Heritage Partners Hits Final Closing in a Hurry –

Heritage Partners at press time has scheduled a final close on $43 million that would wrap Heritage Fund III, L.P. at $843 million, according to Peter Hermann, a general partner at the Boston-based firm.

The final close comes after a mere eight weeks of official marketing, after the firm launched the effort on April 1 with a $750 million target (BUYOUTS April 5, p. 8). “We put in six weeks of intensive work on it,” Mr. Hermann said, noting that the firm already had attracted more than $1 billion in investor interest as of mid-April.

Heritage held a first closing that rounded up $500 million on May 28, followed by a second closing that garnered approximately $200 million on June 18.

Mr Hermann attributed the rapid fund raising to a combination of factors, including his firm’s track record, a large amount of prior L.P.s that opted to sign on and an environment that favored firms targeting middle market companies, but that employed a specialized approach. “The biggest thing I saw is that there is a lot of desire by investors to be in middle market funds,” Mr. Hermann said. “The L.P.s were looking for a strong track record and a specialized approach and we were able to give them that.” In particular, Mr. Hermann mentioned the firm’s Private IPO approach, by which the management of established companies can receive private equity financing without giving up control of their businesses.

New investors that signed on to Fund III include Harbourvest Partners, L.L.C., Wilshire Associates, University of North Carolina at Chapel Hill, Washington State Investment Board through its advisor Brinson Partners and Harvard Management Co.

L.P.s from prior funds that committed to Fund III include General Motors Investment Management Corp., Goldman Sachs Asset Management, New York State & Local Retirement Systems, Virginia Retirement System, BancAmerica and BancBoston Capital and Fleet Equity Partners.

Individual commitments to the fund averaged between $40 million and $50 million, according to Mr. Hermann, with some investors contributing as much as $80 million.

The rapid closing of the effort might also have been impacted by the frothy public market, Mr. Hermann said. “The continually buoyant stock market is one of the things that helped a lot, because that obviously increases [investors’] allocations,” he said. “Late last year could have been a rough time to be in the market.”

While the haul for the new effort is a significant increase over the capital closed on for Heritage’s last fund-the $380 million Heritage Fund II, L.P., which closed in 1997 (BUYOUTS April 21, 1997, p. 7)-Mr. Hermann said the increased capital will not greatly impact the firm’s investment mandate. The group will continue to look at companies with enterprise values of at least $40 million, but now also will look at companies valued at as much as $500 million, rather than the previous ceiling of $300 million, he said.