Texas Team, Oversubscribed, Approaches $800M

Firm: Sterling Group LP

Fund: Sterling Group Partners III LP

Target: $800 million (hard cap)

Amount Raised: $800 million

Placement Agent: Lazard Freres & Co.

Houston-based Sterling Group LP, which invests in manufacturing and industrial companies, is a whisker away from closing Sterling Group Partners III LP at its $800 million hard cap less than a year after launching the fundraising effort.

A source with knowledge of the situation told Buyouts that Sterling Group raised the hard cap from $750 million to accommodate all the demand. The shop held a first close in the third quarter of 2009, and a second close near the end of the year. A final close will likely take place in the first quarter. Our source said the firm “is trying very hard not to cut anyone out and, at most, may cut people back.” Sterling Group has closed on 25 to 30 commitments so far and may end up with about 40, according to the source. Sterling Group confirmed that the fund will close in the first quarter but would not comment further.

Sterling Group launched the vehicle in the second quarter of 2009 in order to continue investing in transactions of $100 million to $500 million. The firm invests in manufacturing, converting, assembly, industrial services and distribution businesses in a wide variety of industries; it eschews financial services, real estate, health care and information technology companies.

Lazard Freres & Co. is serving as the placement agent.

Frank Hevrdejs and the late Gordon Cain founded Sterling Group in 1982. Since then, the shop has closed 36 platform acquisitions and many add-on acquisitions, for a total of more than $8 billion in transaction value. From 1982 to 2000, Sterling Group made 25 platform investments without raising a fund. The team raised its first institutional vehicle in 2001, with total commitments of $120 million. The firm raised its second institutional fund totaling $470 million in 2005.