Madison Dearborn completes eighth flagship fund at $5bn hard-cap

Madison Dearborn Partners wrapped up fundraising for an eighth flagship private equity fund, securing $5 billion, sources told Buyouts.

The Chicago manager last month closed Madison Dearborn Capital Partners VIII at its hard-cap, sources said, ahead of a $4.5 billion target. Nearly all of the capital was brought in during 2020, sources said.

Madison Dearborn declined to provide a comment on this story.

Fund VIII is the second-largest pool in Madison Dearborn’s almost three-decade history. It is 14 percent larger than Fund VII, completed in 2016 at $4.4 billion.

Fund VIII crossed the finish line with the help of several big pension systems, among them California Public Employees’ Retirement System, which committed $400 million. CalPERS returned after skipping Madison Dearborn’s two prior flagships, Buyouts reported last year.

Madison Dearborn was founded in 1992 by veterans of First Chicago Venture Capital. Two of the founders, Paul Finnegan and Samuel Mencoff, are co-CEOs, while a third, John Canning, is chairman. They oversee a dozen managing directors who help steer the firm’s long-standing industry-focused strategy.

Fund VIII will maintain this strategy, taking as a model the approach of Funds VI and VII. It will make control and growth-equity investments in mid-market and upper mid-market companies in five sectors: basic industries, business and government software and services, financial and transaction services, healthcare, and telecom, media and technology services.

A sixth sector, consumer, a one-time Madison Dearborn specialty, was dropped four years ago.

Fund VIII is expected to make about 20 platform investments, the lion’s share through buyouts. Opportunities will be sourced across North America, making use of the firm’s extensive Midwestern deal pipeline.

On the deal front

Fund VIII has already made six platform investments, sources said, adding to some 150 companies backed by Madison Dearborn since inception.

The firm’s latest investment, completed this month, is ARCH Precision Components, a manufacturer of precision metal components for the aerospace, defense and technology industries. Madison Dearborn bought a majority interest from The Jordan Company.

Madison Dearborn and TJC reversed roles in December, with TJC agreeing to buy a majority of SBP, a distributor of specialty building materials, reportedly at an enterprise value of about $1.1 billion. Madison Dearborn acquired the company in 2017. In the same month, the firm and Catania ABC Partners said they would buy American Broadband, a provider of broadband access in US rural markets.

Earlier in 2020, Madison Dearborn took private two businesses, one of them health insurance technology maker Benefytt Technologies for $450 million. The other was packaging solutions business IPL Plastics, acquired in a C$981 million ($812 million) deal.

Like other PE firms, Madison Dearborn has also been seeking ways to hold standout portfolio assets longer. In January, it was preparing to close a single-asset secondaries process for Fund VI’s NFP, an insurance broker and consultancy, Buyouts reported. The deal’s value was expected to come in below $1 billion.

Madison Dearborn Capital Partners VI was as of March generating a multiple of 2.2x and a net internal rate of return of 23.5 percent, sources said. Fund VII was earning a 1.5x multiple and a 15.8 percent net IRR.