Chicago Growth Begins Laying Fundraising Foundation

Target: eInstruction Corp.

Sale Price: Undisclosed

Equity Return: 4.2x

Seller: Chicago Growth Partners

Sponsor: Leeds Equity Partners

Financial Advisor: Seller: BMO Capital Markets; Sponsor: Berkery, Noyes & Co.

Legal Counsel: Sponsor: Goodwin Procter LLP

Buyout firm Chicago Growth Partners is gearing up for a burst of exits that will help the former William Blair & Co. private equity arm raise its second independent fund later this year, Buyouts has learned.

The Chicago firm recently reached an agreement to sell eInstruction Corp. to fellow buyout shop Leeds Equity Partners. The sponsor-to-sponsor sale, expected to close in July, will generate a return of approximately 4.2x on Chicago Growth Partners’s invested capital in the provider of education software and systems. It also represents the firm’s first exit form its inaugural independent fund, the $270 million CGP LP.

Meanwhile, the announcement of another exit is imminent, coming as early June 11, Chicago Growth Partners Managing Partner Rob Healy told Buyouts. He declined to discuss the specifics of the second sale until a formal announcement is made.

News of these two exits, and potentially others down the line, precede the raising of the firm’s second independent fund, which it will probably begin marketing in the fourth quarter, a source close to the firm told Buyouts. With the second fund, Chicago Growth Partners expects to maintain its investment approach, writing equity checks of $10 million to $40 million to buy companies valued between $20 million and $300 million. The new fund is anticipated to be larger than its predecessor, with a preliminary target of approximately $350 million and a hard-cap below $500 million, the source said, adding that the firm plans to bring in some new LPs.

Not to be outdone, Leeds Equity is in the market itself, looking to raise a $1 billion fifth fund as a successor to the firm’s $430 million fourth fund.

For the eInstruction exit, Chicago Growth Partners pursued a dual track, consulting with underwriters about the possibility of an IPO while hiring BMO Capital Markets to run an auction process. “We were prepared to go either way,” Healy said. “If we were only offered a good number [in the auction], we would have taken it public. But it was a terrific number, so we sold.”

Chicago Growth Partners was formed in 2004 when five managing directors and 16 other members of William Blair Capital Partners, the private equity arm of the Chicago investment bank, spun out and opened new offices three blocks north of their former parent.

Its investment in Denton, Texas-based eInstruction Corp. was the firm’s first from its inaugural independent fund, which is steward to 11 platform companies. eInstruction Corp. was acquired in 2005 with the help of co-investors Goldman Sachs and PPM America. The company provides education hardware and software to schools, businesses and governments that allow instructors to gauge the progress of students in real time, while lessons are given. Demand has risen in part because schools are more focused now on measurement and accountability, Healy said.

eInstruction’s EBITDA grew from “the low single digits” to just shy of $20 million in the 22 months that Chicago Growth Partners owned it, Healy noted. During Chicago Growth Partners’ ownership, eInstruction bought software company FSCreations Inc.

The company’s new owners sees more growth ahead. “There is relatively low penetration in schools of this product,” Jeffrey Leeds, co-founder and principal of Leeds Equity Partners, told Buyouts.—A.N.