Pfingsten Partners closes fourth fund on $525m

The Chicago firm’s latest mid-market fund is larger than the sum of its three previous funds, but will continue its operationally-focussed strategy.

Pfingsten Partners has closed its fourth buyout fund on $525 million (€342 million), exceeding its target by $125 million. Like predecessor funds, it will invest in middle market manufacturing, distribution and business services companies.

Fund IV’s oversubscription was due to the Chicago firm’s consistent adherence to an operationally driven investment approach and conservative capital structures, firm founder Thomas Bagley told PEO.

“The key for us is the strategy is identical even though the fund is bigger,” he said.

Market conditions couldn't be better.

Thomas Bagley

Its strategy fits well with current credit market conditions, given that Pfingsten considers itself a value buyer that typically finances deals with 50 percent equity or more, he said. Playing the smaller end of the middle market, where there is still a good deal of activity and financing available, is also a boon, he added.

“Market conditions couldn’t be better from our standpoint.”

Eighty-three percent of the fund’s limited partners are institutional investors, with the balance made up by high-net-worths, families and Pfingesten professionals. Roughly 20 percent of the fund’s capital was committed from investors abroad, the firm said.

“We had very strong interest from exisiting limited partners in Fund III.” So many of them re-upped, and at larger amounts, Bagley said, that “it put us in a position where we could only accommodate two new institutional limited partners”.

Investors in previous funds include Allstate Insurance company, Danish fund of funds ATP Private Equity Partners, fund of funds HarbourVest Partners and Invesco Private Capital.

Fund IV will make approximately 20 platform investments, with transaction values ranging from $15 million to $100 million, and will likely deploy its capital within four to five years.

“All our platforms will be in the US but with respect to add-ons, we’ll do them anywhere in the world,” Bagley said.

The firm’s third fund closed in April 2004 on $285 million. It has made eight platform and 12 add-on acquisitions to date, and has “several companies under letter of intent that should close shortly”, Bagley said. Once those deals close, Fund III will be approximately 75 percent invested.

The 19-year old private equity firm did not employ a placement agent for Fund IV, but said it hired boutique advisory firm Patronus Capital Advisors as an administrative advisor.

Pfingesten has an office in Chicago that is poised to grow to 27 investment professionals from 21 investment professionals. It also has an office of 10 people in Hong Kong that helps with product sourcing for portfolio companies.