Linsalata Capital Partners in the last few weeks closed its fifth and largest private equity fund yet, and bid adieu a portfolio company that has been under its ownership for 13 years.
The Cleveland-based firm closed on $331.5 million for Linsalata Capital Partners Fund IV LP on Sept. 30. Although the fund is named Fund IV, it is actually the firm’s fifth fund. Linsalata’s fourth fund, Fund III, closed just over two years ago on $173.5 million.
Fund IV saw a Spring 2000 launch and, according to Frank Linsalata, chairman and chief executive, the firm received a “tremendous response” from old investors, who ended up committing approximately $250 million of the $331.5 million fund. Therefore, Linsalata Capital only had to approach a handful of new investors, all of whom said “yes” to the fund, Linsalata said.
“We happened to identify a handful of new investors that we thought were interested in our middle market buyout approach or were trying to move to a little higher allocation of private equity, and we spent a lot of time with them,” he said.
Linsalata Capital has never used a placement agent for any of its fund raising. Since the firm only needed approximately $80 million from new investors, Linsalata said he felt the investors were much more interested in getting to know his firm and its investment strategy than anything else and would not have appreciated an intermediary.
“I think if we had been trying to raise, say $600 million or something, we might have had to use an agent because we would have needed to cast a much wider net, but since we were only looking for $80 million, we felt we could handle that by ourselves,” Linsalata said.
Institutional investors that committed to Fund IV and were also involved in previous Linsalata Capital funds include National City Equity Partners, Key Capital Corp., Massachusetts Mutual Life Insurance Co., State Teachers Retirement System of Ohio, the Public Employees’ Retirement System of Ohio, U.S. Bancorp and Yale University.
New institutional investors include the Ohio School Employees’ Retirement System, the Ohio Police and Fire Pension Fund, Harris Bank & Trust Co., Case Western Reserve University and Common Fund Capital. The new fund also includes more than 21 individual investors or family partnerships.
Linsalata said his firm looks to make acquisitions of manufacturing, service or distribution companies with annual sales ranging from $50 million to $350 million, selling for $150 million to $175 million.
“If we find a company with $150 million in sales and we can see a strategy to grow it to a $300 million to $400 million leader in its industry, that’s our sweet spot,” he said.
In October, Linsalata Capital agreed to sell CMS Hartzell, a supplier of outsourced mechanical enclosure services, to SCI Systems for an undisclosed amount.
CMS Hartzell, based in Lexington, Ky., is a metal stamping and plastic-injection molding company that serves the outsourced mechanical enclosure needs of technology original equipment manufacturers.
Linsalata Capital purchased the original company 13 years ago when it was an automotive stamper with $20 million in revenue. The firm has built CMS Hartzell into a $260 million business and has turned its primary focus to supplying enclosures to technology companies.
Admitting that a private equity firm’s toughest decision can sometimes be when to sell a company, Linsalata said in this case, the decision was easy. Evidently, there has been a wave of consolidation in the industry, and in order to compete globally, a company need to be at approximately $1 billion to $2 billion in sales.
“We didn’t have the resources to fund the growth to that level, so it was pretty clear that the company needed to be part of a much bigger vision,” Linsalata said.
Three Linsalata Capital funds have contributed to CMS Hartzell over the 13 years. The fund that invested in the company first, in the late 80s, will see returns of more than 100% a year, while the other two funds’ returns will be in the low 30% range, Linsalata said.