HGGC pre-markets $1.5 bln Fund III after slew of deals

  • Palo Alto, California firm nearly done deploying HGGC II
  • Middle-market buyout firm may launch fundraise in the fall
  • HGGC’s Fund II closed on $1.33 bln in 2015

After a slew of deal-making, HGGC is pre-marketing its third buyout fund with a target of $1.5 billion, as its predecessor fund approaches full deployment, sources said.

The Palo Alto, California, firm has enough capital left for one more platform acquisition in HGGC II, after nine portfolio-company acquisitions and 13 add-on deals from the pool.

HGGC II exited one platform deal, Serena Software, with a 2.1x money-on-money return in about two years, and a 41 percent IRR, the source said. HGGC announced the $540 million sale of the company in March.

Eight other companies remain in HGGC II: AutoAlert, Pearl Holding, SSI, Selligent, Dealer-FX, FPX, 4over and Integrity. The investments in HGGC II’s nine portfolio companies were made from March 2014 to July 2016, at a median purchase-price multiple of 7.4x EBITDA.

HGGC may launch an official fundraising effort for the third fund this fall, with Evercore Partners continuing as placement agent as it did on HGGC II.

HGGC has kept each fund size close to the prior fund. It raised $1.1 billion for its debut fund, $1.33 billion for its sophomore effort, and now will target $1.5 billion for its third fund.

HGGC will offer 100 percent fee offsets and won’t charge portfolio companies monitoring fees in HGGC III, one source said.

The firm ranks as a large investor in its own funds, putting up about $200 million of the $2.4 billion it raised in both of its funds.

Among its HGGC I exits, HGGC booked a 2.3x money-on-money return on Citadel in June 2015, 3x on Hollander Sleep Products in 2014 and 5.1x on Hybris in 2013.

For HGGC II the firm surpassed its $1 billion target with $1.33 billion. At the time, the firm had already closed four platform deals.

Tom Faust, a spokesman for HGGC, declined to comment.

HGGC’s leadership team includes Rich Lawson, Steve Young, Greg Benson, Gary Crittenden, Les Brown, Neil White, and Bob Gay.

HGGC promoted White to managing director last year, and Farouk Hussein and Steven Leistner were promoted to principal.

Action Item: Contact HGGC: www.hggc.com/contact-us

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This story has been updated to include a second source familiar with HGGC III.