Baird Capital holds final close for second Global Fund

Harriet Matthews
23 July 2021

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Baird Capital has held a final close for Baird Capital Global Fund II with capital commitments exceeding USD 340m.

Baird Global Fund II held a first close in summer 2020 and has since made four platform deals, including UK-based aircraft storage, disassembly, and recycling services specialist eCube.

Andrew Ferguson, a London-based partner and head of Baird Capital's technology and services team, told Unquote that the fund size is in line with the development of the firm's Global Fund strategy: "We are pretty much where we set out to be; we raised USD 310m for the first fund and we feel that the cadence of raising this size of fund on a regular cycle suits our businesses and the cheques that we write." Ferguson added: "We are a big advocate for the lower mid-market and we have always focused on growing founder-run SMEs that can benefit from having an investment partner with an international resource network."

The firm's first Global Fund held a final close in June 2017 on USD 310m against a USD 300m target. In January 2021, the fund partially realised its stake in UK-based pharmaceutical intelligence, insights and product strategy consultancy Prescient Healthcare; Baird Capital sold its majority stake in the company to Bridgepoint Development Capital, retaining a minority stake.

Investors
The majority of Baird's LPs are US-based institutional investors and high-net-worth individuals, as well as Baird itself.

Ferguson told Unquote that the strategy is an appealing prospect for LPs due to the diversification that the fund's portfolio of investments provides. "We feel we have a differentiated product in the market," he said. "Our investors get a diverse position through a single fund: they get geographical diversification, as well as investment-stage diversity. The fact that we invest in technology services, healthcare services and industrial technology gives sector diversification, too."

Investments
The fund will make both buyout and growth deals, backing founder-owned lower-mid-market companies in the US, the UK and Asia. The fund focuses on businesses in the technology and services sector, as well as the industrial technology and solutions sector, targeting those with EBITDA of USD 5m-15m. The fund deploys equity tickets of USD 15m-40m.

Global Fund I made 11 investments, five of which were in the UK, as well as three in the US, two in Malaysia, and one in Hong Kong. Global Fund II expects to make a similar number of deals but is not tied to specific geographical targets. "We think a lot about fund and portfolio construction and what is the best use of our investors' cash," Ferguson told Unquote. "We don't set off having specific geographical targets, but we want to make the best investments that we can against the opportunities that we see. For example, in Global Fund I, opportunities were strong and prices were lower in the UK, so we loaded up there."

The sectors in which the fund invests are particularly active as the UK economy emerges from the pandemic, Ferguson noted. "The market is very busy at the moment in the UK, led by technology and services, which has been a strong sector coming out of Covid. But we are also seeing a lot on industrial technology, sustainability and energy management. It feels at times that the market is at capacity in terms of the time people have to look at opportunities."

A number of factors are driving UK lower-mid market activity for founder-owned SMEs, Ferguson told Unquote. "The lower mid-market has always been a higher volume marketplace compared with other deal sizes," he said. "At the moment, potential tax rises in the autumn budget are weighing to some degree on the thinking of founders and managers; deferred deals from last year are now being activated. Valuations for the sectors we focus on in the private markets are at high levels, which is also encouraging people to potentially accelerate their processes. There is also cash available from private equity, and banks are willing to lend."

Ferguson anticipates that these factors will continue to influence the market in the near future. "This confluence of dynamics is driving the market and I think it will drive the market for the remainder of 2021 at least, with 2022 likely to see a continuation of activity," he said. "We are investing with strong tailwinds."

People
Baird Capital – Andrew Ferguson (partner, head of technology and services); Gordon Pan (president); Steve Booth (president, CEO, chairman).