HGGC Raises Fund II Without Namesakes

Rich Lawson, CEO of middle-market PE firm HGGC, expected that raising capital for its latest fund would be challenging. This would be the firm’s second fundraise, and the world had changed a lot since the firm raised its first fund in 2008: Limited partners had become more selective, and it was to be the first fund HGGC was attempting to raise since both its original namesakes, Bob Gay and Jon Huntsman Sr., had departed the firm.

Facing these headwinds, Lawson knew he would have to convince LPs that the Palo Alto, Calif.–based firm’s track record was repeatable. HGGC also made the decision to remain a middle-market firm, despite the fact that many of its competitors had chosen to move up in size.

“We have had tremendous success with a great track record, but we said, ‘Let’s not get bigger. Let’s keep doing the deals we are good at,’” says Lawson. “Last time around, we raised $1.1B, including $100M of our own capital. We hard-capped this fund at $1.25B, and the professionals at HGGC committed $80M, which took us to $1.33B. In the end, we wound up with more demand than we could accommodate, and it was a successful fundraise.”

Now, with the goal of diversifying its LP base for HGGC Fund II, more than half of the firm’s LPs are located outside of the U.S. The firm lists companies such as Denmark-based PKA AIP and Montreal-based OP Trust as investors. Public and private pension funds, insurance companies, sovereign wealth funds, and family offices round out the firm’s investment base.

Lawson feels strongly that the $80M commitment from HGGC professionals distinguishes the firm from others. “The important thing, from my perspective, is that we are the largest investors in the fund,” he says. “It’s different when you are eating what you are cooking, so to speak. It shows the LPs it’s not about management fees but about being good investors.”

Still, the firm fielded questions about how Gay’s departure would impact the firm going forward. To be sure LPs were seeing how strong the team was, even without Gay at the helm, HGGC kicked off its fundraising and completed four deals almost immediately. “We didn’t tell investors, ‘Hey, we can do this’—we showed them we could,” says Lawson.

While fundraising, HGGC made four platform acquisitions out of Fund II: AutoAlert, a provider of cloud-based data-mining analytics and portfolio management; Pearl Holding Group, a provider of underwriting, claims processing, and policy management services to the insurance market; Serena Software, an independent provider of IT application development and deployment solutions; and Survey Sampling International, a provider of data solutions and technology for consumer and business-to-business research.

Additionally, in March, HGGC and its partner Charlesbank Capital Partners announced plans to sell Citadel Plastics Holdings, Inc., a provider of thermoplastic and engineered composite compounds, to global plastics supplier A. Schulman for $800M— approximately 10.6x the company’s EBITDA of $75M. HGGC and Charlesbank acquired Citadel in 2012.