TA Associates sets sights on largest fund to date

The growth equity firm, a prolific investor in technology, could raise up to $8.5bn for Fund XIII and is upping its investment pacing to $2bn a year.

TA Associates is back in market targeting $7.5 billion for its 13th fund.

The target is 40 percent larger than Fund XII, which closed on $5.3 billion in 2016, and almost double the size of Fund XI that closed on $4 billion in 2013.

The hard-cap for Fund XIII is set at $8.5 billion.

The fund size increase was not a cause for concern for New Mexico State Investment Council, which re-upped $100 million to the vehicle. The sovereign fund also has commitments to TA VIII, TA IX, TA XII and the first TA subordinated debt fund.

“We take a hard look any time a fund manager increases its fund target size to assess whether it might impact strategy or performance,” Charles Wollmann, spokesman for New Mexico SIC, told Private Equity International.

“Specific to TA, we concluded they have both the skills and resources available to continue to produce strong returns for us and their other investors.”

Fund XIII’s terms are consistent with previous fund terms. Like its predecessors, it does not have a hurdle rate, a source familiar with the vehicle said.

At New Mexico SIC’s 24 March 2015 meeting, TA’s managing director Kurt Jagger explained that growth equity and venture capital firms, especially older firms, did not have a preferred return in the distribution waterfall.

However, Richard Pugmire of Pavilion Advisory Group, the LP’s investment advisor, said TA offers protection in a “value test: the portfolio must be 125 percent of value before a GP can take carried interest”. While not the same as preferred return, the value test does not allow carry if the portfolio is at a loss, Pugmire said.

TA Associates reduced its carried interest to 20 percent, down from 25 percent, for Fund XI in a move widely seen as a lifeline thrown to limited partners struck with liquidity issues. At the time in 2013, TA’s Boston-based managing director Brian Conway said the firm did not charge management fees.

Since its last fundraise, TA has also increased its investment pace to $2 billion annually, from between $1 billion and $1.5 billion.

TA’s Fund XII was generating a net internal rate of return of 31.6 percent and a multiple of 1.37x as of 30 September, according to New Mexico SIC documents.

TA Associates X was generating an IRR of 5.16 percent and Fund XI 22.12 percent as of 31 March 2018, according to the California State Teachers’ Retirement System.

A prolific investor, TA Associates makes minority and majority control investments, focusing on mid-market technology, healthcare, financial services, consumer and business services. It invests between $70 million and $500 million in companies that generate between $100 million and $3 billion in value.

The private equity firm was invested in 98 companies as of 31 December. Of these, 42 were in the US, 22 in EMEA and 14 in the Asia-Pacific region.

Last year, TA Associates invested about $2.8 billion in 17 new and 11 add-on investments. Technology accounted for 45 percent of investments, financial services 21 percent, healthcare 12 percent, business services 12 percent and consumer 7 percent.

TA exited seven portfolio companies including 10bis, Amplify Snack Brands, Amann Girrbach and Maintenance Correction; it also took MAV Beauty Brands and TCNS Clothing public last year.