Arsenal Capital Fund IV raises $1.3 bln

  • Arsenal $1.3 bln Fund IV 49 pct bigger than Fund III
  • Arsenal to make more than 3x return on Chromaflo sale
  • 13 of Arsenal’s top 15 current LPs reupped for Fund IV

Arsenal Capital Partners closed its fourth fund at its $1.3 billion hard cap, making it nearly 49 percent larger than the prior fund, which closed in 2012.

The New York private equity firm chose to stay near its $1.25 billion target, said Terrence Mullen, an Arsenal co-founder and partner. The firm began fundraising in fall 2015 and clinched a final close for Fund IV on Oct. 7.

More than 85 percent of limited partners in the prior fund re-upped to Fund IV, Mullen said. Thirteen of the firm’s top 15 existing investors re-upped for Fund IV, he said. Those investors that did reinvest boosted their commitment by more than 35 percent, Mullen said.

Arsenal also added some new LPs, including California State Teachers’ Retirement System and PensionDanMark of Copenhagen. LPs, he said, are discerning about the strategies they think will differentiate firms for the long term. “The market is very competitive for capital overall,” Mullen said.

FocusPoint Private Capital Group was placement agent on select accounts of Fund IV.

Arsenal’s prior pool closed at $875 million in 2012. “The increased capital allows us to focus on the lower end of the market where we think is the best growth,” Mullen said.

Arsenal benefited because of its lower-middle-market focus, seeking to buy platforms with EBITDA of $10 million to $30 million. The firm also targets only two sectors, specialized industrial and healthcare. In the past 15 months, Arsenal has completed four platform acquisitions and 12 add-ons, Mullen said. It also closed four exits in the past year, he said.

“We are very, very active buying platforms and building them,” he said.

Last week, Arsenal and Nordic Capital said they’d sold Chromaflo Technologies Corp to American Securities. Terms weren’t disclosed but Arsenal expects to make more than 3x its money with the sale, Mullen said.

Arsenal used its third fund to invest in Chromaflo. The fund is producing a 28 percent gross internal rate of return and a more than 20 percent net IRR as of June 30, according to a market source.

Action Item: Contact Arsenal: +1 212-771-1717.

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