Chrysalis Hits Cap On Debut Fund

Sponsor: Chrysalis Capital Partners

Fund: Chrysalis Capital Partners LP

Focus: Distress and special situations

Target: $200 million

Final Close: $300 million

Placement Agent: None

The unabated rise of the private equity market has impelled a number of groups to gird for the eventual fall. Count Philadelphia-based Chrysalis Capital Partners among those, as the firm recently closed its debut special situations fund, amassing a $300 million war chest to target the middle market.

Chrysalis Partner Paul Halpern refused to join the chorus predicting an anticipated market correction, but he wouldn’t deny that that sentiment played a role in the success of the fund raise.

“I’m loath to make cyclical pronouncements. I’m not an economist. That’s not my field,” Halpern said.

But he did note, “In this market where traditional and roll-up leveraged buyout firms are paying higher multiples and receiving higher leverage, the limited partners see that as a self-limiting up-cycle. They believe that will eventually produce opportunities on the other side.”

Chrysalis took in a total of $300 million for the fund, exceeding its initial target by $100 million. The Pennsylvania State Employees’ Retirement System(PSERS was the cornerstone investor in the vehicle, while other institutional investors, such as the Colorado Public Employees Retirement Association (CoPERA), also made commitments.

The Chrysalis fund represents the inaugural vehicle from the firm, but the team has been making distressed investments since the early 1990s. The firm, which is part of the Independence Capital Partners family of funds, was founded as a turnaround consultancy and out of that began making equity investments on a deal-by-deal basis. In addition to Halpern, Chrysalis is headed by Managing Partners Gregory Segall and Ira Lubert.

The decision to raise a fund was spawned in part by the level of interest among limited partners, but also because a dedicated pool of capital would allow Chrysalis to respond more quickly to opportunities that arise—a factor that Halpern said has become more important in today’s environment.

The firm will invest on either the equity or debt side of a company with an eye toward gaining control. It targets businesses with revenues ranging from $50 million to $500 million, and writes checks of between $5 million and $50 million in size.

In the last week of April, Chrysalis was named the winning bidder in a section 363 sale for the assets of steel locker maker Republic Storage Systems Co., a deal that Halpern called “fairly typical” for Chrysalis. The company entered Chapter 11 bankruptcy protection after it was hit with rising raw material prices as well as a flood that shutdown production in 2003. But Halpern noted that it’s a “stable old-line business, with modest but consistent growth prospects.”

Past investments also include acquisitions of commercial paper makers Central Lewmar and Strategic Paper Group, as well as the carveout of the former Target Corp. subsidiary Mervyn’s, which the firm bought alongside Sun Capital Partners, Cerberus Capital Management and Lubert-Adler Management. —K.M.