Brazos Private Equity Partners –

Long before leveraged buyouts, investors have been drawn to the Brazos River basin in search for investments. As far back as the sixteenth century, Spanish explorer Vasquez de Coronado led an expedition up the river in search of the fabled Seven Cities of Cibola, a paradise rumored to be rich with gold and silver.

While Coronado’s search turned out to be fruitless, more than three centuries later the Brazos basin still has its share of explorers searching for riches, chief among them being, private equity firm Brazos Private Equity Partners. Dallas-based Brazos 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, also a 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. “Hicks Muse…had great success in the middle market, and with that success it raised larger pools of capital and focused on larger deals,” says Jeff Fronterhouse, a partner with Brazos.

But when Fronterhouse and his colleagues decided to hang their own shingle, it was the middle market- specifically, the small end of the middle market-that got them excited. “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 and enterprise values of 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. The industries targeted by Brazos include: 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 since last year, the firm has ramped up its deal activity. “There was a period of time in the market when we weren’t seeing attractive values,” Fojtasek says. “But as we moved into mid-2002, we found we could negotiate transactions at an attractive multiple compared to historical benchmarks.”

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 Companies and Cheddar’s Inc., an operator of casual dining restaurants, as well as a number of separate add-on deals.

As its portfolio has grown, so has the firm, expanding from eight professionals in 1999 to 18 today, including management affiliations. “It is imperative that as a firm we are able to monitor and work with our existing portfolio companies in order to add value,” Fojtasek says.

The firm does not anticipate it will slow down its buyout activity anytime soon, especially in light of the improving buyout environment. “We’re optimistic and from what we’ve seen, fundamentals are gradually improving. 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,” Fronterhouse says. And if all goes as plan, Brazos may find the riches that eluded Coronado.

Brazos Private

Equity Partners

Dallas, TX

Fund: Brazos Euity Fund LP

Limited Partners: Aetna Private Equity Group, Mass Mutual, Mellon Ventures, Wells Fargo, First Union, FleetBoston Robertson Stephens, Morgan Stanley.

Select Investments: Comark Building Systems, Rennhack Marketing Services, Shelter Distribution, National Surgical Care, Lone Star Overnight, The Republic Group of Insurance Companies, Cheddar’s Inc.