Five Questions with Gene Yoon, Managing Partner, Bregal Sagemount

Bregal Sagemount in February closed its first fund with outside investors on its $960 million hard cap. Bregal Sagemount II beat its original $800 million target. The firm’s parent, Bregal Investments, was the biggest investor in the fund. Investment vehicles associated with Bregal Investments provided the capital for the firm’s $500 million debut vehicle.

The firm is a growth investor that provides flexible capital in sectors like software, digital infrastructure, healthcare IT services, business and consumer services and financial technology and specialty finance.

Buyouts recently chatted with Gene Yoon, managing partner at Bregal Sagemount, about the fundraising. Yoon launched the firm in 2012; he had been head of private equity for Goldman Sachs’s special-situations group.

How was fundraising for your first fund with outside investors?

There is a sea of GPs raising capital. There is more supply for PE as an industry, which we think is well-deserved and a good place to invest capital for institutional investors in the long run. The challenge is: How do we find investors that understand and like what we do? It’s particularly challenging for funds trying to create new relationships. Most LPs – their allocations go to existing managers — those get put on the docket first. For new GPs trying to get into those capital pools, you’re hoping to get in behind managers hoping for re-ups.

How did you deal with those challenges?

Our model is focused on finding subsectors that are experiencing secular growth coupled with recurring-revenue business models. We don’t restrict ourselves to one sector focus. We are hoping to find subsectors with 10 to 20 companies each that have recession-proof characteristics and recurring revenue streams.

We tend to focus on industries that have a real secular growth trend and are largely uncorrelated to the macro environment, so companies [that are] growing regardless of whether we are in a recession; companies that grow regardless of what happens in Washington, D.C.; good organic-growth opportunities. Another area we use to differentiate ourselves is that we only invest in recurring-revenue businesses. You can really add consistent core earnings and recurring revenue in the long run.

What’s an example of this type of business?

In Fund II we invested in truckstop.com. What they’re capitalizing on is a marketplace shift from a largely phone- and paper-based system to replacing those antique systems with a cloud enabled marketplace solution, which they sell on a subscription basis.

How did you source that deal?

We built a relationship 10 years before the investment with them. That is another differentiating factor working with us: We spend a lot of time developing relationships. Those relationships are built around doing deep R&D around sectors we want to be involved in. As part of those research events, we canvass the market, get to know the players and find the leading players we want to build long-term relationships with.

Another company in Fund II is Advanced Solutions International. That’s a largely recurring-revenue software business, and we met them first in 2009. We are trying to develop themes in the sectors that have good tailwinds in the long run and build relationships over time that provide proprietary deal flow.

How are you navigating the higher priced environment?

We do think we are in a heightened period of valuations, but … we have flexible capital solutions [and] we think that is a great tool at our disposal. We can create value in highly structured investments. Lots of our investments have structures in them that deliver good returns regardless of price.

Action Item: Reach Gene Yoon at gene.yoon@sagemount.com

Photo of Gene Yoon courtesy of Bregal Sagemount