TPG Unfazed by Weak Fund-Raising Market by bestt571


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									TPG Unfazed by Weak Fund-Raising Market
By Kenneth MacFadyen

In general, the bigger the target, the easier it is to hit it. But in the context of private-
equity fund raising, a bigger target often equates to a higher failure rate. However, for
Texas Pacific Group— based in Texas, where bigger is almost always better—the
daunting prospect of raising a $5 billion-plus buyout fund in today’s stingy market
proved anything but, and the firm recently held its final close on TPG Partners IV at $5.3

Most of the fund raising for the vehicle was accomplished last year. TPG launched the
fund in March and during the nine months leading up to 2004, closed on $4.7 billion,
almost 20% of the buyout capital raised by a U.S. fund during that time. The firm did not
use a placement agent for the effort.

“Institutional investors are increasingly discriminating and there are less dollars to go
around,” TPG Partner Jamie Gates told Buyouts. “Our sense is that limited partners are
more focused today on how the GPs are adding value to their portfolio companies, and
they seem to be asking more questions about how general partners are building firms
that will last over time.”

The $5.3 billion close represents a jump over past TPG funds. TPG Partners III, a 2000-
vintage fund, had $4.5 billion of capital, while the firm’s 1997, second fund closed on
$2.5 billion. The latest effort also marks a departure for Texas Pacific Group from
raising an accompanying tech fund alongside the general buyout vehicle. “We will still
invest in technology companies, we just put it all back together in a single fund now,”
Gates said.

While the tight fund-raising market presented one hurdle, the firm also had to battle a
number of other high-profile buyout shops that have also been in the market raising
multi-billion funds, such as Hellman & Friedman, Kelso & Co. and Silver Lake

Perhaps giving itself a leg up on the competition, Texas Pacific Group benefited from
having completed several successful exits last year, and in all, returned approximately
$1.5 billion to its limited partners. Sales of Crystal Decisions and Hotwire contributed to
that sum, as did the block sales of Punch Taverns, Petco Supplies, Denbury and others.
In this latest fund-raising drive, TPG also made an effort to procure new partnerships,
and made a point to spread its name among the European investors this time around.
“The last fund we had filled up so quickly that we didn’t have the opportunity to target
European investors,” said TPG Founding Partner James Coulter. “This time, we started
with select European investors.”

The latest fund saw 95% of the investor base from Fund III re-up, and in all TPG took in
39 new institutional partners, who contributed roughly 30% to the fund. The total capital
coming from outside the U.S., meanwhile, increased from “the high teens [in the third
fund] to just around 30% [for Fund IV],” Gates said. Some potential investors were even
left out in the cold, according to source, who indicated the fund was oversubscribed by
between $800 million and $900 million.

TPG did not likely have to spend too much time introducing itself to the European
institutions, as the firm has been especially active in Europe recently. Last year, the
buyout shop dominated U.K. headlines with acquisitions of Debenhams and Scottish &
Newcastle’s managed pubs division. Other deals from last year include the acquisition
of Kraton Polymers and a deal to buy Portland General Electric, which has yet to close.
While Gates would not comment on the firm’s new investors, limited partners in past
funds include the University of Washington, Aetna Insurance Group, and the
retirement trusts of Boeing Co., Gannet Co. and Eli Lilly & Co., among others.

TPG would not comment on the specific terms of Fund IV, although Gates did say they
were in line with past funds from TPG, and noted, “Investors this time around were more
focused on the allocation of transaction fees and the clawback mechanism.”

The firm expects to deploy the capital in the next four to five years, and has already
made investments from the fund in two deals—the Debenhams and Kraton purchases.

Firm: Texas Pacific Group
Location: Fort Worth, TX, and San Francisco
Fund: TPG Partners IV
Capital Under Management: $5.3B

  Reprinted from Buyouts, February 16, 2004 • 195 Broadway, 9th Floor, New York, NY 10007 • (646) 822-3043

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