Tenex Capital Management, led by ex-Cerberus Capital Management principals, unveiled a fourth buyout fund to invest in underperforming mid-market businesses.
Tenex Capital Partners IV is targeting $1.6 billion with a $1.8 billion hard-cap, the manager said in a presentation to Rhode Island State Treasury. The GP is committing at least 3 percent.
As it enters the latest fundraising campaign, Tenex is also getting ready for a major succession event.
The firm is led by CEO Mike Green, a former operator and General Electric executive who in 1999 launched turnaround platform TenX Capital Partners. Acquired by Cerberus in 2004, the platform became Cerberus Operations, with Green serving as managing director and president. He led the spinout of the team in 2010 to found the Tenex of today.
Green is now in his mid-60s, according to Rhode Island documents, and intends to move into the role of chairman in time for Fund IV’s successor. For this reason, Tenex is “in the process of creating a succession plan” for him.
Presently, Tenex is looking at “three of their managing directors,” the documents said, and might establish a co-president structure, potentially involving all three. The firm declined to comment.
There are seven managing directors on the investment side: Green, Varun Bedi, Joe Cottone, Ron Lejman, Ryan MacIntyre, Perrin Monroe and Gabe Wood. Bedi and Cottone are co-founders.
Tenex has a hybrid investor-operator strategy that is broadly similar to the one pursued at TenX Capital Partners and Cerberus. The focus is on acquiring “fundamentally sound but operationally deficient businesses,” Rhode Island documents said.
The approach was recently changed to mute a solely value-oriented turnaround emphasis, the documents said, with Tenex blending “more stable, higher-priced and higher-growth assets” into deal activity, “resembling more traditional buyouts.”
Tenex makes control investments of $25 million-$100 million in North American mid-market companies with EBITDA of $3 million-$40 million. Targets are family and management-owned businesses, corporate carve-outs and sponsor-owned assets. Sectors of interest are diversified industrials, business and tech-enabled services and healthcare.
Post-acquisition, improvements are made to companies in a three-stage process directed at rationalizing fixed costs, optimizing variable-cost productivity and increasing volume through M&A to drive operating leverage.
Tenex Capital Partners III, closed in 2021 at $1.2 billion, has made 14 platform investments, according to the manager’s website. The latest addition, completed last month, is RF Fager, a plumbing and HVAC supplies distributor. It follows last September’s formation of Columbia Home Services, an acquisition platform operating in the same space.
The firm is also poised for a significant exit with Home Depot’s March agreement to buy SRS Distribution in an $18.25 billion deal. Three years ago, Tenex sold pool supplies distributor AquaCentral to SRS, retaining a minority interest.
Fund III was showing strong performance as of Q3 2023, Rhode Island documents said, earning a 1.8x net multiple, a 244.2 percent net levered IRR and an 86.2 percent net unlevered IRR.
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