PNC Spin-out’s $301M Fund III Beats Target

Firm: Incline Equity Partners

Fund: Incline Equity Partners III LP

Target: $250 million

Amount Raised: $301.1 million

Placement Agent: Sixpoint Partners

Law Firm: Covington & Burling LLP

The fund drew backing from 16 new LPs, including 11 institutions and five private equity consultants.

“We were very well-received by the institutional community—our strategy seemed to resonate with them,” Jack Glover, managing partner, told Buyouts in a phone interview. “We met a lot of people for the first time. … We laid the groundwork for Fund IV.”

Glover said Incline Equity Partners used a placement agent for the first time as it reached out to limited partners in the middle of 2012 for Incline Equity Partners III. Previously, fundraising efforts were performed in house.

In a slight shift in strategy, Incline Equity Partners plans to up its average equity investment per deal. “Historically we’d been writing $10 million to $20 million checks and now it’ll be $15 million to $30 million checks,” said Glover. The firm will take aim at acquisition deals with enterprise values of $25 million to $100 million.

Incline Equity Partners plans to stick to its 18-year-old focus on three verticals: value-added distribution, industrial services and specialized light manufacturing.

Looking ahead, Incline Equity Partners plans to pursue the role of a sub-consolidator in the private equity industry—taking a business of about $5 million in EBITDA and growing it to $10 million to $15 million in EBITDA, after which “it needs a larger check book to continue to grow,” Glover said.

Incline Equity Partners has already made three transactions from the Fund III: recapitalizations of AmSpec, a testing and inspection firm for the oil and gas industry, and Dorner Manufacturing Corp, a supplier of unit handling conveyor systems; and a buyout of Double E Company LLC, a manufacturer and distributor of web process solutions and parts.

On the exit side, Incline Capital Equity Partners sold Caldwell and Gregory, a provider and servicer for laundry rooms for dorms and apartment complexes, to Carousel Capital in June. In April, it sold Orthotic Holdings Inc, a maker of arch supports for athletes and other customers, to Frazier Health Care. Both companies, acquired in 2008, earned exit multiples exceeding 2x.

After leaving PNC due to Dodd-Frank restrictions on banks managing outside capital in private equity funds, the firm finished investing its vintage 2007 PNC Equity Partners II LP, the predecessor fund to Incline Equity Partners III. Fund II earned an internal rate of return of 7.5 percent as of Sept. 30, 2012, according to data from limited partner Pennsylvania Public School Employees’ Retirement System.