Sterling Sticks to Its Industrial Roots

The Sterling Group recently closed a $1.25B Fund IV and will continue to invest in family-owned industrial businesses throughout the U.S., says the firm’s Franny Jones.

The Sterling Group, a middle-market private equity firm based in Houston, recently closed its Fund IV and will continue to target U.S. corporate carve-outs and family-owned businesses in the industrial sector.

Investors in Fund IV—which hit its hard cap of $1.25B—include pension plans, fund-of-funds, high-net-worth individuals, and insurance companies. “It was the amount that we thought we could prudently deploy with our strategy and our team,” says Franny Jones, director of investor relations at Sterling—“the right amount in terms of the number of deals we wanted to do and the size of deals we wanted to do.”

The firm has been in existence since 1982 and owns companies in the U.S. and Canada, including Indiana-based Dexter Axle, a manufacturer of trailer axle, brake, and suspension assemblies used primarily in the trailer and RV markets, and Specified Air Solutions, a Buffalo-based HVAC equipment manufacturer.

Many of the companies also operate globally.

“We target specific sectors,” Jones says. “For instance, commercial HVAC is something we’ve been targeting for the past three years, and we looked very hard for a business to invest in, because we like the dynamics of that sector.” Sterling also invested in the company Roberts Gordon earlier this year, renaming it Specified Air Solutions.

All of Sterling’s partners have experience as operators in the industrial and manufacturing space and directly source all their own deals, focusing on value creation through strategic and operational improvements of their portfolio companies.

“We have a lot of experience in packaging, building products, manufacturing, and distribution,” Jones says.

The Sterling Group typically targets deals in the $230M to $250M range, and it’s been consistently in that range for 33 years, says Jones.

“Sterling’s hands-on operational approach to transforming industrial businesses has generated strong returns throughout a variety of market cycles,” says Sterling partner Kevin Garland. “We intend to continue to execute and improve upon this strategy in Fund IV to produce top-tier results for our investors.”

The firm’s Fund III closed in 2010 after 10 months, so the three-month time frame for Fund IV was a welcome development, Jones says. The fund, which was oversubscribed at its close in late June at $1.25B, had commitments of more than its targeted amount in just three months.

“We ran a very limited process and knew, based on the demand from our existing investors, that we were going to be oversubscribed,” says Jones. “We only went out to a few prospects, and we were fortunate to bring some great new investors into the mix.”