Houston Shop Tops $100 Million For Fund III

Firm: CapStreet Group LLC

Fund: CapStreet III LP

Target: $250 million

Amount Raised: $100 million

Placement Agent: Knight Capital Partners

Taking advantage of a brightening fundraising scene, the CapStreet Group expects a mid-year close for its long-stalled third fund on a final tally that would be higher than the Houston buyout shop had been resigned to.

Commitments to CapStreet III LP now top $100 million, with an April closing that brought on several new investors and appeared to shake the fund loose from the $80-million mark where it seemed to have been stuck since November 2008, Buyouts has learned.

Katherine L. Kohlmeyer, a partner at Houston-based CapStreet and its chief financial officer, confirmed that the firm expects to hold a final close on the fund by June 30. She also confirmed a target that now stands at $250 million, below the original $300 million goal but above its reduced $200 million target from 18 months ago. “2009 was a very challenging fund-raising year. A lot of investors were not active,” Kohlmeyer said in an interview. “We have seen more interested investors in 2010. It seems to be loosening up somewhat.”

Kohlmeyer pronounced herself “optimistic that we will reach our $250 million target,” saying that the firm closing date could galvanize investors to commit. The firm, which focuses on lower mid-market investments in Texas and the Sun Belt, has committed $14 million to the new fund.

CapStreet retained Knight Capital Partners in the fourth quarter to act as its fund placement agent, which also has helped drive commitments, as have a series of liquidity events this year. Kohlmeyer said the firm has realized and distributed $170 million so far in 2010 from CapStreet II LP, a $370 million vehicle that closed in 2000. That fund is in its final stages of winding down, with only two portfolio companies remaining.

Among its holdings: Cardtronics (Nasdaq: CATM), the nation’s largest merchant ATM owner and operator, which anticipates a $65 million distribution in the third quarter by way of a stock sale (the company completed its stock offering in December 2007). CapStreet said it had already returned $100.3 million on its original $17.5 million investment in Cardtronics, and with $60.2 million still in the company’s stock, the firm anticipates a 9.2x return when it exits the investment.

After that, the firm will have a single company in Fund II: Worldwise Holdings, a maker of environmentally responsible pet products, from which the firm anticipates an exit in 2011.

CapStreet has two companies in the Fund III portfolio: GHX Industrial, a supplier of hoses and gaskets to the energy, chemical and industrial sectors; and Trinity Steel Fabricators, a builder of industrial structures. A third portfolio company may soon be on the way, as the firm has a letter of intent signed with a maker of equipment used in residential and light commercial heating equipment. That deal is expected to close later this month or sometime in June.

The firm anticipates two to three deals to close this year.