Catterton “Tops Off” Sixth Fund, Ahead of Fund VII

Catterton Partners is raising additional capital for its closed sixth fund, a reflection of the difficult decisions facing buyout firms seeking capital in a dismal environment.

The Greenwich, Conn.-based firm, which last year was expected to come to market with a full-fledged seventh fund, is now seeking to “top off” its sixth fund with an additional $200 million, according to a regulatory filing. The capital raised for Catterton Partners VI-B LP will not be used to support existing investments from the sixth fund; rather it will be put to work to make new investments alongside the fund’s remaining capital, according to a person familiar with the situation. Catterton Partners had invested almost 60 percent of Fund VI as of August 2008.

The effort is not a replacement for Catterton Partners’s seventh fund, a person familiar with the situation said. In August 2008, Buyouts reported that the firm was preparing to launch a full-fledged fundraising campaign for Fund VII with an expected target of $1.25 billion to $1.5 billion.

Raising “top-off” capital for an existing fund has become more popular in the past year with the decline in the fundraising market. A number of firms have successfully raised top-off funds with the aim of investing the capital in new investments. Earlier this year, KPS Capital topped off its $1.2 billion third fund with an additional $800 million. Graphite Capital is in the process of raising such a fund.

Catterton Partners earned a strong return on its last two exits: The firm earned around 7x its investment in natural pet food maker Wellness Pet Foods, which it sold to Bermuda Group, and it made more than 4x its money when it sold luxury hair product company Frederick Fekkai & Co.

But the consumer products-focused firm isn’t immune to recessionary woes. Portfolio company Lang Holdings, an investment from Catterton Partners V LP, filed for bankruptcy over the summer. The firm agreed to purchase Lang Holdings out of bankruptcy alongside Sun Capital Partners for $25 million. Last year Catterton Partners saw two companies fall into Chapter 11: Sleep Innovations Inc. and Archway Mothers & Cookie Co.

Buyout-backed companies in the consumer products industry have suffered disproportionately more compared to those in other sectors. As of Sept. 2, consumer-facing companies made up 14 of the 59 LBO-backed bankruptcies year-to-date, a greater number of failures than in the struggling automotive and media sectors. But consumer products buyouts have continued at a strong clip, remaining in the top three sectors for new deals in 2009. The third quarter saw buyout pros make 16 consumer products-focused investments, according to Buyouts.

However, consumer products companies have not represented a large piece of the newly awakened exit market. Of the 52 buyout-backed companies which exited in the third quarter, only four fell into the food, retail, and consumer categories.