Serent Capital added to its bench with the $750 million close of a fourth tech and services fund, including bringing two principals into the buyout firm’s top leadership.
Serent Capital IV and a parallel pool were wrapped up this month at their hard cap, exceeding a $700 million target after roughly four months of marketing, Partner Kevin Frick told Buyouts.
The rapid fundraising pace was enabled, Frick said, by a high re-up rate among existing limited partners, many of which increased their commitments, as well as the introduction of new investors. Most LPs are endowments and other institutions based in North America.
Disclosed investors in earlier Serent vehicles include Adams Street Partners, Harvard University’s endowment fund, Horsley Bridge Partners and the Ziff family.
Fund IV is 31 percent larger than Fund III, which secured $572 million in 2017. It increases Serent’s capital under management to about $2 billion.
Adding to the team
Prior to closing Fund IV, Serent went on a hiring spree, recruiting 16 professionals. The new employees, which grew total personnel to more than 50, include additions to the firm’s business development, growth and investment groups in San Francisco and Austin.
Serent also this month promoted Stewart Lynn and Prital Kadakia to partner. Lynn, who was formerly a principal in the investment team, joined in 2013 from Seabury Capital. Kadakia, previously a growth team principal, came onboard a year later from KKR Capstone.
The promotions expand the number of partners to five. The others are Frick and David Kennedy, who founded Serent in 2008, and Lance Fenton.
Serent makes mostly control investments in lower mid-market tech and services businesses, generally with revenue of $5 million to $100 million and values of $20 million to $150 million. Target opportunities, most of them founder-led, are profitable, with EBITDA of up to $15 million and returns on invested capital of more than 20 percent.
To guide its strategy and uncover fresh trends, Serent has developed 35 investment themes, Frick said. The themes have, among other things, focused attention on verticals with especially robust growth potential, such as adtech, fintech, healthcare IT and human resources management software.
Serent deploys a range of value-adding initiatives to help portfolio companies expand organically and inorganically. This activity is led by the growth team, supported by a network of experienced operators. The goal, Frick said, is to “take a successful business showing revenue of $10 million to $30 million and turn it into one showing revenue of $50 million to $100 million.”
More capital, more deals
Fund IV will maintain the 12-year strategy, Frick said, using the larger capital pool for “bandwidth to do more investments.” Fund III, which is not yet fully invested, is expected to do up to 18 platform deals, and its successor, 20 or more. Fund IV’s debut investment is likely to be made later this year.
Serent’s latest platform deal, announced in January, is ePayPolicy, an Austin electronic payments platform for specialty insurers. The investment, the firm’s ninth in the payments space and tenth in the insurance sector, “has all the characteristics of a Serent business,” Frick said.
Other recent investments include Davisware, a West Dundee, Illinois, provider of enterprise resource planning software, and Payliance, a Columbus, Ohio, payments processing, risk management and recovery company.
Before Serent, Frick was a partner with McKinsey & Co’s West Coast private equity practice. Kennedy was also with McKinsey before assuming other senior roles, including co-CEO of ServiceSource. Fenton, who joined the firm in 2008, previously worked with Fortress Investment Group.
Action item: Check out Serent Capital’s ADV filings here.