Cortec, coming off a run of exits, wraps up Fund VII at $2.1 bln

New York firm's latest mid-market fund hit hard cap in less than four months. A commitment of about $90 million from Cortec’s general partner team brought the total to $2.1 billion.

Cortec Group this month held the first and final close of its seventh mid-market fund, securing nearly $2.1 billion, Buyouts has learned.

Cortec Group Fund VII, launched in August, reached its $1.9 billion target and $2 billion hard cap after less than four months of fundraising, Managing Partner Dave Schnadig said. A commitment of about $90 million from Cortec’s general partner team brought the total to $2.1 billion, he added.

The fund is the largest in the New York-based private equity firm’s 35-year history. It is nearly twice the size of Fund VI, which collected $1.1 billion in 2015.

Fund VII was backed by new and returning limited partners, most of them endowments and foundations, families, insurers and pension plans. In addition, about 30 executives of current and former portfolio companies together committed almost $35 million, Schnadig said.

Cortec, which has traditionally raised most LP capital from U.S.-based sources, also increased foreign commitments to about 25 percent of the total, Schnadig said. New investors are primarily European insurers, pension plans and wealthy investors.

Fund VII’s disclosed LPs include Merced County Employees Retirement Association, which committed $10 million; New York State Teachers’ Retirement System, which committed $100 million; and Ohio Police and Fire Pension Fund, which committed $20 million.

Cortec makes control investments in North American businesses in consumer, distribution, healthcare and specialty products and services sectors. Target opportunities have revenue of $40 million to $300 million and Ebitda of $7 million to $35 million-plus.

Fund VII will maintain Cortec’s strategy, Schnadig said, which reflects a long time average Ebitda of about $19 million. It will continue to invest alongside entrepreneurs and owner-operators in companies pursuing long-term organic and acquisition-led growth.

The fund will use its larger capital pool to account for higher deal values, Schnadig said, and increase equity commitments to roughly two-thirds of the purchase price. Like Fund VI, it is likely to invest in up to 10 companies.

Fund VII’s close follows a series of Cortec portfolio exits, at least one of which was especially lucrative.

Late last year, Yeti Holdings, an Austin-based outdoor products maker, went public, raising $288 million. Based on a $1.4 billion valuation, Cortec was then expected to see 20.1x its six-year investment, Buyouts reported.

A few months later, Cortec sold Barcodes, a Chicago-based automated ID products provider, to Odyssey Investment Partners. It also this year sold Weiman Products, a Gurnee, Illinois-based specialty cleaning products maker, to Carlyle Group and TA Associates, and Vidaris, a New York-based architectural and engineering consultant, to Socotec.

The four companies were backed by Fund V, which is generating a gross multiple of 3.6x invested capital and a net multiple of nearly 3x, Schnadig said. Funds III and IV had net multiples of 2.2x and 2.1x, respectively.

Cortec “began with operators,” Schnadig said, something that continues to drive its strategy. Neal Kayes, Gerald Rosenberg and Scott Schafler, former managers of industrial conglomerate Condec, started the firm in 1984. Schafler remains a member of the leadership team.

Cortec is co-led by Schnadig and Managing Partner Jeff Lipsitz. Other senior team members include Managing Partner Mike Najjar and Partners Jon Stein and Jeff Shannon.

Cortec is still investing from Fund VI, which holds seven portfolio companies. The fund this year acquired Aspen Medical Products, an Irvine, California-based spinal orthotics business, and RMS, a Bethlehem, Pennsylvania-based rotating machinery services provider.

Action Item: See Cortec Group’s ADV filings here.