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Bain Capital, the 35-year-old private equity firm known for takeovers of companies like Varsity Brands and the now bankrupt Toys R Us, is raising $1 billion for a new technology fund that will be used for buyouts and late-stage minority investments, according to people familiar with the matter.
The new fund — Bain Capital Tech Opportunities — will target $50 million to $200 million equity investments, primarily in enterprise software and cybersecurity, said the people, who asked not to be named because the plans are private. The fund will also look to acquire smaller companies, the people said.
Private equity firms have become a major part of the technology M&A market in recent years, with firms like Thoma Bravo and Vista Equity raising large funds to swipe up subscription software companies with stock prices that are lagging behind their peers. The strategy paid off last year for Vista, which sold marketing automation company Marketo to Adobe for $4.75 billion, two years after buying the business for $1.8 billion.
Bain sees a gap in the software market where there's less capital available. The firm is looking for companies with annual recurring revenue of $30 million to $100 million and valuations of less than $500 million. For companies at this stage, Bain plans to tout its expertise in finding international opportunities and forging partnerships with other portfolio companies, the people said. Other firms that compete on that end of the market include HGGC and Francisco Partners.
As Bain has researched industry verticals in tech over the past year, it has discovered several investment opportunities that are too small for its private equity funds, which in recent years have acquired companies such as Blue Coat, a $2.4 billion deal in 2015 (sold about a year later for $4.65 billion) and BMC Software as part of a $6.9 billion consortium transaction. They also haven't fit as investments for Bain Capital Ventures, which is focused on seed and earlier-stage investing.
On the venture side, there's a record amount of cash pouring into tech start-ups from the $100 billion SoftBank Vision Fund, hedge funds, mutual fund companies and multibillion-dollar growth funds from Sequoia, Insight Venture Partners and others. But rather than pursuing high-flying start-ups, Bain is going after companies that may have hit some roadblocks and are in need of operational improvements, the people said.
The new fund will be co-managed by Darren Abrahamson, private equity managing director, and Dewey Awad, public equity managing director, and will add about 15 people internally and externally, the sources said. In addition to software and cybersecurity, it may look to invest in financial technology, health tech and digital media.
A Bain spokesperson declined to comment.