Texas Pacific Group Wins Big on Tech IPOs –

With the recent initial public offerings of two companies it acquired from Lucent Technologies Inc., Texas Pacific Group (TPG) is reaping huge returns on buyout investments it has made in the technology sector.

Based on current stock market valuations, TPG is seeing an approximately 20-times return on its $45 million equity investment in Paradyne Networks, which held an IPO last month, and an approximately 100-times return on its $5 million investment in GlobeSpan Semiconductor Inc., which went public in June.

Paradyne issued six million shares at $17 per share. At press time, the company was trading at $42.90 per share. GlobeSpan at press time was trading at $48.70 per share, after issuing 3.25 million shares priced at $15 each.

The success of these IPOs underscores the growing importance of the technology sector to TPG’s investment strategy-a source familiar with the firm said returns from investments in technology make up a disproportionately large share of the firm’s profits.

AT&T Spin-Outs Thrive

TPG took a gamble on GlobeSpan and Paradyne when it bought them in 1996. In August of that year, Lucent, which had recently spun out from AT&T Corp., decided to divest itself of the two companies. At the time, GlobeSpan was not much more than a handful of people and a portfolio of patents, while Paradyne was a neglected division of a corporate giant hemeraging $4 million a month, according to David Stanton, the TPG partner who led the deals.

TPG brought on board Donaldson, Lufkin & Jenrette-backed venture capital firm Sprout Group as advisors and co-investors in the GlobeSpan deal. TPG subsequently hired 200 managers and engineers to grow GlobeSpan, which manufactures chips that speed up data transmission over traditional copper wires.

Just prior to GlobeSpan’s IPO, Cisco Systems and Intel Corp. jointly invested $12 million in the company.

At Paradyne, Mr. Stanton and his team brought in new management and focused the company on high-speed communications equipment. The two companies’ businesses are not unrelated-GlobeSpan chips are often used in concert with Paradyne equipment.

Post-IPO, TPG still owns approximately 50% of both companies, Mr. Stanton said.

Since 1996, TPG has been increasingly active in the technology space. That year it bought GP Com, a telecommunications divestiture. In 1998, the firm acquired troubled low-end chip maker Zilog. In May, TPG agreed to acquire the semiconductor components division of Motorola Inc. for $1.6 billion (BUYOUTS May 17, p. 1).