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American Capital spinout Northlane collects most of Fund II target

Northlane Capital Partners II will follow the strategy of its $1 billion predecessor, making control investments in lower mid-market companies in the business services and healthcare sectors.

Northlane Capital Partners, spun out of American Capital three years ago, secured most of the $375 million target set for its first independent offering.

The Bethesda, Maryland, private equity firm this month filed a Form D fundraising document saying the vehicle, called Northlane Capital Partners II, brought in more than $258 million. Sixpoint Partners is the placement agent.

Fund II signed up 41 limited partners, the Form D showed. Disclosed investors include Texas Municipal Retirement System, which is committing $60 million. TMRS published the offering’s target in a 2019 report.

Northlane emerged with the 2017 close of Ares Capital Corp’s roughly $3.43 billion acquisition of American Capital. The managers of American Capital Equity III, Justin DuFour, Sean Eagle, Eugene Krichevsky and David Steinglass, spun out the $1 billion lower mid-market fund, rebranding it as Northlane Capital Partners I.

Northlane’s founding partners were supported in the initiative by ACE III LPs, who purchased American Capital’s commitments to the pool. ACE III closed in 2014 with commitments from Coller Capital, Goldman Sachs, StepStone Group and others.

Northlane has since managed a combination of pre- and post-2017 platform investments. Legacy assets included SMG Holdings, a venue management services provider originally backed in 2007 by American Capital and sold in 2018 to Onex Corp.

Fund II will follow the strategy of its predecessor, the TMRS report said. It will make control investments in lower mid-market companies in the business services and healthcare sectors, investing up to $75 million in 10 to 12 opportunities. The vehicle’s performance target is a net IRR of 20 percent.

The focus will be on profitable North American businesses in defensible market positions, according to a Northlane brochure. These will typically have EBITDA of $5 million to $30 million and enterprise values of $50 million to $300 million.

Northlane’s portfolio currently holds eight companies, the firm’s website shows. They include VMG Health, a provider of valuation and advisory services to the healthcare industry. Northlane acquired VMG earlier this year from Quad-C Management.

DuFour, Eagle, Krichevsky and Steinglass, who have been investing together since 2003, oversee a team of 16. They include Scott Kauffman, whose promotion last year made him Northlane’s fifth partner.

Northlane did not respond to a request for comment on this story.

Action item: Read Northlane Capital Partners’ overview brochure here.