Silver Lake Starts Shopping With Mid-Market Fund

Firm: Silver Lake Sumeru

Fund: Silver Lake Sumeru

Target: $750 million

Amount Raised: $1.1 billion

Silver Lake Sumeru didn’t wait to close its first pool of capital before starting to spend it. The middle market team of tech-focused LBO shop Silver Lake completed three deals before closing its fund, Silver Lake Sumeru, last week. For the debut effort, the firm closed on $1.1 billion in commitments—$350 million above the target set last year.

The new fund is mainly backed by limited partners that committed to Silver Lake’s large-market buyout funds. Aside from deal size, the two funds’ investment strategies are nearly identical. Whereas Silver Lake Sumeru invests $50 million to $150 million in deals of up to $500 million, Silver Lake Partners invests $200 million to $1 billion in deals valued between $500 million and $20 billion-plus. Silver Lake’s investment size lends itself more to take-privates. In contrast, Silver Lake Sumeru is better suited to carve-outs and restructurings.

For deals valued between the two target ranges, the funds have the capacity to co-invest alongside one another. That hasn’t happened yet, but the two teams have looked at several opportunities.

Silver Lake Sumeru’s smaller deal size allows it to target more specialized sub-sectors within the technology industry, said Managing Director Ajay Shah. This focus on smaller deals should lead Silver Lake Sumeru’s team to take what Shah called “deeper dives,” allowing the 13 professionals, many of whom are Silver Lake veterans, to become fully immersed in narrower areas of the tech industry.

And the new team hasn’t waited to get going. Silver Lake Sumeru announced two transactions in April and one in October. The latest and largest is a carve-out of ChoicePoint Inc.’s non-core government services business. In late April, Silver Lake Sumeru paid $185 million for i2, a Georgia-based maker of software for public-sector law enforcement agents and investigators. The software assists users in analyzing large amounts of investigative data such as phone records.

Though financing terms weren’t disclosed, the deal used more leverage than previous transactions because of the target’s size, stability, growth and profitability. The firm tends to avoid high leverage, opting to take money out through debt recapitalizations when cash flows improve, Shah said.

Silver Lake Sumeru was attracted to i2’s market-leading position and growth prospects overseas. The company generates about half of its revenues outside of the United States. The buyout firm plans to boost revenue through a combination of organic growth and add-on businesses, said Hollie Moore, a managing director at Silver Lake Sumeru. Like Silver Lake Partners, Silver Lake Sumeru emphasizes management involvement, allotting an equity stake to i2’s team.—E.G.

Correction: A previous version of this article incorrectly referred to Silver Lake Partners as Silver Lake. Silver Lake refers to the firm that encompasses both Silver Lake Partners, a large market buyout fund, and Silver Lake Sumeru, a mid-market buyout fund. Further, the article incorrectly reported the investment sizes and targeted deal values for the two funds.