Tecum Capital Partners has partnered with a family office to launch a private equity fund.
Tecum Equity Partners III LP is a $50 million committed pool of capital backed by Western Allegheny Capital. Tecum Equity III will target control investments in industrial, distribution and more cyclical sectors like machine shops, tool and die, as well as other manufacturing, said Managing Partner Stephen Gurgovits.
Tecum Equity III will target lower- and middle-market companies, seeking to invest from $5 million to $20 million equity per deal. Unlike a traditional PE fund, Tecum Equity III does not have an end date. “We can hold in perpetuity,” Gurgovits said of Fund III’s investments.
Tecum Equity is the PE strategy of Tecum Capital, a Pittsburgh investment firm with two SBIC debt-oriented funds. Tecum Capital Partners I raised $200 million in 2013. The second pool closed in April with $225 million, Gurgovits said.
Tecum III: strictly control equity
Tecum Equity represents the investments of Western Allegheny, the family office of a Pennsylvania entrepreneur. The entrepreneur owns one of the largest privately held companies in western Pennsylvania, Gurgovits said. Western Allegheny is an LP of Tecum Funds I and II, he said.
Gurgovits wouldn’t identify the entrepreneur, saying only: “He is known. He’s known in our region” of western Pennsylvania.
Tecum Capital decide to launch the PE strategy when it realized that its SBIC funds weren’t a good fit for certain M&A situations, Gurgovits said. The Tecum Capital funds are debt-oriented pools that invest equity but only for minority stakes, he said. Tecum Equity III is “strictly control equity,” he said.
Tecum Capital was originally known as FNB Capital Partners. It operated as a subsidiary of F.N.B. Corp, the financial-services company that also owns First National Bank of Pennsylvania.
The Dodd-Frank Act of 2010 “put the kibosh on banks’ direct involvement in private equity,” Gurgovits said. The Volcker rule provision of Dodd-Frank, however, allowed SBIC-licensed banks to invest in pooled funds. In 2013, FNB Capital spun out when it received SBIC status and launched its first pool. FNB Bank is the largest investor of Tecum Capital I, Gurgovits said.
In 2016, the firm changed its name to Tecum Capital. Gurgovits said he felt as though he went through about 2,000 names before he read about Tecumseh, a famous Native American war chief from the Ohio valley region. In Latin, Tecum means “with you.” “That personifies how we do deals,” Gurgovits said.
Family offices emerge as force
Family offices have emerged as a force in M&A. More and more family offices are competing against PE and strategics in deals, Buyouts has reported. One critique of family offices is that they don’t know how to participate in mergers, sources said.
Many family offices want to do direct investing, Gurgovits said. Some are “very good” and can execute, while others don’t really know how to approach an auction process, he said. “That was our selling point to Allegheny. ‘Don’t make those mistakes. Let us do [the negotiations] for you.’”
Tecum Capital has quadrupled in size since it launched in 2013, when it had a staff of three, seven portfolio companies and $35 million in assets under management. The firm’s 11th employee, an associate/analyst, will start next week, Gurgovits said.
Tecum currently has 26 portfolio companies and $457 million in AUM. Such growth is common in New York and Chicago but unusual in Pittsburgh, which has many endowments and foundations as well as an active VC community. The other large growth stories in Pittsburgh PE are Incline Equity Partners and PNC Riverarch Capital, he said.
“This is an old Rust Belt city. I’m surprised there’s not a lot more dedicated capital,” he said.
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