MidMark Looks for Help From SBA on Fund II –

After providing impressive returns for Uncle Sam through its first fund, MidMark Associates is back on the market with a $150 million buyout fund, this time relying less on grants from the Small Business Administration.

MidMark will raise $100 million and put half of that into a Small Business Investment Company program run by the SBA, where each dollar will be matched on a 1-for-1 basis. For the firm’s debut fund, which closed in 1995, the SBA matched each dollar raised with two dollars, bringing the fund’s total to $80 million.

According to Denis Newman, a managing director at MidMark, the gross internal rate of return for the first fund to date is 80%.

The firm’s most recent exit occurred in December when it sold Clearview Cinema, a chain of movie theaters in the New Jersey area, to Cablevision Systems. The firm put $2.5 million in equity into Clearview in 1996, and realized a profit of $10.4 million, Mr. Newman said.

Last August, the firm sold SPD Technologies, an electrical products manufacturer, to L-3 Communications Holdings Inc. for $230 million, realizing a 20-times return.

The firm’s most recent acquisition occured in December when MidMark, based in Chatham, New Jersey, acquired New York furniture chain store Workbench Holdings for an undisclosed amount.

The SBIC program dates back to 1958, when the government began to provide capital for small businesses in the form of debentures. Many of the SBICs, however, found it difficult to service the debt on these instruments, and in 1994 the SBA switched to providing funding in the form of preferred stock. Mr. Newman said of the profit-sharing payments remunerated to the SBA from all 62 SBICs licensed since 1994, fully 29.8% came from MidMark.

The firm will look to raise capital from limited partners that signed on to its first fund, which includes 17 wealthy individuals, as well as a mix of institutional investors. Mr. Newman said some of the more conservative state pensions are turned off by MidMark’s ties to the SBA, because the fund’s structure deviates from that of traditional private equity vehicles. “We stress our investment record with them, which is pretty damn good,” he said.

Midmark currently is looking to add two more principals and an associate to help invest the larger pool of capital.