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Catalyst/Hall Closes $85M Fund –

Catalyst/Hall, a partnership created by the The Catalyst Group and Hall Brothers Holdings, announced last month that it held the final close on its $85 million equity fund. Catalyst/Hall’s new fund, which officially closed in December 2002, comes on the heels of its August close for its $72 million recapitalized mezzanine fund. The combination of the two funds will give the group a total of $157 million to put toward future investments.

Rick Herrman, a managing partner at Catalyst/Hall, said the partnership was born from a joint bid, in which the two parties teamed up on an offer for a sporting goods company. While the consortium lost the auction, both Catalyst and the Hall Brothers agreed that a partnership between the two made sense.

Catalyst/Hall did not use a placement agent for either of the two funds, and Herrman said the firm spent most of its time targeting corporate institutions and wealthy families. The general partners also contributed a quarter of the total capital raised for the fund. Herrman noted that the firm began fund-raising for Catalyst/Hall Growth Capital LP, the equity fund, at the start of November. The fund held its first close Dec. 1, and held a final close Dec. 31.

At $85 million, Catalyst/Hall Growth Capital easily surpasses previous fund-raising efforts by The Catalyst Group, which controls two other $10 million equity funds. However, despite the difference in size, Herrman does not expect the focus to change.

“There are really just two distinctions between this fund and the others we have raised: one being that with the addition of the Hall Brothers, we have seven new principals and a total of three offices; and now, with more capital at hand, we can take a bigger bite in our investments,” Herrman said.

Catalyst/Hall will be able to target larger companies, with revenues of between $10 million and $100 million, rather than the previous $50 million ceiling of its earlier funds. “Other than that,” Hermann affirmed, “we will use the exact same parameters as before.”

In its investments, Catalyst/Hall will target management buyouts and recapitalizations of middle-market companies with at least $1 million in operating income. The firm’s equity investments will range from $2 million to $7 million, and Herrman noted that Catalyst/Hall will actively look for co-investment opportunities. He expects it will take five to six years to fully deploy the capital of the equity fund.

According to Herrman, the fund’s terms are not “overly traditional” and do not carry the customary 80/20 split. “Our funds are very LP oriented and our large stake makes the terms a bit atypical.” There is a hurdle rate of “less than 10 percent,” Herrman disclosed.

The Catalyst Group is based in Houston and has managed private equity and mezzanine funds since 1990. Hall Brothers Holdings has offices in Houston, Oklahoma City and Chicago.