TPG and Stanton Split, Plan Technology Funds –

David Stanton, the head of Texas Pacific Group’s highly profitable technology investment team, is leaving the firm to form a technology buyout fund.

At the same time, TPG is considering launching a buyout fund of its own that would target that sector, according to a spokesperson for the firm.

James Coulter, a founding partner at TPG, will assume leadership of the firm’s technology team. Earlier this year, the firm hired Robert Packard away from Deutsche Banc Alex. Brown’s technology investment banking group and is looking to add four or five more professionals to its tech team.

TPG partners are consulting with limited partners on whether to launch a separate fund or continue making tech investments from the firm’s main buyout funds.

TPG’s technology investments already account for a disproportionate share of the firm’s profits-approximately 70% of realized and unrealized profits come from deals done by Stanton’s group, despite those deals only using 20% of TPG’s funded equity, according to a source familiar with the firm’s investment record.

The spokesperson described Stanton’s split with the firm as amicable. A source said Stanton and TPG could not agree on the structure of TPG’s planned technology fund, but declined further comment. Stanton will remain on the board of all the companies he helped TPG acquire, including ON Semiconductor (a former division of Motorola Inc.), Paradyne Networks, GlobeSpan Semiconductor Inc. and Zilog. In addition, TPG may invest in deals done by Stanton’s fund, either directly or as a limited partner.

Stanton joined TPG in 1994 to head up the firm’s technology initiative. He came from a venture capital background, having been a partner at Trinity Ventures, which focuses on the software, retail and Internet sectors.

TPG’s technology investments already account for a disproportionate share of the firm’s profits-approximately 70% of realized and unrealized profits come from deals done by Stanton’s group, despite those deals only using 20% of TPG’s funded equity.

At the time, most buyout firms considered technology companies to be too unpredictable in cash flow and obsolescence-prone to invest in. TPG’s strategy in the sector was to target maturing technology companies and buy out non-core divisions, as was the case with Paradyne, GlobeSpan and ON Semiconductor (BUYOUTS Aug. 2, p. 4), or to buy struggling companies outright-Stanton and his team took private Zilog, a low-end chip maker, in 1998.

Tech Siren Song Seduces Some

Stanton, through a spokesperson, said his fund still is in the planning stages. Though he has never before raised his own fund, similar circumstances did not prevent Silver Lake Partners LLC from rounding up $2.25 billion in a matter of weeks (BUYOUTS May 31, 1999, p. 1).

The California-based buyout fund, composed of several private equity professionals who had not previously worked as a team, set out to raise a technology buyout fund in February with a target of $1 billion. The partners soon found demand was so great among investors for such an offering that they more than doubled the fund’s size.