Fund Closes: Genstar III Hits First Close –

Genstar Capital LLC cruised to a first close last month, rounding up $120 million for its third fund.

The San Francisco private equity group lately has seen massive realized and unrealized gains on its investments in companies that focus on life sciences and biotechnology research tools. A source close to the firm said the good performance insures that Genstar Capital Partners III LP will reach or surpass its target of $250 million. The firm’s second fund closed on $115 million in 1997.

The firm is currently riding a wave of enthusiasm for life science and biotech companies. Last month, the firm made a $9 million investment in publicly traded BioSource International, which makes tools for biomedical research. At current market levels, that investment is now worth $70 million. In 1997, Genstar bought NEN Life Science Products from DuPont. NEN, a genomics company, is currently being bombarded by investment bankers who want to take the company public, according to a source familiar with the situation. Genomics stocks recently have seen eye-popping run-ups on the public markets.

Overall, Genstar has invested roughly $25 million in the life sciences and biotech sector, and expects returns north of $400 million.

The firm has also done well in less high-profile areas. Last October, the firm sold laminate maker Panolam Industries International to The Carlyle Group. Genstar invested approximately $23 million in the company and got back $160 million through its sale.

In December, Genstar teamed up with Bain Capital to invest in the recapitalization of Stream International Inc., a company that outsources phone- and Web-based customer support services for technology companies.

Genstar is headed by managing directors Jean-Pierre Conte, Richard Hoskins, and Richard Paterson. A source close to the firm said Genstar will hire three more professionals to help invest the new fund.