Thayer Capital Wraps Fund IV at $880 Million –

In a quick time frame, Thayer Capital Partners has become the second Washington D.C.-based buyout firm with political connections-along with The Carlyle Group-to significantly ramp up its capital under management. However, Thayer deliberately kept its fund under $1 billion.

“There is a psychological threshold among L.P.s with regards to the $1 billion mark,” said Rick Rickertsen, a partner at Thayer. “The perception is it pushes the fund toward larger transactions.”

Thayer held a $100 million final close this month to wrap Thayer Equity Investors IV, L.P. at $880 million. This is more than double the capital Thayer attracted for the $364 million Thayer Equity Investors III, L.P. in early 1996 (BUYOUTS May 27, 1996, p. 5). The firm raised its first two funds for individual hotel investments.

Last summer, the firm launched Fund IV with a $750 million target (BUYOUTS June 1, 1998, p. 8) largely on the strength of two investments-a 1997 buyout of Software AG Systems, a German software company that Thayer already has brought to initial and secondary public offerings, and a 1998 buyout of Global Vacation Group, which the firm has brought to an IPO.

Limited partners that committed to Fund IV include AT&T Investment Management Corp., Bank of New York, Bank of Nova Scotia, Boeing Co. & Consolidated Subsidiaries, Chase Manhattan Corp., Dresdner Bank, First Union Bank, Michigan State Treasury and Government of Singapore Investment Corp.

Merrill Lynch & Co. was the placement agent for the fund, which had held a $600 million first close last November.

Fund IV has made one investment thus far, teaming up with Patricof & Co. Ventures in the $100 million buyout and consolidation of Pryor Resources and CareerTrack (BUYOUTS Feb. 22, p. 20).

Mr. Rickertsen said the fund would make between 12 and 15 initial investments with total transaction values between $50 million and $250 million. These transactions will come in the travel and business services sectors, as well as the information technology and outsourced manufacturing industries.

“We have developed our expertise in the $50 million to $250 million deal range, and it is important to the L.P. base that we stick to that program,” Mr. Rickertsen said.

One G.P., who declined to be identified, noted the transformation of Thayer’s founder, Frederic Malek, into the head of a large buyout firm. Before becoming a private equity professional, Mr. Malek was a businessman-a CEO of Marriott Hotels & Resorts who had experience in politics, including having worked in George Bush’s 1988 presidential campaign and, earlier, as a young aide to President Richard Nixon.

He first gained experience in private equity working with The Carlyle Group but was never an employee at the firm. Mr. Malek also helped lead the 1989 buyout of Northwest Airlines along with Al Checchi and Gary Wilson.

In 1993, he made his move to build his own firm and founded Thayer in a somewhat similar manner to the way Carlyle had been formed. Mr. Malek put together a well-connected advisory board that included such political insiders as Vernon Jordan and Jack Kemp and started looking for deals. He also added partners with deal experience to round out his team.