Wingate Partners has been hunting industrials companies in the lower middle market since 1987. It is one of the oldest firms in the private equity industry.
But it may not have much time left.
The firm, based in Dallas, was forced by fund investors to stop making new investments after the departure of several key executives over the past year, three people with knowledge of the firm told Buyouts.
LPs in Wingate Partners V, which hit the market in 2013 targeting $253 million, decided to end the fund’s ability to make new investments. Sources said LPs decided to cut off the fund last year, though it’s not clear exactly when.
While Fund V is not making new investments, Wingate could operate on a fundless basis or reconfigure in some other way that allows the firm to continue operating. It could also try and raise a new fund, though the sources said that was unlikely.
Generally, when a key-executive protection is triggered, the fund automatically stops making new investments until re-activated by limited partners. This leads to negotiating between LPs and GPs and can result in concessions like fee breaks.
However, with Wingate, Fund V investors chose to permanently end new investments out of the pool. Fund V, when LPs decided to stop new investments, was only around halfway deployed, so there was capital left for new investing, one of the people said.
Instead, some capital will be used for follow-ons to existing investments and to allow the firm “to keep the lights on,” the person said.
“LPs came together to come up with an agreement to manage out what’s left in the fund and not make any new platform investments,” one of the people said.
It’s not clear why LPs chose to end Fund V’s ability to call capital for new investments. Fund V was not a strong performer as of 2016, (the most recent return information that could be found), generating a -27.18 percent internal rate of return as of May 31, 2016, according to performance information from University of Texas Investment Management Company. Those numbers are still relatively early in Fund V’s fund life so they may have improved over the ensuing years.
This was a stark contrast from Wingate’s debut fund, one of the best-ever performing PE funds, generating a more than 6x cash-on-cash multiple and a 30.34 percent IRR for UTIMCO as of the same date.
Wingate’s three partners—Jay Applebaum, James Johnson and Jason Reed—did not respond to requests for comment.
Key-executive protections are in place to ensure the team of LPs back at the beginning of a fund is still there at the end. This is vital in private equity with funds that last 10 years or longer.
In Wingate’s case, several senior executives left over the past few years. Brad Brenneman, former partner at Wingate, left last year after more than 16 years. Brenneman formed Breck Partners along with ex-Wingate Partner Brian Steinbrueck, who worked at Wingate for a decade before leaving last year.
Breck has been in market this year targeting $100 million for its debut fund, sources told Buyouts. Based in Dallas, it will make control investments in lower middle market industrial companies, according to Breck’s website.
Other senior executives who have left include Partners Michael Decker and Chris Dupre. Dupre left last year after more than a decade and joined Renovo Capital as a partner. Decker worked at Wingate since 1996. It’s not clear when he left the firm. He is no longer listed on the firm’s website. Jesse Madigan, who worked as a vice president at Wingate, left in 2018 and founded Civicap Partners.
Wingate was formed in 1987 by Frederick Hegi Jr, who established Valley View Capital Corp. in 1982 and acquired Swift Independent Corp and Friona Industries, according to an archived version of his biography. Before that, Hegi Jr. worked as vice president and treasurer of Cooper Industries. He began his career at First Chicago Corp as senior investment manager of its venture investment activities, his biography said.
Wingate closed its debut fund on $70 million, and $130 million for its second fund in 1994. It’s not clear how much the firm raised for Fund III around 2000.
Wingate Partners IV, a 2007 vintage, closed on about $190 million and invested just before the economy crashed in the global financial crisis.
One of Wingate’s more recent investments was its acquisition of Binswanger Glass in 2017. The firm invested alongside Binswanger’s CEO Tim Curran.
Action Item: Check out Wingate’s Form ADV here: https://bit.ly/2qulpZ0