JZ Capital Ptnrs Ltd JZCP agrees sale of part of its US Microcap Portfolio

 
TIDMJZCP TIDMJZCC TIDMJZCN 
 
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 
 
             JZCP agrees sale of part of its US Microcap Portfolio 
 
                Proceeds to repay substantial levels of debt 
 
 
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET 
ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). 
 
19 October 2020 
 
JZ Capital Partners Limited, the London listed fund that invests in US and 
European microcap companies and US real estate, is today pleased to announce 
that it has agreed to sell its interests in certain US microcap portfolio 
companies (the "Secondary Sale") to a secondary fund led by Hamilton Lane 
Advisors, L.L.C. ("Hamilton Lane"), one of the world's largest allocators and 
managers of private markets capital. 
 
The Secondary Sale will be structured as a sale to a newly formed fund, JZHL 
Secondary Fund LP (the "Secondary Fund"), managed by an affiliate of the 
Company's investment manager, Jordan/Zalaznick Advisers, Inc. (the "Investment 
Adviser" or "JZAI"). 
 
Hamilton Lane and other secondary investors, being, as required by Hamilton 
Lane, David W. Zalaznick and John (Jay) Jordan II, the founders and principals 
of JZAI, (the "JZAI Founders") (or their respective affiliates) and various 
members of the JZAI US microcap investment team (the "Secondary Investors"), 
will be investing in the Secondary Fund, which will acquire the Company's 
interests in the relevant US microcap assets. 
 
The US microcap assets to be sold as part of the Secondary Sale include the 
Company's interests in each of Flex Pack, Flow Controls, Testing Services, 
Felix Storch, Peaceable and TierPoint (together, the "US Microcap Portfolio 
Companies"). In return, the Company will receive aggregate consideration of: 
(i) US$90 million in cash (less any fees and expenses), subject to certain 
adjustments (the "Cash Consideration"); and (ii) a special limited partner 
interest in the Secondary Fund entitling the Company to certain distributions 
and other rights and obligations from the Secondary Fund (the "Special LP 
Interest", and together with the Cash Consideration, the "Aggregate 
Consideration"). 
 
The Secondary Sale marks a significant milestone towards the delivery of the 
Company's previously announced strategy of realising value from its investment 
portfolio and paying down debt. Upon completion, the Secondary Sale will 
provide the Company with the needed liquidity to repay a substantial portion of 
its senior debt. 
 
The Secondary Sale would be considered a class 1 transaction and a related 
party transaction under Chapters 10 and 11 respectively of the Financial 
Conduct Authority's Listing Rules (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 Secondary Sale. In addition to shareholder 
approval, the Secondary Sale is also subject to a number of other conditions as 
explained further below. 
 
Shareholder approval for the Secondary Sale will accordingly be sought at an 
extraordinary general meeting of the Company (the "EGM"), which the Company 
intends to convene by giving notice of the EGM as soon as practicable after the 
date of this announcement. A shareholder circular containing further details of 
the Secondary Sale and the notice convening the EGM including a resolution to 
be proposed at the EGM (the "Resolution") will also be sent to shareholders as 
soon as practicable. A further announcement will be made by the Company which 
will provide details of the date, time and location of the EGM. This 
announcement should be read in conjunction with that further announcement 
together with the shareholder circular. 
 
As a separate matter, the Company is also pleased to announce that it has 
completed on the sale of its Greenpoint property located in Brooklyn, New York. 
The Company received approximately US$13.6 million all in cash for its interest 
in the site which corresponds to a write down to the Company's net asset value 
of approximately US$20 million. The approximate write down has already been 
included in the updated valuations applied to the Company's real estate 
investments as earlier announced in September and October 2020. 
 
Proposed disposal of US Microcap Portfolio Companies 
 
Pursuant to an agreement of purchase, sale and contribution (the "Sale 
Agreement") entered into by, amongst others, the Company, the Secondary Fund 
and Hamilton Lane, the Company proposes to realise 100 per cent. of its 
ownership interests in each of the US Microcap Portfolio Companies the subject 
of the Secondary Sale, being ACW Flex Pack, LLC ("Flex Pack"), Flow Controls 
Holding, LLC ("Flow Controls"), Testing Services Holdings, LLC ("Testing 
Services"), Felix Storch Holdings, LLC ("Felix Storch"), Peaceable Street 
Capital, LLC ("Peaceable") and TierPoint LLC ("TierPoint"). 
 
The Secondary Fund that is to acquire the US Microcap Portfolio Companies is a 
Delaware limited partnership formed on behalf of the Secondary Investors and 
managed by an affiliate of JZAI. An affiliate of JZAI will also serve as the 
general partner of the Secondary Fund. In addition, affiliates of JZAI will 
retain their existing interests in certain of the US Microcap Portfolio 
Companies. The full potential commitment by the Secondary Investors to the 
Secondary Fund is up to US$110 million in aggregate, with Hamilton Lane's full 
potential commitment being up to approximately US$100 million and, as required 
by Hamilton Lane, the JZAI Founders' (or their respective affiliates) and 
members of the JZAI US microcap investment team's full potential commitment 
being up to approximately US$10 million. A total initial investment of US$90 
million will be funded severally and not jointly by the Secondary Investors at 
the time of closing of the Secondary Sale to facilitate its acquisition of the 
US Microcap Portfolio Companies. In addition to this initial investment amount, 
up to US$20 million of unfunded capital commitments is expected to be 
contributed to the Secondary Fund severally (and not jointly) by the Secondary 
Investors at the same time and to be funded as required. The resulting 
ownership interests in the Secondary Fund will be 90.9 per cent. owned by 
Hamilton Lane and 9.1 per cent. by the JZAI Founders (or their respective 
affiliates) and the JZAI US microcap investment team. In addition, the Company 
will receive a Special LP Interest in the Secondary Fund as part of the 
Aggregate Consideration as further explained below. 
 
The Aggregate Consideration to be received by the Company for the Secondary 
Sale is to be comprised of: (i) Cash Consideration of US$90 million (less any 
fees and expenses); and (ii) a Special LP Interest in the Secondary Fund. The 
Cash Consideration is subject to certain adjustments specified in the Sale 
Agreement and as such will be: (i) increased by the amount of any investments 
made by the Company to the US Microcap Portfolio Companies, and (ii) decreased 
by the amount of any proceeds received by the Company from the US Microcap 
Portfolio Companies, in each case between the date of execution of the Sale 
Agreement and the time of closing of the Secondary Sale. The Special LP 
Interest will entitle the Company, as the special limited partner of the 
Secondary Fund, to certain distributions from, and certain other rights and 
obligations in respect of, the Secondary Fund. The equity interests of the 
Secondary Fund are subject to the following distribution waterfall: 
 
·      First, 100 per cent. will be distributed to the Secondary Investors pro 
rata in accordance with their respective contributions until each Secondary 
Investor has received distributions equal to its total aggregate contributions 
to the Secondary Fund (amounting in total to US$90 million plus any further 
contributions made thereafter, expected to be in the aggregate of up to an 
additional US$20 million); 
 
·      Second, 100 per cent. to the Secondary Investors pro rata in accordance 
with their respective contributions until each Secondary Investor has realised 
the greater of a 15 per cent. net internal rate of return on its total 
aggregate contributions or an amount equal to 140 per cent. of its total 
aggregate contributions (in each case, taking into account all prior and 
current distributions); 
 
·      Third, 95 per cent. to the Company (in its capacity as the special 
limited partner of the Secondary Fund) and 5 per cent. to the Secondary 
Investors (in the case of the Secondary Investors, pro rata in accordance with 
their respective contributions) until the Company has received distributions 
equal to US$67.6 million; and 
 
·      Fourth, 62.5 per cent. to the Secondary Investors (pro rata in 
accordance with their respective contributions) and 37.5 per cent. to the 
Company. 
 
Due to the Secondary Investors being entitled to a minimum return equal to 140 
per cent. of their total aggregate contributions, the value of the Special LP 
Interest to the Company, following the execution of the Sale Agreement, should 
be approximately US$40.0 million. Adding this figure to the Cash Consideration 
of US$90 million (less any fees and expenses) would indicate a temporary write 
down to the Company's net asset value of approximately US$28.7 million, when 
compared against the aggregate net asset value of the US Microcap Companies at 
29 February 2020 of US$158.7 million. That being the case, the Company does 
however expect that the value of the Company's Special LP Interest should 
increase in the near to medium term as the Secondary Investors fund the 
additional new capital required to grow the US Microcap Companies and complete 
their respective acquisition strategies. 
 
The Company intends to use up to US$70 million of the Cash Consideration 

received in connection with the Secondary Sale to repay a substantial portion 
of its senior debt. The surplus of the Cash Consideration will be used 
otherwise towards the implementation of the aims of the Company's recently 
amended and restated investment policy and for the Company's general corporate 
purposes. As mentioned above, the Secondary Sale, assuming it is completed, 
will mark a significant milestone towards the delivery of the Company's 
strategy of realising value from its investment portfolio and paying down debt. 
 
As also mentioned above, the Secondary Sale is subject to a number of 
conditions, including the approval of the Company's ordinary shareholders given 
it is both a class 1 transaction and a related party transaction of the 
Company. Other conditions to the Secondary Sale completing include entry into 
certain ancillary documentation by third-party investors in the US Microcap 
Portfolio Companies, the finalisation of amendments to the Company's current 
lending arrangements with Guggenheim Partners and the release of security held 
by Guggenheim Partners over the US Microcap Portfolio Companies. As recently 
announced by the Company in September and October 2020, the Company and its 
lenders have made significant progress in their ongoing discussions to agree 
amendments to these lending arrangements with its lenders and the Company 
expects to make a further announcement in relation to these matters shortly. 
 
If the above conditions, including approval of the Company's ordinary 
shareholders, have not been satisfied or waived by the date which falls 30 
business days from the date of the posting of the shareholder circular plus the 
number of business days (not to exceed 10) as necessary for notice of closing 
by the Company (subject to extension in certain limited circumstances), either 
party may terminate the Sale Agreement. Completion of the Secondary Sale is 
expected to occur in early December assuming the Resolution is passed by the 
Company's ordinary shareholders at the EGM and the other conditions to the 
Secondary Sale are satisfied or waived. 
 
Information relating to the US Microcap Portfolio Companies 
 
Flex Pack 
 
Flex Pack is incorporated in Delaware and is a provider of a variety of custom 
flexible packaging solutions to converters and end-users. 
 
The Company's ownership interest in Flex Pack consists of 42,500 common units 
and a 50.0 per cent. interest in 8 per cent. preferred equity. The net asset 
value ("NAV") of the Company's ownership interest in Flex Pack was US$11.5 
million as at 29 February 2020, as set out in the Company's annual report for 
the year ended 29 February 2020 (the "2020 Annual Report"). 
 
Flex Pack has gross profits of approximately US$15.2 million and total gross 
assets of approximately US$58.1 million for the 12 months ending 31 December 
2019. These figures are attributable to the whole of the Flex Pack business and 
not the ownership interest held and proposed to be disposed of by the Company 
pursuant to the Secondary Sale. 
 
Existing members of the management team of Flex Pack run the Flex Pack business 
and the key individuals important to the business are Chris Wrobel who is the 
Chairman of the Board and Chief Executive Officer of Flex Pack and Glen Jensen 
who is the Chief Financial Officer of Flex Pack. 
 
Flow Controls 
 
Flow Controls is incorporated in Delaware and is a manufacturer and distributor 
of high-performance, mission-critical flow handling products and components 
utilised to connect processing line equipment. 
 
The Company's ownership interest in Flow Controls consists of 44,561.77 common 
units and a 49.6 per cent. interest in 8 per cent. preferred equity. The NAV of 
the Company's ownership interest in Flow Controls was US$15.5 million as at 29 
February 2020, as set out in the 2020 Annual Report. 
 
Flow Controls has gross profits of approximately US$10.4 million and total 
gross assets of approximately US$54.8 million for the 12 months ending 31 
December 2019. These figures are attributable to the whole of the Flow Controls 
business and not the ownership interest held and proposed to be disposed of by 
the Company pursuant to the Secondary Sale. 
 
Existing members of the management team of Flow Controls run the Flow Controls 
business and the key individuals important to the business are Phil Pejovich 
who is the Chairman of the Board and Chief Executive Officer of Flow Controls, 
Keith Whisenand who is the Chief Financial Officer of Flow Controls and Todd 
Lanscioni who is a Senior Vice President of Flow Controls. 
 
Testing Services 
 
Testing Services is incorporated in Delaware and is a provider of safety 
focused solutions for the industrial, environmental and life science related 
markets, and testing, certification and validation services for cleanroom, 
critical environments and containment systems. 
 
The Company's ownership interest in Testing Services consists of 421.5469 
common units and a 48.1 per cent. interest in 8 per cent. preferred equity. The 
NAV of the Company's ownership interest in Testing Services was US$23.9 million 
as at 29 February 2020, as set out in the 2020 Annual Report. 
 
Testing Services has gross profits of approximately US$40.2 million and total 
gross assets of approximately US$103.7 million for the 12 months ending 31 
December 2019. These figures are attributable to the whole of the Testing 
Services business and not the proportionate ownership interest held and 
proposed to be disposed of by the Company pursuant to the Secondary Sale. 
 
Existing members of the management team of Testing Services run the Testing 
Services business and the key individuals important to the business are 
Christopher K. Kuhl who is the Chief Financial Officer of Testing Services and 
Todd Lanscioni who is a Senior Vice President of Testing Services. 
 
Felix Storch 
 
Felix Storch is incorporated in Delaware and is a leading provider of specialty 
refrigeration and custom appliances to residential small kitchen, professional, 
life sciences, food service and hospitality markets. Felix Storch is a second 
generation family business, founded in 1969 and based in The Bronx, NY. Felix 
Storch's products now include a wide range of major appliances sold both 
nationally and internationally. 
 
The Company holds an approximate 45.0 per cent. ownership interest in Felix 
Storch. The NAV of the Company's ownership interest in Felix Storch was US$24.5 
million as at 29 February 2020, as set out in the 2020 Annual Report. 
 
Felix Storch has gross profits of approximately US$31.7 million and total gross 
assets of approximately US$52.9 million for the 12 months ending 31 December 
2019. These figures are attributable to the whole of the Felix Storch business 
and not the proportionate 45.0 per cent. ownership interest held and proposed 
to be disposed of by the Company pursuant to the Secondary Sale. 
 
Existing members of the management team of Felix Storch run the Felix Storch 
business and the key individuals important to the business are Paul Storch who 
is the President of Felix Storch and Marty O'Gorman who is the Chief Operating 
Officer of Felix Storch. 
 
Peaceable 
 
Peaceable is incorporated in Delaware and is a specialty finance platform 
focused on making structured investments in small and mid-sized income 
producing commercial real estate. The company is built on a foundation of 
know-how, creatively structuring preferred equity to provide senior equity in 
complex situations. With extensive investment experience throughout the United 
States and Canada, Peaceable's underwriting and decision making process is 
designed to deliver creative, flexible and dependable solutions quickly. 
Peaceable focuses on a diverse portfolio of property types including 
multi-family, office, self-storage, industrial, retail, RV parks, mobile home 
parks, parking health care and hotels. 
 
The Company holds an approximate 29.4 per cent. indirect ownership interest in 
Peaceable. The NAV of the Company's ownership interest in Peaceable was US$36.5 
million as at 29 February 2020, as set out in the 2020 Annual Report. 
 
Existing members of the management team of Peaceable run the Peaceable business 
and the key individuals important to the business are Dave Henry who is the 
Co-Founder of Peaceable, Fred Kurz who is the Chief Executive Officer of 
Peaceable and Jim Bruin who is the President of Peaceable. 
 
TierPoint 
 
TierPoint is incorporated in Delaware and is a leading provider of information 
technology and data centre services, including colocation, cloud computing, 
disaster recovery and managed IT services. TierPoint's hybrid IT solutions help 
clients increase business agility, drive performance and manage risk. TierPoint 
operates via a network of 43 data centres in 20 markets across the United 
States. 
 
The Company holds an approximate 4.6 per cent. indirect ownership interest in 
TierPoint. The NAV of the Company's ownership interest in TierPoint was US$46.8 
million as at 29 February 2020, as set out in the 2020 Annual Report. 
 
TierPoint has gross profits of approximately US$194.7 million and total gross 
assets of approximately US$1,627.2 million for the 12 months ending 31 December 
2019. These figures are attributable to the whole of the TierPoint business and 
not the proportionate 4.6 per cent. ownership interest held and proposed to be 
disposed of by the Company pursuant to the Secondary Sale. 
 
Existing members of the management team of TierPoint run the TierPoint business 
and the key individuals important to the business are Jerry Kent who is the 
Chairman and CEO of TierPoint, Mary Meduski who is the President and CFO of 
TierPoint, Wendy Knudsen who is the Executive Vice President, Chief Legal 
Officer and Secretary of TierPoint, Gus Haug who is the Executive Vice 
President (Corporate Development) of TierPoint, Pete Abel who is the Senior 
Vice President (Marketing and Communications) of TierPoint and Matthew Kent, 
Mike Pizzella and Frederick Ricker who are each Vice Presidents of TierPoint. 
 
Information relating to Hamilton Lane 
 

Hamilton Lane Advisors, L.L.C. is a leading alternative investment management 
firm providing innovative private markets solutions to sophisticated investors 
around the world. Dedicated to private markets investing for 29 years, the firm 
currently employs over 400 professionals operating in offices throughout North 
America, Europe, Asia-Pacific and the Middle East. Hamilton Lane has 
approximately US$516 billion in assets under management and supervision, 
composed of approximately US$68 billion in discretionary assets and over US$447 
billion in advisory assets, as of 30 June 2020. Hamilton Lane offers a full 
range of investment products and services that enable clients to participate in 
the private markets asset class on a global and customized basis. More 
information regarding Hamilton Lane can be found on its website 
www.hamiltonlane.com. 
 
Related Party Transaction 
 
The Secondary Sale would be considered a related party transaction 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). JZAI is the Company's investment adviser pursuant to the 
investment advisory and management agreement dated 23 December 2010 between the 
Company and JZAI, as amended from time to time, and, under the Listing Rules 
would therefore be considered a related party of the Company. In addition, the 
JZAI Founders and various members of the JZAI US microcap investment team are 
each considered to be a related party of the Company. The JZAI Founders are the 
founders and principals of the Company's Investment Adviser, JZAI, and are also 
substantial shareholders of the Company as they are entitled to exercise, or to 
control the exercise of, 10 per cent. or more of the votes able to be cast at a 
general meeting of the Company. 
 
The Secondary Fund is being managed by an affiliate of JZAI, an affiliate of 
JZAI will also serve as the general partner of the Secondary Fund, and the JZAI 
Founders (or their respective affiliates) and various members of the JZAI US 
microcap investment team will, as required by Hamilton Lane, be investing in 
the Secondary Fund. Therefore, the proposed disposal by the Company of its 
ownership interests in the US Microcap Portfolio Companies to the Secondary 
Fund would be considered a related party transaction under Chapter 11 of the 
Listing Rules, in so far as the Listing Rules are applicable to the Company by 
virtue of its voluntary compliance with the same. 
 
As such, the Secondary Sale would be considered a related party transaction 
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 Shareholder approval is accordingly 
being sought. 
 
In relation to the Secondary Sale, as a related party transaction of the 
Company, the Board, which has received advice from Houlihan Lokey Capital, Inc. 
("Houlihan Lokey") as to the fairness, from a financial point of view, of the 
consideration to be paid to the Company in connection with the Secondary Sale, 
considers the Secondary Sale to be fair and reasonable as far as the 
shareholders of the Company as a whole are concerned. Among other things, the 
advice of Houlihan Lokey to the Board was based on certain assumptions and 
estimates provided to Houlihan Lokey concerning the anticipated timing and 
amount of future distributions of the Secondary Fund to be received by the 
Company, for which assumptions and estimates Houlihan Lokey is not responsible. 
 
The relevant Resolution is to be proposed at the Extraordinary General Meeting 
in relation to the Secondary Sale as a Related Party Transaction of the Company 
and is being proposed to seek Shareholder approval for the Company's proposed 
disposal of ownership interests in the US Microcap Portfolio Companies. 
 
The JZAI Founders and various members of the JZAI US microcap investment team 
are considered to be a Related Parties of the Company and, as such, have 
undertaken not to vote, and have taken all reasonable steps to ensure that 
their respective associates will not vote, on the relevant Resolution. 
 
Class 1 Transaction 
 
Because of its size, the Secondary Sale will also constitute a class 1 
transaction for the purposes of the Listing Rules. Therefore, the approval of 
shareholders is also required pursuant to Chapter 10 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). 
 
______________________________________________________________________________________ 
 
Market Abuse Regulation 
 
The information contained within this announcement is considered by the Company 
to constitute inside information as stipulated under the Market Abuse 
Regulations (EU) No. 596/2014. Upon the publication of this announcement, this 
inside information is now considered to be in the public domain. The person 
responsible for arranging the release of this announcement on behalf of the 
Company is David Macfarlane, Chairman. 
 
For further information: 
 
Ed Berry                               [phone] 
FTI Consulting 
 
David Zalaznick                        [phone] 
Jordan/Zalaznick Advisers, Inc. 
 
Samuel Walden                          [phone] 
Northern Trust International Fund 
Administration Services (Guernsey) 
Limited 
 
 
Important Notice 
 
This announcement includes statements that are, or may be deemed to be, 
"forward-looking statements". These forward-looking statements can be 
identified by the use of forward-looking terminology, including the terms 
"believes", "estimates", "anticipates", "expects", "intends", "may", "will" or 
"should" or, in each case, their negative or other variations or comparable 
terminology. These forward-looking statements relate to matters that are not 
historical facts. By their nature, forward-looking statements involve risks and 
uncertainties because they relate to events and depend on circumstances that 
may or may not occur in the future. Forward-looking statements are not 
guarantees of future performance. The Company's actual investment performance, 
results of operations, financial condition, liquidity, policies and the 
development of its strategies may differ materially from the impression created 
by the forward-looking statements contained in this announcement. In addition, 
even if the investment performance, result of operations, financial condition, 
liquidity and policies of the Company and development of its strategies, are 
consistent with the forward-looking statements contained in this announcement, 
those results or developments may not be indicative of results or developments 
in subsequent periods. These forward-looking statements speak only as at the 
date of this announcement. Subject to their legal and regulatory obligations, 
each of the Company, the Investment Adviser and their respective affiliates 
expressly disclaims any obligations to update, review or revise any 
forward-looking statement contained herein whether to reflect any change in 
expectations with regard thereto or any change in events, conditions or 
circumstances on which any statement is based or as a result of new 
information, future developments or otherwise. 
 
 
 
END 
 

(END) Dow Jones Newswires

October 19, 2020 02:00 ET (06:00 GMT)