Luminate Capital Partners has raised its initial fund with more $265 million in capital. The firm was founded by former Silver Lake Partners managing director Hollie Moore Haynes, who is one of The Most Influential Women in Mid-Market M&A. The fund has already invested in a few companies, including Oversight Systems and Financial-Information Technologies, and sold one, Professional Datasolutions Inc. (PDI).
Based in San Francisco, Luminate is focused on acquiring midmarket software companies—those with $10 million to $50 million in annual revenues—from the founders or early venture capital investors or in carve-out deals. The firm is interested in U.S. providers of business-to-business, enterprise software with an established product, a happy customer base, a market leadership position, a management team to partner with and the potential to grow 10 percent to 30 percent annually, along with certain software industry financial metrics. “Market growth and opportunity matters, because you’ve got to have enough wiggle room to get some things wrong along the way to try to grow the business,” Haynes says.
In the firm’s first deal, Luminate bought the largest provider of convenience store back-office software in April 2015: PDI, a Temple, Texas, company carved out from a company owned by Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A). PDI controls about half of its market, running financials, inventory and pricing software for big convenience stores in the U.S. In May 2016, Luminate sold PDI to TA Associates, for undisclosed terms.
Haynes says she was drawn to the software sector because of several trends that are creating investment opportunities. One is that starting a software company has become much less expensive with the easy availability of cloud computing, which has created a very fragmented market, with many founder-led companies and startups with small amounts of venture capital funding. Another trend is the shift in the enterprise software business model, from on-premises licensed software that requires clients to invest in servers and IT staff, to subscription cloud-based applications, such as Salesforce.com, which can make it easier for new software companies like Adobe Systems Inc. (Nasdaq: ADBE) to generate recurring revenue streams, but more difficult to grow quickly. She started Luminate so she could build a brand around her middle-market software company investing, instead of working under the broader mission of a big firm, she says. Luminate does not compete with Silver Lake, and Haynes’ former employer invests in her fund. Haynes continues to oversee her Silver Lake portfolio, including Blackline, a Los Angeles company that sells software to finance and accounting professionals.
Private equity firms have been active in raising capital. Private Advisors raised a $164 million co-investment fund, while Ardian and Constitution Capital Partners also raised similar funds. Other fundraises include: the Riverside Co.’s first minority investment fund in April 2017; The Carlyle Group’s (Nasdaq: CG) fourth distressed capital raise; Vector Capital’s fifth PE fund; Monroe Capital LLC’s $800 million credit fund; and NXT Capital LLC’s fourth debt fund with $900 million. In 2016, the Carlyle Group (Nasdaq: CG) closed its fourth CLO fund at $507 million and Littlejohn's Wellfleet closed a $406 million fund.
Kirkland & Ellis represented Luminate. Moelis & Co. (NYSE: MC) served as placement agent.
Keith Button contributed to this story