Talking With The Portfolio Pickers At Thomas H. Lee Partners’ $900 Million Automation Fund

Given the trend toward the automation of everything, it’s somewhat surprising how few investors focus on the space. That makes Thomas H. Lee Partners’ year-and-a-half-old Automation Fund, with $900 million in assets, particularly intriguing.

The giant private equity group, which has raised more than $34 billion in equity since its founding by billionaire Thomas Lee in 1974, figures that robotics and automation could follow a similar trajectory to software, which exploded over the past 25 years with investments rising from $1 billion to $150 billion.

Big growth means big opportunity for investors, of course, and with markets turning down there may also be new opportunities to buy companies on the cheap for the long term. “Automation is penetrating all end markets. That’s why it is such a powerful technology trend in which to invest,” says Thomas H. Lee Partners managing director Jim Carlisle, who heads the automation fund.

Since 2017, the Boston-based firm as a whole has committed more than $5 billion in equity to 15 businesses in the broad field of automation, ranging from robotics firms to process-automation companies. The THL Automation Fund, launched in November 2020, has invested in 11 of them. With approximately $500 million committed from the fund, it’s still got some $400 million in cash with which to continue to buy. All told, some 38% of the firm’s invested capital is in automation.

Carlisle, 46, joined Thomas H. Lee in 2000 after a stint at Goldman Sachs. Managing director Mike Kaczmarek, 38, who works with him on the fund’s investment efforts, arrived in 2016 and is also on the advisory board of MassRobotics, an innovation hub for the robotics community.The duo see growth, fragmented markets and a shortage of labor for many blue-collar jobs such as working in warehouses and on construction sites as draws for their investments.

“There are others in late-stage VC or private equity who are on to this sector, but it’s a short list,” says Mark Martin, a former Analog Devices executive who recently launched Cybernetix Ventures, a new early stage robotics and automation venture firm, with MassRobotics’ cofounder Fady Saad.

Carlisle and Kaczmarek declined to discuss returns. But T.H. Lee won big with its investment in AutoStore, the Norwegian warehouse robotics firm that went public last October for $12 billion in that country’s biggest IPO in two decades. The firm paid a price of $1.9 billion.SoftBank acquired 40% of the company in April 2021 for a reported $2.8 billion, leaving T.H. Lee the majority owner going into the public offering. (The company’s market cap is currently around $8 billion.)

“AutoStore was one of the success stories of last year,” says Yaro Tenzer, cofounder and CEO of RightHand Robotics, a warehouse robotics firm that’s received investment from THL Automation fund.

The AutoStore investment and three others starting in 2017—including logistics firm MHS Global and warehouse automation company Fortna, which themselves have recently merged—helped lead to the automation fund’s creation.

While warehouse robotics and logistics remain core to the fund—it led a $100 million investment in supply-chain visibility firm FourKites in March 2021, for example—today Carlisle and Kaczmarek figure the team contacts more than 1,000 businesses a year across industries. “We have expanded into other markets, such as semiconductors, healthcare, agriculture, insurance and manufacturing,” Carlisle says.

Consider the firm’s $3 billion acquisition (through its $5.6 billion flagship fund and the automation fund) of Brooks Automation’s semiconductor automation business. That firm provides precision robotics and contamination control products to chip fabs and original equipment manufacturers worldwide. “From a macro perspective there’s about $470 billion in semiconductor sales to end users, and this is expected to grow to $1 trillion by 2030,” Kaczmarek says. “Anything and everything we do today has a chip in it.”

In healthcare, meanwhile, the fund recently invested in Qventus and Intelligent Medical Objects. Qventus connects its artificial intelligence with hospitals’ electronic medical records to improve patient flow and reduce cost. Intelligent Medical Objects translates medical terminology to clinical codes. “It’s a business that is effectively using data that might otherwise be hidden to improve execution of a manual task or improve the actual outcome,” Carlisle says.

In agriculture, the fund invested in Phytech, an Israeli firm that attaches sensors to trees and crops to gather data that can improve yields with recommendations on when and how much to water, for example. And in construction, the fund is invested in House of Design, which uses robotics to automate the construction of buildings’ roofs and floors, in part a play on the labor shortage in construction.

Despite the market’s decline, the duo figure there are deals to be had. “Investing in businesses that have good unit economics and strong secular growth trends will overpower and persist even if there are changes in the broader macro environment or a recessionary environment over time,” Carlisle says.