Trivest Partners, the Coral Gables, Florida, firm known for acquiring founder and family-owned companies, closed its first growth equity fund at $225 million, trouncing its $100 million target.
Troy Templeton, managing partner, said that over the years the firm has run into a number of founders who aren’t quite ready to sell but nevertheless would be open to an injection of investment capital and advice from Trivest.
“We will be the gasoline to help them build their business to help them get a premium valuation” when they do sell, said Templeton. The cash could be earmarked for making acquisitions, building factories, paying down debt or providing liquidity to shareholders.
$20 million equity checks
Trivest plans to invest equity checks in the neighborhood of $20 million in return for convertible preferred shares, according to sources. The shares would not require any payout during the hold period, allowing the target company to conserve cash.
At exit time the preferred shares would provide Trivest a return of 13 percent to 15 percent, assuming enough cash remains after any creditors are made whole. The firm would also have the option to convert preferred to common shares to generate a higher return. As with its buyout fund, the firm would aim to triple the value of its equity investment.
The firm joins a number of buyout shops that have expanded into minority investing in recent months.
Earlier this year Huron Capital Partners hired Douglas Sutton and Charles Sheridan to make less-than-majority investments in lower-mid-market companies, while early last year Harvest Partners said it had formed a fund to provide structured equity and junior debt. Late last year Buyouts reported that Clearlake Capital Group was seeking $500 million for a debut non-control structured debt and equity fund.
Despite proliferating players, Templeton said the firm encounters fewer competitors for growth equity deals than it does for buyout deals. He said that by not requiring a current payout, his fund could prove more attractive to business owners than other options, such as mezzanine debt.
With Trivest Growth Investment Fund LP, or TGIF for short, the firm plans to target the same kinds of companies as it does with its buyout funds. The firm looks to back founder and family-owned companies that are led by strong management and generate EBITDA of at least $4 million in industries such as business services, consumer products and niche manufacturing.
‘Halfway up the mountain’
But there’s a difference. With its buyout fund, Trivest generally encounters owners and managers eager for a new perspective and fresh business plan. By contrast, the owners and managers of candidates for growth investments usually have a “very clear idea” of where they want to the take their companies over the following three to five years.
“It’s like they’re halfway up the mountain,” said Templeton. They see the summit and Trivest wants to help ensure they get there, he said.
Trivest launched fundraising for TGIF at its annual investor meeting at the end of April and held a first and final close on July 1. Backers include return investor Adams Street Partners and first-time investor Prudential Financial Inc.
The investor base includes endowments, corporate pensions, public pensions, family offices and wealthy investors. Trivest closed its most recent buyout fund, its fifth, at $415 million in late 2012.
Partner Greg Baty out front
Partner Greg Baty, who joined Trivest from Hamilton Lane earlier this year, will be the face of the fund and have primary responsibility for sourcing transactions, Templeton said. The same business development, deal execution and back-office teams that work on the firm’s buyout funds will sustain the growth equity fund.
At Hamilton Lane Baty managed the Florida Growth Fund on behalf of Florida State Board of Administration. Since 2009 the state has allocated $750 million to the program, which has made 30 direct investments. Earlier in his career Baty spent nine years playing football in the NFL.
The firm may add additional staff at the VP or principal level on the deal execution team to work on the new fund, Templeton said. Partners on the firm’s investment committee oversee both funds.
Trivest signed a letter of intent with the target of its first growth equity investment, and expects to close the deal within the next 60 days, said Templeton.
Shannon Advisors, as it did on Fund V, marketed the growth equity fund as placement agent. Greenberg Traurig handled the legal work. The fund has a conventional 2-and-20-style set of terms and conditions.
Trivest is about halfway through investing its fifth buyout fund and year to date has closed the sale of five portfolio companies, generating $320 million for investors. Most recently it closed the sales of Wise Co, a supplier of dehydrated and freeze-dried foods, and HandStands, a supplier of automotive air fresheners.
Trivest has a reputation for innovation when it comes to deal sourcing — and in particular for a program in which it rewards business brokers with a complimentary lease to a Mercedes S-Class sedan should they bring a successful platform to the firm. Templeton said the program won’t apply to the growth equity fund, given that the transactions are smaller.
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Update: This story has been updated to add more detail on Greg Baty’s career and on Trivest’s incentive program for business brokers.