In a tough fundraising market, Accel-KKR secured $5.3 billion for a pair of buyout offerings earmarked for software and IT-enabled service opportunities.
Accel-KKR Capital Partners VII, the Menlo Park private equity firm’s latest flagship vehicle, closed at $4.4 billion, ahead of a $3.5 billion target, managing partner Tom Barnds told Buyouts.
In addition, Accel-KKR Emerging Buyout Partners II, a complementary small-cap fund, wrapped up at $920 million, exceeding an $800 million target, he said.
At a time when GPs are taking longer to close their offerings, both funds were wound-up at a relatively fast clip.
Launched just after Labor Day 2022, the pair raised almost 90 percent of their committed capital by mid-December – or less than four months, Barnds said. Fund VII was closed in February, and Emerging Buyout II in March, to accommodate a handful of LPs with overallocation issues.
Barnds attributes the pace to Accel-KKR’s “very strong support from existing investors.” More than 98 percent of fund commitments were re-ups with mostly North American LPs, “many of which have been with us for 20-plus years.” Several new investors also signed on.
Disclosed LPs include large US public pension systems, among them California Public Employees’ Retirement System, Los Angeles County Employees’ Retirement Association, San Francisco Employees’ Retirement System and Texas County and District Retirement System.
Accel-KKR contributed $300 million to Fund VII and $72 million to Emerging Buyout II, making it the largest investor in both pools.
‘We’ve stuck to our knitting’
Accel-KKR was founded in 2000 as a joint venture between Accel Partners and KKR to invest in internet startups alongside large corporations. With the close of the $330 million Fund II in 2006, the firm was operating independently under the leadership of Barnds and fellow managing partner Rob Palumbo. They now oversee a global team of 120 professionals.
Since inception, Accel-KKR has stayed true to a strategy of backing lower mid-market and mid-market software and IT-enabled service companies looking to accelerate revenue growth and profitability. This is embodied in the firm’s philosophy: “big enough to matter, small enough to care”.
“We’ve stuck to our knitting,” Barnds said. “We don’t aspire to be the biggest. We have been very deliberate about the size of the funds we raise as well as the size of our team. Having a certain size and scale has allowed us to be a strong partner to the companies in which we invest.”
Accel-KKR’s flagship strategy emphasizes control investments in mature software and IT-enabled service businesses with values above $100 million. These are usually founder-owned, vertically focused establishments, featuring characteristics like mission-critical products and high renewal rates, and operating in fragmented spaces.
The approach of Emerging Buyout II closely tracks that of the flagship but targets younger companies with values below $100 million.
Over time, Fund VII will invest $200 million to $250 million on average in 15 to 20 platform investments, while its counterpart will invest $40 million to $50 million on average in roughly the same number.
‘It’s a great time to have capital’
Technology sectors ran into economic headwinds in 2022, with high inflation and rising interest rates bringing uncertainty and volatility. The tech-heavy Nasdaq entered bear territory early in the year, driving down once lofty valuations.
None of this fazes Barnds, as Accel-KKR is multi-strategy firm, with its buyout vehicles forming part of fund families that include minority-growth capital and credit. Developed to address a range of demand requirements, these specialty strategies help Accel-KKR to invest across cycles.
“Having different funds enables us in different arcs of the cycle to remain very busy,” Barnds said. “We have the ability to come up with creative structures to help solve the problems of entrepreneurs, including around valuations.”
In fact, by raising $5.3 billion in fresh capital, Accel-KKR is in an especially good position to take advantage of dealflow arising from today’s dislocation. “It’s a great time to have capital,” Barnds said. “It puts us on the front foot of supporting existing businesses and going after new platforms.”
Barnds also perceives a wealth of future opportunities as historic tech adoption continues to disrupt traditional sectors of the global economy. “I think we’re still in the early days of how software will change the world.”
To date, Accel-KKR has acquired 350-plus software and IT-enabled service companies.
This takes in 14 platform investments over 2022-23, the most recent of them Loftware, an enterprise labeling and artwork management provider, and StoreForce, a retail execution and workforce management provider. In the same period, 42 add-on deals were done.
Fund VII and Emerging Buyout II will be activated later this year, Barnds said.