Milestone Partners Plots New Fund

Milestone Partners is expected to start fundraising for its latest pool this summer, a source says.

Radnor, Pa.-based Milestone, a lower-middle market firm, is looking to raise $350 million, according to the source and a June 2011 document from Pennsylvania’s Public School Employees’ Retirement System (PSERS). Milestone Partners IV LP has a $450 million hard cap, PSERS says.

The firm’s last fund, Milestone III, raised $240 million in 2008, whilethe second fund collected $120 million in 2004. Milestone II has a 24.1% IRR while the third fund has an 8.7% IRR, PSERS says (PSERS invested about $30 million in fund II and $60 million in fund III), the document says.

Milestone hasn’t officially started fundraising for fund IV, although a PPM has been distributed to a select number of LPs, the source says. A first close is expected in July or August, the person says.

Capstone Partners is the placement agent.

A generalist firm, Milestone has invested in FATZ, a casual dining restaurant, as well as Learn It Systems and Avure Technologies. The PE firm typically invests from $5 million to $40 million per deal although Milestone’s sweet spot is $20 to $25 million.

Fundraising for Milestone IV may actually be smoother than the firm’s last fund. Milestone, which didn’t use a placement agent for fund III, announced a first close for the pool in March 2008. Lehman Brothers filed for bankruptcy the following September which severely decimated the financial markets.

Luckily, Milestone had collected the bulk of commitments for fund III between the first close and the Lehman debacle, a source says. But Milestone kept the pool open since some LPs were still in the process of closing their commitments, the person says.

Milestone hit its hard cap of $240 million for fund III in March 2009.

So what can Milestone expect now?

The fundraising market is loosening up and LPs seem receptive to smaller buyout shops, the source says.

“People are very skeptical about returns for mega buyouts and venture,” the person says. “It’s not nuclear winter. LPs have allocations and they’re talking.”

But fundraising is still difficult. Marketing is taking longer and LPs are looking to cut the number of GPs they work with, the source says. Also, several of Milestone’s rivals are or will be fundraising this year.

“The last time around, fundraising wasn’t good and it was deteriorating,” the source says. “It’s improving relative to 2009 but still difficult. Hopefully, they won’t have another financial markets catastrophe in the middle of it.”

Officials for Milestone declined comment.