Falfurrias Capital Partners is the latest shop to play small ball, turning its attention to the lower middle-market software and business services sector with its first growth fund. The $400 million fund closed in December and the Charlotte, N.C. firm is looking to invest in smaller companies than usual.

Falfurrias Growth Partners in January announced two investments from its new growth fund, making a “significant growth investment” in an IT consultancy and a similar bet on a company that provides wellness programs to law enforcement agencies, fire departments and other high-stress professions.

And in a departure from its five previous funds, Falfurrias says it will consider taking a significant minority interest in a target as long as it’s the company’s first institutional capital, and management and Falfurrias are in alignment on the growth strategy.

Michael Clifton, one of two Carlyle Group (Nasdaq: CG) vets brought in to manage the fund, says that whatever the size of the investment, the new growth fund will pursue the same “industry first” investment strategy the shop has used in the past.

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Clifton honed his technology dealmaking chops at Carlyle, where he worked for nine years until 2020 as part of that firm’s flagship buyout team. They focused much of their efforts on the same enterprise software and IT sectors Clifton and the Falfurrias growth fund team are going to target, but on a larger scale.

In between Carlyle and Falfurrias, Clifton co-founded and served as CEO of Supernova Partners, a now-delisted SPAC.

Clifton says the new Falfurrias fund is targeting cash flow-positive companies with double-digit growth in the subsectors of information services, government services and fintech. Falfurrias will invest between $20 million and $50 million in each transaction, seeking control or a large minority stake in founder-owner companies. Falfurrias will write checks as big as $200 million from its other funds, which have made bets in a variety of niches including in companies that provide software services to private equity firms.

Falfurrias added Clifton and Cam Dyer, another former Carlyle vet, to help manage the growth fund plus an operations partner, Amy Brandt, formerly of Serent Capital.

Falfurrias announced on Jan. 24 a “significant growth investment” in NPI, which consults with large enterprises negotiating IT services. NPI has compiled contracts and data from 1,500 IT vendors and its flagship subscription service provides transaction-level price benchmark analysis and negotiation intelligence.

Falfurrias says its investment will boost NPI’s artificial intelligence capabilities and help the Atlanta-based company grow in a competitive market. NPI says 120 of its 500 customers are Fortune 500 companies.

NPI founder Joe Winsett will stay on as CEO.

“This year, we’re poised to launch groundbreaking AI-powered technology that is purpose-built for IT procurement practitioners to streamline the IT purchase negotiation process,” Winsett says of the Falfurrias investment.

Earlier in January, Falfurrias announced an investment in O2X Human Performance, which provides custom wellness and performance programs to law enforcement agencies, fire departments and other large organizations operating in high-stress environments. The Scituate, Mass.-based company embeds workers with clients and provides online reporting and assessment tools.

“The majority of its revenue is recurring,” Clifton says.

Clifton says it took about a year to raise the $400 million growth fund, which includes a combined $45 million from Falfurrias partners. Returning LPs included pension plans, asset managers, insurance companies, endowments, foundations, family offices and high-net-worth individuals.

The new fund also attracted several new LPs, too.

“We were fortunate Falfurrias has done well by its investors,” Clifton says.  

Since former Bank of America (NYSE: BAC) CEO Hugh McColl co-founded Falfurrias in 2008, the firm has raised more than $2.2 billion combined over its five previous funds and its new growth fund.

Source: The middle market

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