First Atlantic Preps $350M Third Effort –

First Atlantic Capital has begun preparing offering documents for its third fund, Atlantic Equity Partners III, L.P., a $350 million effort that will expand the New York firm’s base of limited partners as well as its investment focus.

Given the increased size of the fund, more than four times the firm’s current $81.5 million vehicle, First Atlantic will pursue a greater number of institutional limited partners than participated in previous funds, said a source at the firm. The first two funds have been populated primarily with families and high-net-worth individuals and have included only a few institutions. The minimum investment for Fund III, which will be around $5 million, will reduce the representation of these smaller entities.

First Atlantic will form a board of advisers for this fund, as it has for each of its two previous efforts. This time around, the board, which advises on investment candidates, will include operating professionals from outside the limited partnership in addition to L.P. representatives. Fund II’s board consisted of three members, and the source at First Atlantic said Fund III’s board would likely grow to include seven representatives.

First Atlantic’s investments generally have fallen in the general manufacturing or food processing industries, areas where the partners-many of whom come from McKinsey & Co.-have operating experience. Investments from Fund III will continue to look at these industries as well as at service companies and aerospace subcontracting, the source said.

Central to the firm’s approach is its partnership with the management of its portfolio companies. The extensive consulting background of the partners generates a touch of fear in some target companies, but First Atlantic provides management with such sizable equity stakes, as much as 25% in some cases, that concerns soon ebb, the source said.

Merrill Lynch & Co. is placing the fund.

Management fees have not yet been determined but are likely to be in line with comparable funds.