Mid-market specialist Babson Capital Management has closed its third mezzanine and private equity fund on $1.58 billion, vaulting its target of $1.5 billion and just shy of a hard cap of $1.6 billion.
Launched in April, Tower Square Capital Partners III was significantly larger than both of its predecessor funds when it held a first close on roughly $1.37 billion in June, according to managing director Rick Spencer.
Tower Square Capital I closed on $265 million in October of 2002, while Tower Square Capital Partners II closed on $1 billion in January 2006.
Much like the prior vehicles, Babson will target the new fund toward North American companies in the small end of the middle market, defined as those with enterprise values of less than $200 million. Babson’s investments are typically structured with both mezzanine financing, normally between $8 million and $50 million, and equity co-investment, normally between $5 million and $15 million.
Despite the record size of the latest fund, Babson’s investment strategy will mirror that of its prior funds—a point the firm stressed to limited partners who have become increasingly concerned about style drifts with other managers.
“The sensitivity around shifting style was definitely there when we were talking with our LP’s,” Spencer told PEO. “But there was proof that we were not going to allow our style to drift.”
Because the larger-sized fund will be making investments of similar sizes to past funds, the firm expects Townsquare III to complete more than 80 deals. Townsquare II completed 68 deals.
Babson has already deployed roughly 11 percent of the latest fund across 14 companies. All but one of those deals were struck before the Fall.
Investors in the third fund include domestic and international corporate and public pension plans, insurance companies, banks, high net worth individuals and families and funds of funds.
Roughly 90 percent of existing investors re-upped with the new fund, including Babson parent company Massachusetts Mutual Life Insurance Company, which committed $900 million.
Four existing investors declined to re-up, two of which were constrained by internal allocation problems, according to managing director Mike Klofas. Overweighting and other allocation issues have been roiling limited partners of all stripes and have contributed to a difficult fundraising environment.
Despite the downturn, the firm did succeed in developing new relationships with four investors.
Babson did not employ a placement agent in the fundraise.