‘Staffed-up’ Texas Pacific closes $5.3bn fund

Non-US investors, and an emphasis on operations and succession planning lead to fundraising success.

Fort Worth, Texas-based colossus Texas Pacific Group last Friday held a final close on its fourth private equity fund, drawing a total of $5.3 billion (€4.23 billion) in capital commitments from an international investor base.

 

The firm began fundraising for the vehicle last March with a target of roughly $4.5 billion.

 

Jamie Gates, a partner at Texas Pacific, said the percentage of non-US capital in the fund was roughly 30 percent, up from the ‘high teens’ of the last fund raise.

 

Gates said endowments and foundations also showed an increased appetite for his firm’s brand of value buyout investing.

 

Texas Pacific now has roughly 50 investment professionals in Fort Worth, San Francisco and London. The firm has three founding partners and 18 partners. Gates said the investors he encountered on the fundraising trail wanted to know what plan the firm had in place to spread leadership skills broadly throughout the firm.

 

“As the industry matures, LPs are much more focused on, ‘What are you doing to build a firm,’” Gates said, adding that this time around, many LPs paid due diligence visits to Texas Pacific’s offices in an attempt to get “a better sense of the depth of our team.”

 

Gates gave an example of his firm’s efforts to build a broader decision-making structure – investment bankers who call on Texas Pacific now are less likely to be directed to a founding partner.

 

Investors were also interested in how the firm allocates resources to the oversight and development of portfolio companies. Gates said Texas Pacific now assigns specific operating teams to each portfolio company, whereas in the past the process by which professionals got involved in specific portfolio companies was less formal.

 

Texas Pacific has “staffed up” recently, particularly with regard to operating professionals. Approximately 20 percent of the firm’s professionals specialise in operations now.

 

Texas Pacific’s prior investment vehicle, composed of a buyout fund and two technology-focused funds, drew $4.5 billion.

 

Successful liquidity events, many through the public markets, also convinced investors that Texas Pacific was capable of returning capital. The recent IPOs of Seagate Technology, MEMC Electronic Materials and Petco Animal Supplies allowed the firm to partially cash out of its positions in these companies to the tune of $1.5 billion.

 

Last September, the firm sold its stake in Hotwire.com, a travel site, to IAC for $665 million. Texas Pacific had originally invested just $100 million in the deal.

 

Texas Pacific has been very active on the new deal front lately. In November, it bought Kraton Polymers from New York private equity firm Ripplewood Holdings for $770 million. That same month, it agreed to buy Portland General Electric from bankrupt Enron for $2.35 billion.

 

In the UK, the firm recently joined CVC Capital Partners and Merrill Lynch Private Equity in the £1.72 billion ($3.2 billion) buyout of department store Debranhams. It also joined CVC Capital, Merrill Lynch and The Blackstone Group in the £2.5 billion ($4.17 billion) acquisition of Scottish and Newcastle’s managed pubs business.

 

Texas Pacific was formed in 1993 by David Bonderman and James Coulter, two investment aids to Texas billionaire Robert Bass. The third founding partner is William Price, a former partner at consulting firm Bain & Co.