American Capital announced it has entered into definitive agreements with a group of investors to establish American Capital Equity III, a new private equity fund focused on investing in companies in the lower middle market.

The investor group, which was led by funds advised by Coller Capital, Goldman Sachs Asset Management and StepStone Group, also includes select sovereign wealth funds, state retirement and pension systems, high net worth family offices, superannuation funds and foundations.

The Private Fund Group of Credit Suisse is serving as the exclusive placement agent for the transaction. Kirkland & Ellis is serving as lead counsel to American Capital on the transaction. Arnold & Porter is advising American Capital on regulatory and other matters. Fried, Frank, Harris, Shriver & Jacobson is serving as lead counsel to the funds advised by Coller Capital, Goldman Sachs Asset Management and StepStone Group.

The closing of the fund is expected to occur within 90 days and is subject to standard conditions. The transaction further expands American Capital’s asset management business and diversifies its investor base, adding new private equity limited partners and increasing American Capital’s earning assets under management by $0.9 billion or 7%.

“We welcome our new partners investing in ACE III,” said Tom McHale, American Capital SVP, Finance. “Our limited partners are diversified across various types of institutions, individuals and geographies. We thank them for their support of American Capital and look forward to continued success with them in ACE III.”

Prior to the closing, American Capital will contribute all of its equity and equity-related investments in seven portfolio companies and an option to acquire American Capital’s equity investment in an additional portfolio company to ACE III. The aggregate agreed upon value of these investments, assuming the option is exercised, is approximately $640 million, subject to adjustments.

The investor group, along with American Capital, also will provide an aggregate $445 million capital commitment generally to fund the purchase of new control equity and equity-related investments in companies with $5 to $25 million of EBITDA.

The expected impact of the transaction will be reflected in American Capital’s first quarter 2014 financial results. The proceeds are expected to be used by American Capital for general corporate purposes, including for its investment and lending activities.

Following the closing, American Capital’s asset management affiliate, American Capital Asset Management, will manage eight private funds and three public funds with approximately $13 billion of earnings assets under management and $84 billion of total assets under management (including levered assets).