to time in an amount of up to
approximately US$31.825 million with
Edgewater also making its own additional joint investments in
Deflecto at the same time pro rata according to the Deflecto
JZCP/Edgewater Ownership Proportions. The additional joint
investments are to be made by the Company and Edgewater principally
for the purpose of funding complementary acquisitions to be made by
Deflecto.
The total amount of the initial consideration payable to
Edgewater together with the initial and further joint investments
in Deflecto in each case to be made by the Company are not to
exceed an amount of up to US$60
million.
Edgewater from whom the Company is acquiring its ownership
interest in Deflecto and making its related joint investments
alongside is a substantial shareholder of the Company and therefore
a related party of the Company under the Listing Rules. The Board
believes that the Deflecto Proposal represents an attractive
investment opportunity for the Company particularly given JZAI's
knowledge and understanding of the Deflecto business and the
Company's considerable experience of co-investing with
Edgewater.
Fund IV Proposal
JZAI, the Company's investment adviser, intends to establish
Fund IV which will be a Cayman
Islands exempted limited partnership. The general partner of
Fund IV will be JZI Fund IV GP, L.P. ("Fund IV GP") which will also
be a Cayman Islands exempted
limited partnership and of which JZAI will be the general partner.
Fund IV will be managed by JZ Asset Management, LLC ("JZAM"),
acting through JZ Asset Management UK LLP. JZAI is JZAM's managing
member.
Fund IV will be a new pan European microcap buyout fund and a
follow-on fund to EuroMicrocap Fund 2010, L.P. and JZI Fund III,
L.P. and is being established to expand and diversify the Company's
investments in Western Europe with
acquisitions intended to be made with a focus on buyouts and
build-ups of companies and in growth company platforms in the
microcap market. Key individuals important to Fund IV are the
founders and principals of JZAI, David
Zalaznick and Jay Jordan, as
well as Miguel Rueda who is the
managing partner of JZ International Ltd.
It is intended that JZAI will target aggregate capital
commitments to make investments in Fund IV of approximately €650
million (subject to a hard cap of €800 million). The first closing
of Fund IV is targeted to occur in or around Q3 2018.
In light of the above, the Company is intending to make
investments in Fund IV jointly with David
Zalaznick and Jay Jordan and
various members of the JZAI European investment team (together, the
"Fund IV Principals"). Specifically, the Company intends at or
about the time of the first closing of Fund IV to undertake a
capital commitment to make investments in Fund IV (through Fund IV
GP) of up to €64 million. At or around the same time, the Fund IV
Principals would also undertake a capital commitment to make
investments in Fund IV (also through Fund IV GP) of up to €20
million. Both the Company's and the Fund IV Principals' capital
commitments taken together shall not however exceed in aggregate
approximately €80 million of which at JZAI's discretion the
Company's commitment shall be between approximately 75 – 80 per
cent. and the Fund IV Principals' commitment shall be between
approximately 20 – 25 per cent. in each of such aggregate amount.
As such, the Company would be investing jointly with the Fund IV
Principals in Fund IV (all through Fund IV GP) in the proportions
of between approximately 75 : 25 and 80 : 20. The joint investments
by the Company and the Fund IV Principals in Fund IV will therefore
be made on a 75 - 80 : 25 - 20 basis economically. It is
anticipated that the balance of the targeted aggregate capital
commitments to Fund IV will be fulfilled by other third party
co-investors extending capital commitments to make investments in
Fund IV.
Each of the Fund IV Principals alongside whom the Company is
proposing to make its joint investments in Fund IV are related
parties of the Company under the Listing Rules. Following the
Company's investments in EuroMicrocap Fund 2010, L.P. and JZI Fund
III, L.P., the Board considers that the participation in further
investment opportunities in Europe
via Fund IV, and in particular the increased diversification and
access to third party co-investors offered by this investment, also
represents an attractive investment opportunity for the
Company.
Notice of EGM and Shareholder
Circular
Further details of both Proposals are included in the Notice
convening the EGM and the circular of the Company in connection
with the Proposals.
In particular, shareholders should note that, as detailed in the
circular, whilst the Listing Rules provide for written confirmation
to be obtained from a sponsor that the terms of a related party
transaction are fair and reasonable as far as shareholders are
concerned, such a confirmation has only been received in relation
to the Fund IV Proposal and not the Deflecto Proposal.
This is because, whilst the Company has sought to obtain a fair
and reasonable written confirmation for Deflecto, it has been
unable to do so at a cost which can be justified relative to the
size of the investment that the Company proposes to make as part of
the Deflecto Proposal and within the time constraints needed to be
met in order to transact on and complete the transaction on the
terms negotiated. The Company understands that the costs and time
for obtaining a fair and reasonable written confirmation can often
be greater for a related party transaction that concerns an
acquisition such as the Deflecto Proposal as opposed to a
co-investment in the case of the Fund IV Proposal, which can be
attributed to the additional due diligence and valuation work that
may need to be undertaken on the target the subject of the
acquisition.
The Company has therefore decided to depart from the requirement
to obtain a fair and reasonable written confirmation on this
occasion but notwithstanding that the Board, which has been so
advised by the Company's investment adviser, JZAI nevertheless
considers the Deflecto Proposal to have been negotiated on arm's
length terms. That negotiation has been undertaken on the Company's
behalf by JZAI, the founders and principals of which are also
substantial shareholders of the Company and whose combined
shareholding exceeds that of Edgewater's. JZAI has a selective and
disciplined approach to investing which is applied across all
investments including in the case of Deflecto. In addition, JZAI
has also provided written confirmation to the Company that the
terms of the Deflecto Proposal are fair and reasonable as far as
ordinary shareholders are concerned. JZAI is ideally placed to
assess the value and merits of the Deflecto Proposal given its
historic links and resultant in-depth knowledge and understanding
of the Deflecto business. Shareholders are also reminded that the
Company is not subject to, but rather voluntarily complies with,
the Listing Rules and, save for the absence of a fair and
reasonable written confirmation in a form prescribed by the Listing
Rules, the Deflecto Proposal is otherwise being treated in
accordance with the Listing Rules including the requirement to
obtain shareholder approval. The Directors of the Company, who have
been so advised by JZAI, consider this departure is justified for
the aforementioned reasons and is in the best interests of the
Company and the ordinary shareholders. The Company otherwise
intends to continue to comply voluntarily with the requirements of
the Listing Rules.
The Notice convening the EGM is being distributed to members of
the Company and will shortly be uploaded to the Company's website
at www.jzcp.com. Copies of the circular the Company is posting to
shareholders are available for viewing, during normal business
hours, at the registered office of the Company at Trafalgar Court, Les Banques, St Peter Port,
Guernsey GY1 3QL and will shortly
be available for viewing at www.morningstar.co.uk/uk/nsm. The
notice convening the EGM is also included within the circular.
Ends
For further information:
William Simmonds
J.P. Morgan Cazenove |
+44 (0)20 7742
4000 |
Kit Dunford / Jack
Rodway
FTI Consulting |
+44 (0)20 3727 1143 /
3319 5726 |
David Zalaznick
Jordan/Zalaznick Advisers, Inc. |
+1 212 485 9410 |
Paul Ford
Northern Trust International Fund Administration Services
(Guernsey) Limited |
+44 (0) 1481
745383 |
About JZCP
JZ Capital Partners (“JZCP”) is one of the oldest closed-end
investment companies listed on the London Stock Exchange. It seeks
to provide shareholders with a return by investing selectively in
US and European microcap companies and US real estate. JZCP
receives investment advice from Jordan/Zalaznick Advisers, Inc.
(“JZAI”) which is led by David
Zalaznick and Jay Jordan.
They have worked together for more than 35 years and are supported
by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing
management of microcap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com.