Parthenon Capital held a first close on its debut buyout fund in late December, rounding up $257 million, said Ernest Jacquet, a managing partner at the Boston-based firm.
The fund kicked off last May with a target of $250 million and a cap of $350 million. Since the first close, the firm has hard-circled an additional $40 million in commitments. Parthenon Capital expects to hold a final close before the end of the first quarter, Mr. Jacquet said.
Combining Consulting and LBOs
The fund drew attention from industry observers because Parthenon Capital’s strategy hinges on the premise that management consulting will be a crucial ingredient in growing portfolio companies. The firm will secure these services by sharing its carried interest with consulting firm The Parthenon Group, which in turn will provide operational advice to the buyout firm’s private equity investments (BUYOUTS June 1, 1998, p. 3).
According to Mr. Jacquet, the carry will be distributed to professionals throughout Parthenon Group, including research associates. Parthenon Group will receive no additional fees for services performed. Mr. Jacquet declined to say what percentage of the carry would go to the consulting firm.
The arrangement is similar to the strategy pursued by Bain Capital when Mr. Jacquet worked there in the late 1980s, before going on to found the buyout arm of Summit Partners in 1990.
The Short History of a New Firm
In May, Mr. Jacquet joined forces with John Rutherford to found Parthenon Capital. Mr. Rutherford is a co-founder of The Parthenon Group.
Mr. Jacquet said Summit Partners, on an informal basis, will refer deals to Parthenon Capital that Summit deems too small or problematic, and Parthenon Capital will in turn refer deals to Summit. Parthenon Capital also will receive deal flow through Parthenon Group, which has long had a practice of consulting for equity compensation.
Parthenon Capital already has signed commitments to acquire two companies for approximately $35 million, Mr. Jacquet said, declining to name the companies.
Mr. Jacquet predicts sellers will be eager to be bought out by Parthenon Capital because the firm offers consulting services that are often prohibitively expensive for the middle-market companies his firm will be targeting. The firm is seeking to partner with family businesses and corporate spin-outs, Mr. Jacquet said.
Parthenon Capital will seek to retain 55% to 70% of a company, and use 40% to 50% in equity in the acquisitions, he said.
A source close to the fund raising said limited partners including the Oregon State Treasury, Rhode Island State Treasury, Corning Inc., Wellcome Trust, Pacific Corporate Group, Chase Manhattan Bank, BankBoston and General Motors Corp. had committed to the closing. The fund also has a number of Fortune 500 company chief executive officers as limited partners, who collectively committed $50 million.