Graham Allen Partners set to launch $200M Data Focus Fund II
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South Bend-based Graham Allen Partners is set to launch a $200 million fund focused on leveraging untapped data within legacy businesses.
The Data Focus Fund II follows the private equity firm’s initial $93 million fund, launched in 2019, that uses similar strategies. With over $400 million of assets under management, the firm says it will continue its commitment to Midwest-based businesses.
“We really are interested in talking to businesses in Indiana,” Susan Ford, chief operating officer at Graham Allen Partners said. “In our first fund, 80% of our businesses are headquartered in Indiana. I would envision a similar statistic will be true for our second fund.”
GAP’s foray into data and analytics began with their signature flagship company, Aunalytics, a data platform company delivering managed IT and analytics services.
“Aunalytics is really important and relevant for what we’re doing in the community and for our long term strategy,” Ford said. “We’re able to serve mid-market businesses in the Midwest, and we have a company that is already here that we help manage, that is able to help future portfolio companies with their strategy.”
With the continued success of its first fund, GAP anticipates similar results for the second iteration of its Data Focus Fund.
“It’s perfect timing for our second fund because we have proof that our thesis and our strategy is working, and we want to go do more of that,” she added. “We think there are more opportunities in business services, health care, and we will always continue to invest in technologies that we need to serve these businesses to help them have the value that we think that they can have.”
The firm invests in established, strong performing, legacy businesses that are compelled by GAP’s strategy of leveraging cloud computing, data and analytics to accelerate digital transformation.
Ford speaks about the kind of businesses GAP wants to work with and why existing portfolio companies chose to work with them.
“We want to work with people who have a strong business, who know that business better than anybody, who know they want to take a leap into the next transition of the digital transformation and know they can’t do it alone,” Ford added. “So when we say legacy business, that’s what we mean: someone who knows their space really well and wants to partner with us to see what that next iteration could look like.”
While their strategy is not venture, Ford said GAP has venture style returns and potential on the data side. And given the size of the teams they work with, the company constantly has to do more with less.
“We tend to work with the original entrepreneurs and so they don’t always have fully built out leadership teams. They don’t always have financials in the way that we would expect,” Ford said. “And our team is really comfortable with that because we are entrepreneurial in and of ourselves. It is a consistent opportunity to help these businesses professionalize and elevate.”
The strength of the leadership team, company culture, EBITDA, revenue, margin, and market movements are some of the factors GAP considers before making an investment.
A mix of institutional investors, pension funds, family offices and high-net worth individuals invested in the first fund, and Ford anticipates a similar fund pool this time around.
“We certainly appreciate and value contributions from people who are writing smaller checks but I think the most compelling thing about what we’re doing is that we are bringing money from the coast to invest in the Midwest,” she said. “That’s what’s really exciting about it.”
While GAP is interested in getting a return for their investors, their portfolio companies benefit from the private equity firm in two ways. The initial investment from GAP is the first opportunity, and an even bigger opportunity awaits when GAP and the original owners sell the business. Ford said there are two companies due for exit this year.
“We believe all of these businesses in the Midwest have this untapped value in data and what we bring is the talent, the expertise and the capital to help extract the value from the data,” Ford noted. “Together, original owners and Graham Allen Partners can do something more on the data side. That’s why our partners, the sellers want to work with us because we’re bringing something different and unique than what they’re hearing from anybody else who’s out there in the market.”
Ford said founders are also interested in working with GAP as the firm is “authentically Midwest.”
“It’s not some New York private equity firm saying, ‘Hey, business owner in South Bend, I know better than you do.’ That’s not the case,” she added. “We’re here. We live here. We’re raising families here. Our networks are deeper and go farther in some of these smaller communities, which is actually a great competitive advantage.”
Investors are also looking for new opportunities outside of the saturated equity market on the East and West coasts, she said. GAP’s focus on smaller deals helps them see higher returns at a faster rate.
“We’re very comfortable investing in companies that are anywhere from $1 to $5 million dollars of EBITDA, which tends to flow below the radar of other larger private equity firms,” Ford said. “Our strategy works in that capacity, we’re able to quickly get higher multiples when we put our strategy in place because we were willing to do some of the smaller transactions.”
Highlighting the 10 universities in the region, strong internship programs and better training opportunities, Ford said there’s a thriving pipeline of technology talent GAP can tap for its portfolio companies.
“We feel strongly that we have a competitive edge on attracting and retaining tech talent here and we’ve had really good results thus far,” she added. “I think we have the talent. I think it’s getting better. I think we as a state economy have to continue to think about what that looks like.”
Data security and managing financial risk are two aspects GAP actively monitors. Ford said the firm leverages Aunalytics’ expertise to ensure data safety and protect downside risk.
“We’re very realistic, very conservative, and we’re very pragmatic in that way. We also have a limited partner advisory committee that we run our ideas by,” Ford noted. “So we have a lot of checks and balances in place to ensure that we are managing these institutional dollars to the highest, best use and ability.”
With a successfully proven strategy, GAP expects the Data Focus Fund II to have tremendous economic impact.
“We are very confident because if we can transform these businesses from traditional legacy businesses to having their data purchased globally or nationally. These businesses become exporter businesses, and that is where you have a true transformation,” Ford said. “That’s what we believe our strategy is capable of doing.”