Falling a little short of its $300 million target, David L. Babson & Co. Inc. has closed a $265 million fund. The fund, called Tower Square Capital Partners L.P., will target leveraged buyouts, recaps, and growth financings of small- and medium-sized businesses.
This is the firm’s first mainstream alternative investing effort, however Babson’s parent company is Massachusetts Mutual Life Insurance Co., which has raised other private equity funds in the past.
Although Mass Mutual put $115 million into Tower, the fund was not able to come up with all the additional capital. “We fell just short of it, but in the whole scheme of things we are pleased with where we ended up,” said Babson Managing Director Michael Hermsen. The firm had started fund raising in spring 2002 and held its first close in October.
Hermsen went on to say that the fund raising environment was “much more difficult than expected. We expected to get some capital from overseas, but a big part of the problem was the timing, with Enron and the other scandals in U.S.”
Tower had made trips to Europe and Asia and while the fund managed to garner some capital in Europe, it had no luck in Asia. “In general fund raising wasn’t good, but what happened in Asia hurt us,” Hermsen said. Morgan Stanley was the placement agent on the fund.
Tower’s LP base is mainly made up of big institutional investors from North America. There are also some high-net-worth individuals and foundations on board.
Tower is managed by a seven-person team led by Hermsen, Michael Klofas and Richard Spencer, each of whom have been active in mezzanine finance and private equity investing for more than 13 years at MassMutual.
The fund is expected to invest between $4 million and $10 million at a time and has already invested $70 million in companies that have values of between $50 million and $200 million. Thus far, the new fund has invested in the Dwyer Group with Riverside Co., American Hospice with Cypress, U.S. Maintenance with Sterling Investments and is a small investor in LA Fitness Clubs, among others.
Additionally, Tower has another five deals in the pipeline and expects to invest in between 50 and 70 platform companies.