Lucrative exits help Cortec get $3.2bn Fund VIII to the finish line

Cortec Group closed an eighth buyout offering in an environment at odds with the firm’s tradition of quick, one-and-done fundraisings.

The New York manager last month wrapped up Cortec Group Fund VIII at an oversubscribed $3.2 billion, co-president Dave Schnadig told Buyouts, exceeding both its $2.5 billion target and $3 billion hard-cap.

The fund is easily the largest in Cortec’s 40-year history, topping by 52 percent the $2.1 billion secured by its 2019-vintage predecessor. As a result, assets under management grew to $6 billion-plus.

Cortec, an acquirer of mid-market companies in consumer, healthcare and specialty B2B sectors, did this in one of the toughest fundraising markets ever – with robust GP demand matched against weak LP supply.

Such an environment posed challenges to a firm used to raising capital with relative ease. Cortec Group Fund VII, for example, hit its cap in a single closing after less than four months on the road.

“We’re normally pretty quick in our fundraising,” Schnadig said. “We haven’t had to focus on it. We haven’t been folks who engage in marketing.”

In the past, Cortec “relied on off-cycle fundraising,” Schnadig said, “where people hear of us by word of mouth.” However, with many LPs facing cash constraints during 2022 and 2023, there were fewer inbounds from prospective investors. “We didn’t have the same backlog of interest that we usually have,” he said.

Big first close

Fund VIII nonetheless had a strong start. Last March, Cortec held a first close, bringing in $1.6 billion, or more than half of the vehicle’s cap. Nearly 100 percent of commitments were re-ups from existing investors, most of them US institutions.

Cortec was at this point expecting to hold a final closing inside of a year – an ambitious goal considering that GP fundraising timelines last year averaged a record 16 months, according to Buyouts data. “The vast majority of people didn’t believe in our timeline,” Schnadig said.

To get there, Cortec decided for the first time to put more resources into the campaign, in part to diversify its US-centric LP base. It hired private placement agent Connaught to help find “new money focused on certain geographies,” Schnadig said, including in Europe.

Lucrative exits

Capital raising also gained impetus from two exits. The first, announced a year ago, saw Cortec realize part of its stake in foundation repair provider Groundworks with a new investment from KKR. The second, announced last November, saw the firm sell a majority interest in entertainment lighting brand Chauvet to Court Square Capital Partners.

The GroundWorks deal generated a 4.9x gross multiple, while Chauvet generated a 6.5x gross multiple, Schnadig said, returning substantial capital to investors. Following the transactions, a number of first-close LPs made further commitments to Fund VIII.

In the end, Cortec succeeded in broadening the LP base to include new investors in Europe and elsewhere in North America. In addition, more than 30 current and former portfolio company executives committed over $45 million. The GP itself put up $135 million.

Schnadig is especially grateful to longtime investors, who accounted for more than 75 percent of all capital. “Without the support of our core LPs, I wouldn’t be able to talk about a successful fundraise,” he said.

Team expansion

Cortec “began with operators,” Schnadig said in a 2019 Buyouts interview. It was founded in 1984 by Neal Kayes, Gerald Rosenberg and Scott Schafler, ex-managers of industrial conglomerate Condec.

Today, the firm is led by co-presidents Schnadig and Jeff Lipsitz, seven managing partners – including co-founder Schafler – and two partners.

Five members of the leadership team were promoted with the raising of Fund VIII. Bill Tucker, Doug Kruep and Rob Whipple were named managing partners, and Aaron Hildebrand and Allie Klazkin, partners. They joined existing managing partners Michael Najjar, Jonathan Stein and Jeffrey Shannon.