HIG goes bigger with $5bn target for new mid-market LBO flagship

HIG Capital is seeking $5 billion for a fourth US mid-market buyout offering, nearly $2 billion more than its predecessor.

The target for HIG Middle Market LBO Fund IV was disclosed in a report prepared for Plymouth County Retirement Association. It is expected to wrap up in the first quarter of 2023.

The target marks a significant step-up from prior flagships in the series. If Fund IV succeeds in raising $5 billion, it will be 61 percent larger than Fund III, closed three years ago at $3.1 billion.

Private equity fundraising began in 2022 with GPs bringing offerings to market faster and with bigger tickets. The overcrowded market soon met with a supply problem in the form of overallocated and cash-constrained LPs, resulting in longer timelines and, potentially, pressure on fund target sizes.

If HIG is able to manage these issues in the case of Fund IV, it will likely be due to returns.

HIG Middle Market LBO Fund III was earning a 1.2x net multiple and a 63 percent net IRR as of March, according to PCRA documents. Fund II was earning a 2.5x net multiple and a 34 percent net IRR.

One potential challenge for Fund IV, identified in the PCRA report, is carried interest set at the premium level of 25 percent. Carry is most often set by GPs at 20 percent.

HIG launched its US mid-market LBO series with the 2009-vintage Fund I, closed at $1.25 billion. The strategy emphasizes control investments in North American businesses with EBITDA of $35 million to $200 million across a range of industries.

Target opportunities include underperforming companies and opportunities characterized by complex business models, operations and transactions. Preferred deal types are acquisitions of privately held establishments, carveouts, public-to-privates, recaps and restructurings/special situations.

HIG has been active buying and selling US businesses this year. Its most recent purchases are Celerion, an outsourced pharmaceutical clinical research services provider, and Formerra, the new name of a polymer distribution unit carved out of Avient for $950 million.

The firm also recently sold Lipari Foods, a specialty food distributor, to a consortium led by Littlejohn & Co, and Taconic Biosciences, a genetically engineered research models and services provider, to Avista Capital Partners. Lipari and Taconic were both bought in 2019.

US mid-market LBO funds are headed by Keval Patel, who joined in 2007 from Graham Partners. Based in HIG’s Miami headquarters, he oversees a team of six managing directors and about 60 investment professionals, according to PCRA documents.

HIG was founded in 1993 by co-CEOs Sami Mnaymneh and Tony Tamer. A multi-strategy firm managing $52 billion-plus of equity capital, it invests globally with a focus on the market’s mid-cap segment. Blue Owl Capital’s Dyal Capital acquired a minority interest in 2016.

HIG did not respond to a request for comment on this story.