Big funds go downmarket to target small M&A: InterGrowth

The influx of large funds into smaller M&A deals is becoming more common, according to executives at ACG’s InterGrowth conference.

James Bunn, head of investment banking at Raymond James, said some larger funds are creating small and mid-cap funds to take advantage of smaller deals. He pointed to Carlyle Group, which has created “fund families.”

“We will increasingly see firms take minority positions where before [it was] only a majority,” said Bunn, who spoke on the May 4 panel The Evolution of Private Equity. “This feels like a more permanent shift,” he said.

Charlie Gifford, general partner of New Heritage Capital, agreed that a number of bigger funds are creating smaller funds to do smaller deals. He said he recently saw a $3 billion fund put a bid on a company with $15 million of EBITDA.

“Think of the resources they could bring to bear. It’s unfair,” said Gifford who appeared on the May 3 panel Strategy, Valuation and Integration: Securing M&A Success in 2016.

Executives at InterGrowth pointed to Francisco Partners Management LP, which is launching the Agility fund to invest in smaller tech deals, Buyouts reported May 2. Agility has a $500 million target, the story said.

Thoma Bravo in February also closed its Discover fund at $1.074 billion, Buyouts has reported. Last week, Buyouts reported that lower middle market mergers rose in the first quarter as several large PE firms switched their focus to smaller deals.

Also speaking on the Evolution of Private Equity panel were Patrick Severson, a principal at Vista Equity Partners, Pam Hendrickson, COO of Riverside Co, and John Black, head of growth equity at H.I.G. Growth Partners. Severson said his firm raised several smaller pools. Vista’s Foundation funds typically invest in small-cap companies.

“We grew up in the smaller world,” Severson said. H.I.G.’s Black said all of his firm’s 19 funds are focused on the “mid or small market.”

When asked if large firms have the cultural DNA to come down market, Hendrickson said: “They don’t. They frequently hire teams. They import that talent.”

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Photo of Buyouts Insider Executive Editor David Toll interviewing David Brackett, co-CEO of Antares Capital, courtesy of ACG