Madison Dearborn Wraps Fund III at $2.22 Billion –

Madison Dearborn Partners on March 18 held a final close on about $520 million-which included a $100 million commitment from California Public Employees’ Retirement System-to wrap Madison Dearborn Capital Partners III, L.P. at $2.222 billion.

The fund raising took about six months to complete, as Madison Dearborn launched the effort in the fall setting a $2 billion target (BUYOUTS Nov. 9, 1998, p. 1). Two months ago, the group held a first close on $1.7 billion (BUYOUTS Feb. 8, p. 5).

Industry observers consider Madison Dearborn a solid firm that has a good track record and wonder, as they do with other groups that move from managing midsize funds to mega-vehicles, if the buyout shop can make the transition without losing its focus.

The Chicago-based firm now has 140% more capital to invest than it did in its second fund, which raised $925 million, but the partners at the firm said they will not need to change their strategy to invest the increased amount of capital.

“I don’t think we will make different types of investments, but we will get more attention from investment bankers and brokers because of the size of our fund,” said David Mosher, a partner at the firm, adding that this might provide Madison Dearborn with increased deal flow.

Madison Dearborn makes average commitments of $75 million in equity per buyout and intends to close six to eight deals per year.

The partners point out that it took them less than 36 months to invest Madison Dearborn Capital Partners II, L.P. and that this speaks to their ability to find and close deals.

Starting the Year with a Bang

The firm has already been off to a fast start in 1999. The group finished off Fund II by making a $60 million equity investment in Family Christian Stores, a national retailer of Christian products; a $45 million investment in Team Health, a provider of outsourced medical staffing (BUYOUTS Feb. 8, p. 11); and a $36 million investment in Nextel Partners, the exclusive licensee of NEXTEL Communications’ digital wireless services in targeted midsize and smaller markets.

While these investments are far less than the firm’s average target size, Madison Dearborn soon will close a $200 million equity investment in Tenneco’s packaging board business and a $160 million investment in Reiman Publications, a magazine publisher.

The lead investors in Fund III are California State Teachers’ Retirement System, which committed $300 million, and the New York State Common Retirement Fund, which committed $200 million. In all, public pensions committed about 55% of the capital in the fund, Mr. Mosher said.

Other public pension investors include Washington State Investment Board, which is a new Madison Dearborn partner.

The firm raised 28% of its capital from new investors but 85% of those investors work with gatekeepers that already had relationships with the group, Mr. Mosher said10