Gryphon Investors Raises $100M Annex Fund

Rather than fire up the machinery to raise a new fund, San Francisco-based buyout firm Gryphon Investors has tapped its limited partners for a $100 million supplemental vehicle that should see the firm through 2008.

The annex fund, closed earlier this month, adds to the $415 million Gryphon Partners III LP closed in 2006. A year ago, Buyouts reported that the firm was racing through its third fund and would likely hit the market in late 2007 for its fourth vehicle. Instead, Gryphon Investors secured permission from a majority of its limited partners to raise the annex fund so the firm could complete deals without the distraction of launching a formal marketing campaign.

“Our lead investors recognized that, given the pace of investment activity, we would have a need for additional capital,” said David Andrews, the firm’s president and managing general partner. “We felt we had good momentum, and we wanted to remain fully focused.”

The annex fund includes the same terms and conditions as Fund III, and LPs that pledged to the supplemental vehicle through a rights offering did so on a pari-passu basis, according to the firm. Indeed, Gryphon Investors has lined up two deals in the health care and food services sectors that it expects to close in February, requiring equity from both the main fund and the annex fund. Those deals won’t drain the annex fund, and uncommitted capital will also remain in Fund III, Andrews said.

Gryphon Investors put a target of $450 million on its third fund, but one of its LPs insisted the firm cap its fundraising effort at $415 million. That LP, which Andrews declined to name, did not commit to the annex fund, although Andrews anticipates that the LP will sign up for Gryphon Partners IV LP. Expect the firm to begin marketing that fund in about year; the firm hasn’t yet settled on a target.

The firm has scored two exits in 2007: Nursefinders, sold to a unit of Goldman Sachs for an IRR of 40 percent; and Consolidated Fire Protection Holdings Inc., sold to a portfolio company of European buyout firm Industri Kapital for an IRR of 60 percent.—J.H.