Tecum Capital starts second small business fund

Pittsburgh Post-Gazette

Tecum Capital is launching its second fund, a $225 million federally licensed small business investment company that will provide capital to small and medium-sized businesses that have a hard time getting financing from banks.

The McCandless company’s first investment company — a $175 million fund launched in 2013 — provided debt and equity financing to 26 companies that used it to create nearly 700 jobs, said managing partner Stephen Gurgovits Jr.

Companies that were funded include Uncle Charley’s Sausage of Vandergrift and Powertrack International, an oil and gas drilling industry supplier based in Carnegie.

Mr. Gurgovits said the new fund will invest in a broad range of businesses that have a difficult time finding the money they need to grow.

“It’s still tough to get a bank deal done,” he said.

Money for the latest fund came from $86 million in equity provided by equity investors that include 12 banks. The rest will come from financing from the U.S. Small Business Administration, which licensed and regulates the fund.

Tecum’s debt and equity financing will be used to finance acquisitions, growth initiatives and buyouts, as well as for other purposes. Tecum’s typical investment ranges from $3 million to $15 million.

Mr. Gurgovits said the SBA financing will be based on a slight premium of the 10-year U.S. Treasury rate, currently about 2.3 percent.

FNB and five other small or regional banks invested in Tecum’s first fund.

Mr. Gurgovits said the latest fund’s investors include regional bankers S&T Bank, NexTier Bank and TriState Capital as well as Bank of New York Mellon, Morgan Stanley, BMO Harris and Wells Fargo.

Mr. Gurgovits formerly ran FNB’s merchant banking unit, which provided the kind of financing Tecum does. But after the 2008 financial crisis, federal regulators prohibited banks from offering private equity funding or managing separate pools of investor funds that made equity investments.

However, the regulatory overhaul that followed the crisis allowed banks to invest in SBA-licensed small business investment companies like Tecum.

The investment companies make their money on the spread between rates they pay for the SBA financing and what they charge their customers, as well as on any increase in the value of their equity investments in companies.

Mr. Gurgovits said the companies that Tecum’s first fund financed increased their payrolls to 3,677 from 2,995, or about 23 percent.

Tecum also is launching an equity-only investment arm.

Tecum Equity Partners III will generally invest $5 million to $20 million to acquire controlling interest in companies that typically have annual cash flow of $2 million to $7 million, Mr. Gurgovits said.