JMI Equity raising first $1 billion fund: sources

Baltimore- and San Diego-based JMI Equity, which has teamed up with HGGC, Hellman & Friedman and others in taking minority stakes in high-profile deals, won a $25 million commitment from the Houston Municipal Employees Pension System, a $25 million pledge from the Pennsylvania State Employees’ Retirement System and $50 million from the Illinois Teachers Retirement System, according to statements from the respective LPs. Illinois Teachers doubled its commitment to JMI Equity after pledging $25 million to Fund VII.

JMI Equity Fund VIII comes less than four years after the firm closed on $875 million on JMI Fund VII, which brought the firm’s total committed capital at the time to $2.1 billion since it was co-founded in 1992 by Harry Gruner, a former investment banker at Alex. Brown. Gruner and Paul Barber, who joined in 1998, lead the firm as managing general partners.

Two sources familiar with JMI Equity and the LP community told Buyouts they expected JMI Equity to draw in about $1 billion for Fund VIII. A third source said the cover of the PPM for the fund lists a $900 million target, but it’s expected to hit $1 billion. A spokeswoman for JMI Equity declined to comment.

A specialist in software, the Internet, business services and health care information technology, JMI Equity raised $300 million in its 2005 vintage Fund V, $600 million in 2007’s Fund VI and then $875 million in Fund VII. Based on the trajectory of these pools, the firm appears likely to hit or breach $1 billion for Fund VIII. (See accompanying chart.)

“We’re seeing interest from LPs in the more mature end of the growth equity spectrum,” an executive at a placement agent told Buyouts. “Instead of the hockey stick-shaped growth, they’re seeking GPs that invest in more established players that can be bought for as little as 6x to 7x EBITDA and sold for 10x or better.”

In terms of performance, JMI Equity Fund V rang up an IRR of 39 percent as of June 30, 2013, according to pension fund data compiled by Buyouts. An IRR of roughly 13 percent would have landed it in the top quartile for that year, according to an analysis of pension fund data in the Sept. 2 issue of Buyouts.

In an interview with Buyouts published last September, JMI Equity’s Barber said the firm had logged 11 successful exits in its history. At the time, he cited ServiceNow, which held its initial public offering in June, 2012, along with Seismic Micro-Technology, Intergraph and Nimsoft. He also cited a deal with Hellman & Friedman to take DoubleClick private in 2005. Google bought the online advertising firm in 2005.

“We make equity investments from $20 million to $100 million, which enables us to be opportunistic and flexible,” Barber told Buyouts last year. “Our average investment has gone up as each fund has grown in size. We are now able to independently execute larger deals, but we are still focused on investing in the same types of companies. We look for high growth markets and companies with differentiated technology, and then structure investments to achieve the owners’ objectives.”

Worldwide, 263 growth equity funds were in the fundraising market with a combined target of $74.4 billion as of June, 2014, according to data provider Preqin. That’s up from 229 growth equity funds with a combined target of $63 billion in 2013 and 214 funds with a combined target of $66.8 billion in 2012, Preqin said. (See accompanying chart).

As of early June, 220 growth equity deals closed globally for an aggregate size of $8.1 billion, according to Preqin. In 2013, 566 growth equity deals took place for a combined $16.6 billion, and in 2012, 504 growth equity deals closed with a combined value of $22 billion.

Among JMI Equity’s more recent deals, Hellman & Friedman and JMI Equity agreed in June to sell Internet Brands to Kohlberg Kravis Roberts & Co in a deal valued at $1.1 billion, according to sister news service Reuters. The duo bought the company for about $640 million in 2010. JMI Equity paid about $20 million in equity on the deal; Hellman & Friedman roughly doubled its investment on the sale to KKR, according to sister website peHUB.

Also in June, JMI Equity agreed to sell its portfolio company Autotask Corp to Vista Equity Partners for an undisclosed sum.

In April, HGGC and JMI Equity said they completed the acquisition of VTLS Inc, a provider of library automation technology to customers in 44 countries. Terms of the deal were not disclosed.

(Correction: JMI Equity’s eighth fund was incorrectly referred to as the third fund on second reference in the original version of this story; also 220 growth equity deals closed globally for an aggregate size of $8.1 billion as of June, not 22.)