The Gores Technology Group recently wrapped up its inaugural private equity fund, Gores Capital Partners LP, closing on $400 million in just under six months of fund raising. While this is the first fund from Gores that incorporates outside investors, the firm’s long history of investing helped it avoid the challenges of most first-time funds.
Prior to this fund, the tech and telecom focused buyout shop relied primarily on capital from Alec Gores, the self-made millionaire whose net worth has been estimated at $775 million. And while a significant chunk of the $400 million came from Gores and partners at the firm, the firm approached outside investors as a way to broaden its capital base. “We felt that we had such strong deal flow that we were frankly missing opportunities due to a lack of capital,” said Scott Honour, a managing director with the firm. “This way, we can do more deals simultaneously, and with more dry powder, we can pursue larger transactions without betting the ranch on any one deal.”
A source close to the fund raising efforts said Hamilton Lane and the State of Florida are among the new investors in Gores Capital Partners LP.
Launched in March, the fund had two closings, with the first coming in August at $267.5 million. To help raise the fund, Gores hired UBS as a placement agent, and targeted investors in both North America and Europe. The fund met its target of $400 million, which was conservative by plan in order to quash concerns over the firm possibly scaling up too quickly in size. “We really wanted to stay true to our roots of value investing. We didn’t want to change how we operate, we’ll still be pursuing the same size deals as we have pursued historically,” said Honour.
A source who has seen the PPM said that over the last seven years, Gores Technology Group has committed approximately $280 million to deals making the jump to $400 million not that large of a stretch.
Even as Gores made relatively quick work of its fund raising, Honour still described the market as “challenging.” Complicating things, at least from a strategic stand-point, Gores Technology Group is not without competition in the tech and telecom space. One of its primary competitors is Platinum Equity, a technology focused firm headed by Alec Gores’ younger brother Tom.
Still, Gores Technology Group’s past successes ensured a relatively easy ride for the firm during fund raising. Past deals include the successful turnaround of the seemingly blighted Learning Company; the purchase of Hewlett Packard’s VeriFone electronic payment systems maker; and the acquisition of Micron’s PC unit, a deal in which the buyer and seller traded roles and Micron actually paid Gores $70 million (in working capital) to take the business.
While Honour would not comment on the fund’s terms other than to describe them as “middle of the fairway,” the source said the PPM said it carries an 80/20 split with a hurdle rate of eight percent. Also, the firm has a provision written into the terms that allows its operations team to charge fees in turning around companies and also gives the partners the ability to receive equity in certain transactions. The fund has a stated investment period of five years, although Honour expects the capital to be fully invested sooner.
As a firm focused on the technology and telecom space, Honour expects to see ample deal flow going forward. “The downturn that occurred created opportunities in the public sector, and we’ve been able to take advantage of these businesses being undervalued,” he said.
And even if the economy improves, don’t expect Gores to wait around on the sidelines for prices to come back down. “Valuations are certainly moving up, but we’re feeling very good about the environment,” Honour said. “As the economy improves we’re expecting to see more M&A activity, and we look for opportunities that arise out of other transactions.”