By Patty Tascarella – Senior Reporter, Pittsburgh Business Times
Tecum Capital Management has closed its new fund at $305 million, 10% above original expectations, with 21 banks as investors, attracted by local connections and Tecum’s relationship with the SBA. Pasta sauce may have played a role in bringing some of them together.
Tecum Capital Partners III is Wexford-based Tecum’s third and largest SBIC fund to date. SBIC, short for Small Business Investment Company, means the U.S. Small Business Administration is matching the money raised up to the SBA’s cap of $175 million. Since the fund is licensed as an SBIC, its bank investors become eligible for Community Reinvestment Act credits.
Tecum originally aimed to raise $275 million.
“I am not surprised by the strong investor response,” said Stephen Gurgovits Jr., Tecum managing partner. “We have a renewal rate [investors continuing to invest from prior funds] of about 50% in both number of investors and commitment dollars. I believe our consistent performance and strong limited partnership relationships provide us the opportunity to earn continued robust investor support. That said, raising this amount of money during a pandemic with limited face-to-face interactions was not a simple process. Therefore, successfully navigating this fundraising process was actually a huge surprise to me. I am very humbled by the support, especially in these uncertain times.”
The investor base is approximately 70% institutional and 30% high-net-worth individuals. The institutional investors are comprised of 21 banks whose combined commitments are nearly $75 million. The banks include Morgan Stanley, Huntington National Bank, TriState Capital Bank, NexTier Bank, Fifth Third Bank, First Commonwealth Bank, Flagstar Bank, CNB Bank, S&T Bank, Northwest Bank, Dollar Bank, CFG Bank, Cortland Savings Bank and Truist.
Tecum added a new fund-of-funds investor with a commitment of about $12 million and the investor base also includes a pension fund, a community foundation and an insurance company.
“We do have some SBIC investments in each of our markets, generally out of our offices but covering the metro areas, and we look for one or two of the top performing SBIC funds in our markets,” Brian Fetterolf, president and CEO, TriState Capital Holdings and TriState Capital Bank, said on Tuesday.
TriState (NASDAQ:TSC) had been an investor in Tecum’s second fund as well as the third.
“We’ve known all of the principals at Tecum for a long time so there are personal connections and a lot of trust and confidence in how they approach the market,” Fetterolf said. “Their focus on the middle market banking space aligns with ours and resonates with how we try to approach our business.”
While some deals will be local, Tecum’s footprint remains countrywide with a focus on the Mid-Atlantic, Midwest and Southeastern U.S. But there is also some carryover impact from the locally managed fund as Pittsburgh-area banks and law firms may be brought into Tecum’s deals to provide additional financing. Some of the new fund’s investors know this first-hand.
“There’s a difference between getting to know someone from across the country via technology and walking across town and meeting with them in person,” said Dave Reed, First Commonwealth’s Pennsylvania president. “That’s a huge advantage for Tecum within the region — and something that gives us a great comfort level. We look forward to possibly more partnerships in the future.”
A good example is a July 2021 transaction where Tecum and a syndicate of banks, led by First Commonwealth, invested in DelGrosso Foods, enabling the Altoona-based tomato sauce manufacturer to more than double production capacity and add staff to meet increased customer demand. DelGrosso, which is the largest family owned pasta sauce maker in the country, is a long-time First Commonwealth (NYSE:FCF) customer.
First Commonwealth subsequently became a new investor in Tecum’s third fund.
“We’ve gained a lot of traction, working with Tecum over the last year and, particularly, with the DelGrosso deal,” Reed said.
TriState was part of the syndicate.
“They’re (Tecum) out talking to a lot of the same people we’re trying to build relationships with,” Fetterolf said. “We didn’t know about DelGrosso before, but (the deal) was among a number of things that were coming together at the same time. They did a nice job of putting people together.”
Tecum told the Business Times in February 2020 that it planned to raise a third fund. At that point, $170 million of the $265 million fund it raised in spring 2017 was invested. It expects to soon announce its first investment from the new fund.
“I am confident we can make five to seven new investments in 2022 with our annual deployment goal at $70 million per year,” Gurgovits said on Tuesday. “And I am very confident we have the partners and team in place to execute and continue to perform at a high level while supporting small business activities and job creation throughout the U.S.”
Across its first two funds, Tecum helped facilitate the creation of 2,350 jobs so far. There is not a significant difference between Tecum’s funds other than the overall size.
“It is the same team and same strategy, but we do have the ability to invest larger dollars,” Gurgovits said. “Our check sizes will generally range from $5 million to $20 million per investment now, which is slightly higher than prior funds.”
Tecum originally launched in 2005 as a wholly owned subsidiary of its former bank parent company, F.N.B. Corp., which is not an investor in the fund. Tecum spun out and formed its first SBIC fund in 2013. Along with Gurgovits, its original founding partners include Matthew Harnett and Tyson Smith.
Tecum is Pittsburgh’s fourth-largest private equity firm as ranked by capital under management, which was $750 million, according to the list published by the Pittsburgh Business Times in spring 2021. It employs 17 and hopes to add another employee by the end of the first quarter.