Pa. Fund Near $240M Hard Cap On Fund III

Milestone Partners is set to close its third buyout fund by the end of the year, a pool earmarked to acquire companies in manufacturing, distribution, natural and organic products and services sectors, a source familiar with the fundraising effort told Buyouts.

The St. Davids, Pa.-based lower mid-market buyout shop has raised $223 million so far, well past its target of $200 million. The firm expects the fund to close near its hard-cap of $240 million, our source said. Milestone Partners last summer held a third closing at $174 million. The firm had expected the fund to close in September or October, as previously reported in Buyouts, but is still waiting on a couple potential investors, our source said.

The size of Milestone Partners III LP would mark a hefty increase from that of the firm’s second fund, a $120 million vehicle raised in 2005. Though considered the firm’s third fund, the latest effort represents its second pool funded by institutional investors, including the Pennsylvania Public School Employees Retirement System and Parish Capital Advisors. Milestone Partners did not employ a placement agent to help it raise the fund, which charges standard “2 and 20” management fees.

The firm invests between $5 million and $25 million in deals valued between $15 million and $100 million. It prefers companies with a three-year track record of profitability, with enterprise values between $10 million and $100 million, revenues of between $10 million and $100 million, and EBITDA of between $3 million and $15 million. The firm typically holds companies between four and seven years.

The firm had a busy first half of the year, making five investments, including three out of Fund III in June: Café Enterprises Inc., a Taylors, S.C.-based owner of a restaurant chain in the Carolinas, Tennessee, Georgia and Virginia; Global Connection Inc., an Atlanta, Ga.-based company that provides pre-paid telephone services; and Safemark Systems LP, an Orlando-based company that provides in-room safes and locking systems to hotels.

Robert Levine, a former investment banker at Lehman Brothers, and Scott Warren, a former managing director at Philadelphia First Group and Beacon Capital, founded the firm in 1995.