Brazos Goes in Search of Gold

Investors have been drawn to the Brazos River basin in search of riches long before there were leveraged buyouts.

As far back as the 16th century, the Spanish explorer Vasquez de Coronado led an expedition up the Texas river in search of the fabled Seven Cities of Cibola, a paradise rumored to be rich with gold and silver.

His search turned up empty.

More than 400 years later, the Brazos basin still has its share of explorers searching for riches, chief among them being, private equity firm Brazos Private Equity Partners.

The Dallas-based firm was founded in 1999 when Hicks, Muse, Tate & Furst veterans Jeff Fronterhouse and Patrick McGee partnered with former Atrium Cos. CEO Randall Fojtasek to form the buyout shop. Michael Salim, another Hicks Muse alum, joined the trio as a partner in 2002.

At first glance, one might expect Brazos to go after some of the large deals they did at Hicks Muse. But when Fronterhouse and his colleagues decided to hang their own shingle, it was the middle market that got them excited, especially the small end of the middle market.

“Our thesis centers around the fact that a lot of smaller businesses don’t have the depth of management to effectively drive value,” says Fojtasek. “The segment itself is often inefficiently priced and a lot of regional niche businesses would benefit from additional operational expertise and capital to expand.”

Brazos pursues companies with revenue between $25 million and $250 million. The firm will invest anywhere between $10 million and $40 million in each transaction and looks to hold onto an investment for three to seven years.

Brazos targets such industries as manufacturing, consumer products, health care, media services, financial services and restaurants.

In the spring of 2001, Brazos closed on $200 million in capital commitments for Brazos Equity Fund LP, which was matched by another $200 million from various limited partners that is designated for co-investment transactions.

Brazos was relatively slow out of the gate, but the firm has ramped up its deal activity.

Since September 2002, Brazos has acquired roofing product agent Shelter Distribution, outpatient surgery center National Surgical Care, regional express courier Lone Star Overnight, The Republic Group of Insurance Cos. and, most recently, Cheddar’s Inc., an operator of casual dining restaurants.

As its portfolio has grown, so has the firm, expanding from eight professionals in 1999 to 18 today.

The firm does not anticipate slowing down its buyout activity anytime soon, especially in light of an improving buyout environment.

“We’re optimistic and from what we’ve seen, fundamentals are gradually improving,” Fronterhouse says. “There are a lot of attractive opportunities in the market and valuations are reasonable, plus the credit market has been more supportive than in the past.”

And if all goes as plan, the partners at Brazos may find the riches that eluded Coronado. -K.M.

This story originally appeared in Buyouts, an affiliated publication.