Industrials veteran Sterling Group targets $2.75bn for Fund VI

Sterling Group, one of the market’s oldest private equity firms, launched a sixth flagship buyout offering to invest in the industrials sector.

The Houston manager is seeking $2.75 billion for Sterling Group Partners VI, according to Teachers’ Retirement System of Louisiana documents. The hard-cap was not disclosed.

Fund VI arrives in the market more than three years after the close of its predecessor. Its target is moderately larger than the $2.06 billion raised by Sterling Group Partners V, perhaps in recognition of LP supply shortages that continue to impede fundraising.

Sterling was founded in 1982 by Gordon Cain and Frank Hevrdejs. Cain, a former chemicals industry executive, is the author of Everybody Wins!, an autobiography highlighting the firm’s longtime application of employee ownership to its deals.

Sterling is today led by partners Greg Elliott, Brian Henry, Scott MacLaren, Brad Staller and Kent Wallace. In line with succession planning, TRSL documents said, two other partners, John Hawkins and Gary Rosenthal, are expected to serve as advisers to Fund VI.

Over its history, Sterling has maintained a core focus on industrials in the North American mid-market. It acquires control interests in basic manufacturing, distribution and industrial services companies, generally in transactions of $100 million-$1 billion.

Targets are mostly corporate carveouts and family establishments. They are also operationally intensive, show market leadership, barriers to entry, replacement demand and recurring revenue and free cashflow, and operate in fragmented end-markets, TRSL documents said.

Sterling intends to capitalize on sector tailwinds, TRSL documents said. These include US manufacturing onshoring, investment in aging US infrastructure, supply-demand imbalances in US housing availability, inflation and supply-chain challenges and operational improvement through new technologies and data.

Fund VI is expected to build a portfolio of 12-14 investments, writing equity checks of $150 million-$250 million, TRSL documents said.

Sterling reports sponsoring the buyout of 67 platform companies and multiple add-ons for a value of more than $22 billion. Recent deals include last year’s acquisition alongside Capitol Meridian Partners of PrimeFlight, a terminal services provider for airlines and airports. The seller was Carlyle.

The firm also has a lower mid-market strategy, for which it last year closed a debut vehicle, Sterling Group Foundation Fund, at $636.6 million, Buyouts reported. In addition, it has a private credit platform that makes junior investments in the same space as the flagship strategy.

Sterling begins its latest flagship fundraising with a solid track record, according to TRSL documents. As of September 2023, Funds III to V were together earning a 26.2 percent net IRR. Fund V was on its own earning a 23.9 percent net IRR.

Last year, Sterling promoted Jim Apple, Franny Jones and Jud Morrison to partner, increasing the leadership team to 12. Other partners are Lucas Cutler, who runs the lower mid-market strategy, and Sean Davenport, who runs private credit.

Sterling did not respond to a request for comment on this story.