Fund Closes: Texas Pacific Group Closes Mega-Fund –

With cat-like speed and precision, Texas Pacific Group in January held a final close on its third fund, TPG Partners III LP, and stapled fund, T3 Partners LP, rounding up $4 billion after only three months of fund raising.

Jamie Gates, a partner at Texas Pacific, said terms allow half of the funds combined capital can be allocated to technology and telecommunications transactions in both U.S. and European deals.

“Separate and apart from the tech basket, we have a basket of up to 35% for European deals, which can be in any area that Texas Pacific specializes in and it does not have to be in technology,” Gates said. “We may choose to do less than 35% under the terms of the document.”

Both funds saw a first closing in mid-December of $3 billion and a final closing in January on the remaining $1 billion. “We had well north of $5 billion in investor demand, but we agreed with our limited partners to cap the fund size at $4 billion,” Gates said. “Clearly if we invest the fund more quickly than anticipated, we’ll just come back to the market at that time.”

The funds will employ standard market terms. “We do not try to be aggressive or put any unusual terms in there because people then tend to focus on that rather than the opportunities,” Gates said, adding that the investors involved include those from Fund II and a limited number of new limited partners from the U.S. and Europe.

“We’ve done a pretty good job at sticking to our knitting, which means we’ve generally invested according to the investment strategy that we’ve outlined when we came to the market for the last fund,” Gates said.

Spending Just As Quickly

Some of the new money has already been spent this month with the landmark investment in Gemplus, a maker of memory and microprocessor-based smart cards and electronic tags, for over $300 million (BUYOUTS Feb. 7, 1999, p.1). Texas Pacific also entered into an agreement this month to purchase approximately 20% of common equity in FirstWorld Communications Inc. a business-to-business provider of Internet and data center solutions. Terms of the transaction were not disclosed. Colony Capital, a private international real estate investment firm based in Los Angeles, is also an investor in the transaction. The deal is expected to close in March.

FirstWorld is based in Denver, Colo. and provides broadband services including high-speed Internet access and digital subscriber line (DSL) to small-to-medium sized businesses. The company currently has under its umbrella a number of Internet service providers including InteleNet Communications, Inc., Transport Logic, inQuo, Internet Express, Hypercon Inc., Sirius Connections, Slip.Net, and Optec, Inc. FirstWorld Communications had estimated annual revenue of $50 million in 1999, said a company spokesman.

Partners at Texas Pacific were not available for comments on the transaction.

Texas Pacific’s other technology and telecommunications investments include Advanced TelCom Group, ON Semiconductor, Paradyne Networks, Globespan Inc., Zhone Technologies, Landis & Gyr Communications, and GT Com.

“We would expect to do a handful of deals in the size range of Gemplus and are certainly reviewing opportunities comparable in size to Gemplus,” Gates said.

The latest fund raising effort and the investment in Gemplus has given Texas Pacific a head start on Hicks, Muse, Furst & Tate and other buyout firms’ bids to raise and invest comparable funds dedicated to the tech arena.

Hicks Muse Also Rises

Hicks Muse in December was in the midst of talks with its limited partners on its fifth buyout fund, along with a stapled fund targeted at $4.5 billion. Dan Blanks, a senior managing partner at Hicks Muse, said fund raising for the main buyout fund will formally begin before the end of the quarter. The tentative cap for the main buyout fund is $3 billion with a target of $1.5 billion for New Economy Fund, its stapled fund that is dedicated to technology opportunities. The fund will seek commitments from existing limited partners. “We’re trying to make this an economical and quick fundraising,” he said.

Blanks said Hicks Muse hopes to have a first close in June 2000 and a final closing six months after that.

“TPG did an excellent job raising their fund, and I’m envious,” Blanks said.

Hicks Muse likely will not complete its fundraising in three months, Blanks said, because its investor base of large institutions have a process of ratifying their commitments at board meetings, which are held only once a month and sometimes skip a month in the summer.

Silver Lake Partners LLC held a final close on a $2.2 billion technology fund last year, but so far has invested only $75 million in a non-tech risk company (BUYOUTS Jan. 10, 2000, p. 22).

“We were struck over the last two months on the campaign by the way that LPs now re-up with VC relationships in significantly larger denominations,” Gates said.

Texas Pacific Group was founded in 1983.