Playing off of tailwinds from the global shortage of computer chips, Presidio Investors closed a deal that provides more time and capital for its portfolio company Elevate Semiconductor.
The company, a 2018 Presidio investment, makes and distributes components for the testing of semiconductors. Diagnosing faults in computer chips plays a “mission critical” role in the global supply of semiconductors, said Raudel Yanez, managing director at Kline Hill Partners, which led the single-asset secondary into Elevate Semiconductor.
“In 2020, there were 1 trillion chips made. That’s a record number and each one of these chips that goes into many applications has to be tested at least once to make sure it works,” Yanez said. The industry is expected to reach more than $1 trillion in sales by 2030, the Wall Street Journal reported last year.
A shortage of computer chips, exacerbated by factory closures in the health crisis in 2020, helped drive shortages in everything from cars to video game consoles. Governments and companies have scrambled to fill the gap, with demand only increasing as consumers’ appetite for electronics intensifies.
With this enormous growth potential in mind, Presidio saw an opportunity to extend its hold over Elevate as it continues to implement its growth plan that includes further spending and future acquisitions.
Semiconductor testing requires upfront outlays of capital for research and development, which creates a long lead time to monetization for each product, according to Christian Puscasiu, managing partner at Presidio Investors.
“It takes two, three years to develop the chips and one to two years for customers to design the chip in. The real upside happens a few years after all these things get done,” Puscasiu said. “With financial upside really visible only in the next few years, we thought this continuation vehicle was a very good solution.”
Future growth could come through additional development of technology or acquisition of new intellectual properties, and also expanding distribution channels, Puscasiu said.
Kline Hill Partners led the deal, which raised around $120 million, sources said. The syndicate included several other buyers, including Willowridge Partners, Macquarie Asset Management, Unigestion and Headlands Capital, sources said, confirming an earlier Wall Street Journal report. Credit Suisse worked as secondaries adviser on the deal.
Presidio invested in Elevate through its 2018 vintage Fund II, which closed on $177 million in 2020. LPs in the fund had the option to cash out of their stakes in the company, or roll their interests into the continuation fund. In this case, Presidio saw a good amount of LPs choose to roll.
Pricing came at a discount to intrinsic value, though it’s not clear at what level. The GP also put up meaningful capital into the deal, sources said. While not commenting on specifics of the deal, Kline Hill “typically likes to see 100 percent of their [carried interest] be rolled in as well as new money,” Yanez said. “We feel very good about the alignment here.”
For Kline Hill, formed in 2015 by ex-Willowridge executive Mike Bego, the Elevate deal is part of the firm’s growing focus on GP-led transactions.
The firm has been raising its debut GP-led fund targeting $250 million since last year. The GP focused team is led by Yanez, David Swanson, who joined in 2021 from Unigestion, and Elena Laleh, focused on European transactions, who joined from Partners Group the same year as Swanson.