Fund focus: Pfingsten stresses its Asia angle

Chicago-based Pfingsten Partners primarily invests in US-domiciled companies. However, its portfolio companies are all middle-market manufacturing, distribution and business services players - and the GP wants to support their growth by enhancing its capabilities in Asia.

Last week, Pfingsten closed its fifth fund at $382 million; its initial target was $350 million. LPs include high-net-worth families, endowments, pension funds, insurance companies and fund-of-funds (FoFs). "We adjusted the LP base in Fund V to reduce our exposure to FoFs and increase the number of high-net-worth families and endowments," says Thomas Bagley, founder and senior managing director of Pfingsten. "High-net-worth families and endowments are more conducive to our longer-term operational approach to value creation."

The PE firm seeks control or joint control of portfolio companies, which currently range from a prescription labels maker to an educational supplies business. It assists on global expansion through both organic growth, taking companies into new markets and product lines, and add-on investments in North America and overseas.

In order to facilitate advances in global product development, supply chains and support services, Pfingsten opened an office in Hong Kong office in 2006 through a joint venture with product sourcing provider SourceOne. A second office in Shenzhen followed two years later. Then in 2011, Pfingsten consolidated the two offices, choosing Dongguan in Guangdong province. The firm now has a 40-strong local team.

A similar arrangement in India with Tecnova, a local management consulting business, led to the establishment of a New Delhi office in 2009. Another office opened last year in Chennai through a partnership with aftermarket solutions provider APA Engineering.

Each office has specific tasks. While the Chennai office is used to source products in India and connect local engineers with US ones, New Delhi is purely for market entry, typically promotion and marketing. The China office, meanwhile, is mostly for sourcing, product development and acquisition due diligence.

Since its inception in 1989, Pfingsten has acquired 100 US companies. It looks to buy 14 more through the new fund. The firm typically invests between $15 and $100 million per deal, and targets companies with EBITDA of $3-12 million. Its objective is to double or triple the size of a business during the ownership period.

Over the years, the GP has added manufacturing capabilities in Asia through acquisitions and supporting start-ups. It helped a US company with a greenfield project in Taiwan and the purchase of a manufacturing facility in Zhuhai. Asked if Chinese strategic investors could feasibly become buyers of Pfingsten's portfolio companies, Bagley says: "It is certainly possible but, to date, we have not seen Chinese manufacturing companies active as buyers in our segment of the M&A market."

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