Mercury Capital Fund 2

The $300m, Mercury Capital Fund 2 is managed by Sydney based Mercury Capital (www.mercurycapital.com.au) an independently owned, Australian private equity fund manager investing primarily into small to mid-market sized businesses within Australia and New Zealand.

Mercury’s core focus is investing in established businesses with market leading positions. Mercury seeks to add value through developing and executing a strategic plan to generate growth. Mercury’s approach is to work closely in partnership with existing owners and managers to enable a business to realise its full growth potential.

Mercury Capital’s strength is their knowledge. The Investment Manager and Board has significant experience from a number of highly successful private equity investments in Australia, New Zealand and the US. The teams diverse expertise also includes successfully starting, growing and selling significant businesses, and from operating at senior board and management positions in companies throughout Australia and New Zealand.

Mercury Capital Fund 2 has completed seven investments to date; Hexagon Holdings, Nexus Day Hospitals, International Volunteer HQ, Nirvana Health Group, Message Media, FiftyFive5 & Galkal and National Express Products.

Hexagon Holdings. During December 2015, Mercury Capital Fund 2 completed its first investment into Hexagon Holdings as a co-investor alongside existing investors Mercury Capital No. 1 Fund (“Mercury 1”) and Tom Sturgess. The opportunity to invest arose from the equity funding needed to acquire the bolt-on investment—Hally Group (“Hally”).

Hexagon Holdings, prior to the Hally acquisition, owned three New Zealand label converting businesses – Rapid Labels, Panprint & Kiwi Labels. Hexagon operates from three sites, employing 145 staff and has key markets in the wine, thermal, FMCG, laser & pharmacy industries. Hexagon Holdings, is head- quartered in Auckland.

The investment by Mercury 2 in Hexagon gives Mercury (as investment manager of both Mercury 1 and Mercury 2) a controlling interest in the group.

Hally Labels—Bolt on Acquisition. As noted above, Hexagon’s bolt-on acquisition of Hally Labels provided Mercury 2 the opportunity to co-invest along side Mercury 1 in Hexagon Holdings. The acquisition was for 100% of the shares in the Hally Group. Since establishment in 1965, the Hally Group has grown to become New Zealand’s second largest label participant in the market.

The group entered Australia in 1998 with a manufacturing base in Brisbane. Prior to acquisition, the group had built significant market positions in fresh food, beverage, manufacturing, shelf stable food, pharmaceuticals, nutraceuticals & horticultural industries. Hally businesses include, Hally Labels (located in Brisbane, Christchurch, Auckland), AC Labels (Sydney) and MarkIt Labels (Christchurch).

The businesses operated from five sites and employs 235 staff. Hexagon management reported to the media that there are no plans to merge any Hally and Hexagon subsidiaries, and accordingly, the companies will continue to trade independently and competitively. Post completion, it is anticipated, Hexagon will have combined annual sales of NZ$120m. Given the highly complementary nature of both Hexagon and Hally, management are implementing strategies to support the future growth prospects of the expanded group and exploring further possible bolt-on acquisitions.

On 31 March 2016, Hexagon Holdings (‘Hexagon’), acquired 100% of Adhesif Labels Limited (‘Adhesif’). This acquisition establishes Hexagon as the leading labels industry participant across the Trans-Tasman, with a large market share in the New Zealand and placing it within the top five in Australia.

Since establishment in 1981, Adhesif has grown to become New Zealand’s largest do- mestic labels industry participant and is headquartered in New Zealand with sites in Auckland and Sydney (since 1999). Adhesif is regarded as the New Zealand industry benchmark for technical excellence, speed and quality in the labels industry. Adhesif produces over half of its labels for the beverage sector, across wine, non-wine alcoholic and other beverages. Other key segments are retail, household products, nutraceutical/ medical and personal care. Adhesif’s customer base is largely orientated towards large multi-national corporate customers providing a complementary fit with Hexagon’s exist- ing customer base.

The successful bedding down of both the Adhesif and the, previously reported, Halley Labels acquisitions has created the largest labels manufacturing business in Australasia and positions the business for a year ahead focused on driving operating efficiencies and customer consolidation.

Nexus Day Hospitals. On 30th June 2016, Mercury 2 completed the acquisition of Nexus Day Hospitals (‘Nexus’) from Wolseley Private Equity in conjunction with the simultaneous settlement of the Fund’s investment and Nexus’s acquisition of National Day Surgeries (’NDS’).

Nexus was established in September 2013 and is an aggregation of Australian day hospitals performing ophthalmology, endoscopy, plastic surgery, ENT, orthopaedics, general surgery, dental surgery and other procedures.

NDS was established 20 years ago and operates three high quality day hospitals. NDS is also a highly successful greenfield developer of day hospitals.

The combined transaction establishes Nexus as the second largest day surgery business in Australia with a total of 10 high-quality day hospitals located along the southern and eastern states including Adelaide, Hobart, Melbourne, Sydney, Albury and Newcastle.

The combined business operates across five main medical craft groups (ophthalmic, gastro, plastic, orthopaedic and pain) with high quality surgical facilities and a management team with deep industry experience. Mercury is partnered in the investment by over 60 shareholder doctors.

The health industry remains an attractive opportunity for investors. As reported in the media there is a large amount of interest from potential investors due to the high projected growth attributed to Australia’s ageing population. The day hospital sector has also experienced high growth driven by lower costs and better patient outcomes than alternative full service hospitals.

During October 2016, Nexus Day Hospitals announced the bolt-on acquisition of Southbank Day Surgery (‘Southbank’).

Southbank is the leading facility for both dental and dermatological procedures in Perth. Dental and oral procedures represent about 65% of total revenue and dermatology 35%. The strong dermatology position is underpinned by the near monopoly on Mohs procedures, which are highly specialised skin cancer operations designed to minimise the area of tissue to be removed around a tumour, while also ensuring that a complete excision is performed removing all cancerous cells.

Southbank is a strategic investment for Nexus that will diversify earnings into two new craft groups (dental and dermatology), expand the group into Western Australia and increase Nexus’ scale with associated operational benefits.

On 12 November 2019, Mercury Capital Fund 2 completed the sale of Nexus Day Hospitals Pty limited to the Queensland Investment Corporation (QIC) Global Infrastructure Fund (QGIF), after the Funds doctor shareholder partners unanimously approved the sale terms.

Under Mercury’s ownership, Nexus became Australia’s second largest day hospital platform with a portfolio of twelve, day and short-stay hospitals across six states and territories in Australia. Mercury leveraged the strong stakeholder network of Nexus to create a diversified business offering, that provides the medical infrastructure to QGIF across a broad range of low acuity, non-emergency, largely non-elective surgeries for doctors, making it a true essential service provider.

The exit of Nexus delivered Mercury Capital Fund 2 investors, including VPEG2, a strong return across a 3.5 year hold period. VPEG2’s share of the Nexus sale proceeds were received during December 2019.

Nirvana Health Group. In July 2017, Mercury Capital Fund 2 acquired 50% of Nirvana Health Group (“Nirvana”), from the founding family shareholders and minority shareholders.

Nirvana is the largest primary care operator in New Zealand operating 37 large urgent care and general practice clinics primarily across Auckland. Established 40 years ago from a single GP practice in South Auckland, Nirvana has grown to become New Zealand’s largest primary care operator with ~200,000 enrolled patients, ~350,000 casual patients per year and over 800 employees including ~350 “contractor” doctors. Nirvana operates a port- folio of 40 clinics primarily located in “high needs” areas, including 17 Urgent Care Clinics largely across Auckland. The group operates two core brands East Tamaki Healthcare and White Cross as well as sub brands for other geographical areas (West Auckland Healthcare, and Mt Roskill Healthcare).

Nirvana also owns a minority investment in Qualitas Australia, a primary care company with 26 GP clinics and 2 dental units in Australia. Mercury’s investment strategy is focused on pursuing organic opportunities within the existing clinic portfolio as well as ongoing acquisition and greenfield led growth.

International Volunteer HQ. During November 2017, Mercury 2 announced that that it had acquired a majority share of International Volunteer HQ Limited (‘IVHQ’), the global leader in Volunteer Tourism.

IVHQ was established by Daniel Radcliffe in 2007 and has since grown to be the market leader in a highly-fragmented sector with 34% share of the global market. It provides impactful and affordable volunteer abroad programs to approximately 18,000 volunteers each year and has placed over 80,000 volunteers since 2007. IVHQ offers a broad product range with more than 200 projects in fields of childcare, teaching, medical and construction across 43 programs in 34 countries.

IVHQ’s customer base aligns itself with the company’s digital approach to marketing to provide younger travelers affordable, experiential and socially conscious travel options.

IVHQ’s affordability of pricing is a key competitive advantage due to price sensitivity of its customer base. Recent investment in IT and marketing capabilities also provides a scalable platform for future growth.

Message Media. Message Media operates nine brands with an active customer base of ~ 29,000 businesses who are primarily small and medium enterprises and with a small base of enterprise and government customers. The business is well established with robust systems and processes and a term of ~200 staff.

Message Media was established by Grant Rule in 2000 and is based in Melbourne. Over 18 years, Message Media has grown to become the market leader with an estimated 30% share of the Australian Application-to-Person (ATP) business messaging market. More than 5.3 billion messages are sent per year and growing at 10% per year of which 1.6 billion were sent via the Message Media gateway in FY18 across Australia, New Zealand, the United States and the United Kingdom.

FiftyFive5 & Galkal. On 29 November 2018, Mercury Capital Fund 2 Completed the investment and merger of FiftyFive5 and GalKal creating Australia’s largest independent customer insights and market research firm.The combined business has offices in Sydney, Melbourne, Auckland and Singapore, with more than 150 clients across 40 countries serving multiple industries including; financial services, telecommunications, FMCG, media and entertainment, social and government and healthcare.

Philosophically and culturally aligned, Fiftyfive5 and GalKal combined will offer current and new clients a business with scale, proven processes and offers to deliver commercially impactful customer insights, across a broader geographic reach, with deep expertise and the best talent in the industry. The current leadership of both businesses will continue to drive the new combined entity. Brent Wallace, Co-founder of GalKal, said: “These two successful businesses are stronger together and offer clients unparalleled expertise in insight-driven strategies.”

Mercury Capital said the fund decided to invest in the combined business as it was attracted to the strong growth profile, the high quality teams, the long term client relationships and the opportunity to support the business continue to grow via a number of exciting initiatives.

National Express Products (NXP). During March 2020, Mercury Capital Fund 2 completed an investment in National Express Products (NXP), an office and facility supply business operating in New Zealand.

NXP has been sourcing and distributing products in the New Zealand market for over 70 years, aiming to provide its clients with cost effective solutions and custom supply chain services. NXP’s extensive workplace solutions are designed to reduce their customers procurement costs, whilst increasing their staff productivity and engagement. The company provides its customers with a single source supplier of choice, allowing them to consolidate their business products spend and create a contract specified for their clients.

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