Calvert Street Closes First Independent Fund –

Among the recent class of private equity arms that have spun out of their investment banking parents, Legg Mason Merchant Banking was probably one of the earliest. The private equity arm of Legg Mason Inc. spun out from its corporate umbrella in December 2003, when its founding partners, Josh Hall and Brian Mahoney, purchased it from the Baltimore-based i-bank.

Today, the former Legg Mason PE arm-still based in Baltimore-is called Calvert Street Capital Partners, and it recently completed fundraising for its first independent investment vehicle, Calvert Street Capital Partners III LP. The new fund, which hit its $225 million hard cap, represents the firm’s largest pool of capital ever. When the firm began marketing the investment vehicle a little more than a year ago, its initial target was set at $175 million.

CSCP I, which was formed in 1996, collected approximately $41 million of committed capital, and CSCP II, saw a total of $100 million in limited partner commitments before it held a final close in 2000.

Calvert Street is focused on control-oriented investments; primarily in U.S. lower middle market manufacturing and service companies. The firm’s sweet spot is under-managed, family-owned companies that operate in fragmented industries.

According to a Form D filing with Securities and Exchange Commission dated May 24, 2005, the DuPont Pension Trust, the Board of Trustees of the State Retirement and Pension System of Maryland, Ohana Holdings LLC and The Travelers Indemnity Company of Connecticut are each listed as beneficial owners of CSCP III. The filing also states that, at the time, the fund had a total of 44 accredited investors.

San Francisco-based Probitas Partners served as placement agent for CSCP III and is credited with adding “a diverse new base of institutional limited partners” to the fund, said Hall.

Last month, Calvert Street made its final platform investment with CSCP II capital when it acquired Les Metaux Tremblay Inc., a manufacturer of architectural steel doors and frames. The Quebec-based company, which also distributes wooden doors and hardware, primarily serves the non-residential construction industry in Northeastern Canada. CSCP II is steward to six platform companies and has a capital reserve for add-ons and growth capital investments, Hall said.

Fund I, which is fully invested, held a total of 16 companies that were divided into four separate platform companies. With CSCP III’s larger capitalization, Hall said it would likely support eight or nine platform investments, the first of which will likely be acquired by year end. He declined to give further detail on the pending deal.

Typical Calvert Street platform businesses have annual sales between $20 million and $100 million and annual operating profits between $5 million and $10 million. The firm’s equity contributions generally range from $5 million to $25 million per transaction, while larger investments can be arranged in conjunction with affiliates or co-investors, Hall said.

In addition to its equity funds, Calvert Street also has a mezzanine lending group that was formed in 2003. Currently, the firm’s mezz arm is investing out of the $120 million Legg Mason Mezzanine Fund LP, and recently supplied a $6.75 million sub-debt tranche to support Derby Industries’ acquisition of The Resource Group. Derby is a portfolio company of New York-based private equity firm Hyde Park Holdings.