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Sole Source, founded by ex-Gores principal, rakes in half of Fund II’s $400m target

Managing partner Fredston launched Sole Source in 2016 to be an operationally focused control investor in North American industrial companies with EBITDA of up to $20 million.

Sole Source Capital, led by former Gores Group executive David Fredston, raised more than $200 million for a second lower-mid-market fund, a person with knowledge of the matter told Buyouts.

That puts the offering roughly midway toward its target of $400 million, the person said.

SSC Partners II and parallel vehicles began marketing in December, according to Form D fundraising documents. Backers of the private equity firm’s pools are mostly endowments and foundations, family offices and high-net-worth investors.

At its present level of commitments, Fund II already exceeds the total collected by Sole Source’s inaugural fund. Fund I wrapped up two years ago at a $160 million hard cap.

PE firms with first- and second-time offerings are facing additional fundraising challenges due to the health crisis. Those firms led by senior general partners spun out of brand-name managers appear to be faring better, Buyouts reported in June.

Managing partner Fredston launched Sole Source in 2016 after a six-year tenure with Gores, where he was a principal on the M&A team and head of origination. Prior to Gores, he oversaw Long Green Capital Management, a hedge fund.

Fredston created Sole Source to be an operationally focused control investor in companies with EBITDA of $5 million to $20 million, many of them founder- or family-owned, the firm’s website shows. It targets deal flow in recession-resistant industrial sectors in North America, such as precision manufacturing, diversified distribution and industrial services.

Sole Source often looks to capitalize on complex opportunities and opportunities where businesses are under-performing. Transactions of interest, including corporate carve-outs, management buyouts and special situations, are sourced outside of competitive bidding processes.

Fund I made five platform investments, among them Supply Chain Services, an Oakdale, Minnesota, provider of automated data collection solutions. Sole Source acquired the company earlier this year.

Another portfolio company, Individual FoodService, was sold last year to Kelso & Company. Sole Source bought the Bell, California, non-perishable foodservice distributor in 2018, merging it with Trade Supplies.

The debut fund is a top vintage performer, according to PitchBook data. SSC Partners I as of March generated an investment multiple of 1.92x and a net IRR of 105.4 percent.

Sole Source’s partners, who joined in 2017, are Dewey Turner, also a Gores executive before becoming a Clearlake Capital principal, and Scott Sussman, formerly an investment professional with Ivory Investment Management, Empyrean Capital Partners and SAC Capital Advisors. Turner heads up operations, while Sussman leads M&A.

A third partner, Bradford Rossi, departed last year. He is now a partner with a Houston PE firm in stealth mode, his LinkedIn profile shows.

Sole Source, based in Santa Monica, California, declined to comment on this story.

Action item: See Sole Source Capital’s ADV filings here.