Arsenal Eyes $750M For Fund III

Fund: Arsenal Capital Partners III LP

Target: $750 million

Amount Raised: None

Placement Agent: None

Legal Counsel: Kirkland & Ellis LLP

Arsenal Capital Partners has decided on its fundraising target for its third fund. The New York-based firm will try to raise $750 million, and will likely kick off fundraising sometime in the spring of this year, a source close to the firm’s planning told Buyouts.

The firm, which has been pre-marketing the fund for months now, has not hired a placement agent. Last year it hired Bill Farrell to be its its head of investor relations. Farrell previously was president of the placement agent Farrell Marsh & Co. Arsenal Capital also has not set a hard cap for the fund, Arsenal Capital Partners III LP.

Executives at Arsenal Capital wanted to close a couple more deals from its second fund, a $500 million pool that closed in 2006, and score a couple exits as well before they officially hit up investors for more commitments, the source said.

They appear to be on their way on that front: On Jan. 4 the firm bought Fluoro-Seal, a plastics coating company, as Buyoutsreported. The firm is also closing in on two other acquisitions, the source said. Perhaps more importantly for Arsenal Capital’s limited partners, the firm is in advanced discussions to sell two portfolio companies, both of which should return more than 3x the firm’s invested capital, the source said. These would be the first exits from Arsenal Capital Partners II LP, and would return more than half of the fund to investors, the source said.

The firm will continue to target deals of the same size it seeks now. Arsenal Capital typically cuts equity checks of $25 million to $75 million in deals with enterprise values of $30 million to $400 million. Founded in 2000 by a duo of former executives from Thomas H. Lee Partners, Arsenal Capital buys companies operating in the specialty industrial, health care and financial services sectors.

Previous investors in Arsenal Capital funds have included Adams Street Partners, ATP Private Equity Partners, RCP Advisors, and the Oklahoma Police Pension and Retirement System.