Baltimore, Md.-based Sterling Capital Partners is about to begin marketing its first buyout fund with a target of $250 million. The fund name has yet to be decided.
The new fund will focus on education, services, manufacturing, direct marketing and technology, said Partner Alan Macksey. These are industries “where we have some investment and operational experience. And these are industries where we believe there is potential for success.”
The fund’s regional focus is North America, he added.
Macksey said his firm expects LPs from previous Sterling funds, such as its $140 million venture capital fund Sterling Venture Partners LP, to contribute “at least 75%” of the total capital. He declined to name who Sterling’s limited partners are, but did say his firm expects to offer LPs co-investment opportunities. He added that it was too early to say whether there will be a placement agent and when to anticipate a first closing.
While Sterling principals have been investing in buyouts on a deal-by-deal basis since 1986 (the firm was founded in 1983), Macksey explained his firm thought it appropriate to launch a full-fledged fund now for both short-and long-term reasons.
“Long-term, it’s something we’ve been doing for 15 years, and we’ve experienced success with a variety of market conditions,” said Macksey. “We also think small buyouts are attractive. They have reasonable multiples and good returns.” And, he added, his firm believes “there are relatively few institutional funds focused on small buyouts.” (The fund will focus on acquiring $20million to $100 million companies.)
Short-term market conditions also make launching a buyout fund attractive, he said.
“Given the current position of debt and equity markets, and the absence of a healthy IPO market, companies may consider private sales in the absence of liquidity,” he said.
Finally, Macksey said, the terms of the fund will be “pretty standard.”
“Over the short-term we may contribute a higher percentage of equity than we will later on, which we’re prepared to do. Over history we’ve been very flexible. The degree of leverage [we’ve provided] has been from zero to very high,” he said, adding, “Debt will vary from company to company and may fluctuate over time, as well.”