The founding partners of Halifax Capital Partners have witnessed the boom times for large-scale private equity investing; however, the four professionals earlier this year launched a middle-market fund on the theory that future buyout and growth capital deal flow lies in the middle market.
That thesis netted the new firm $150 million, as of its first closing last month, which brought the fund exactly halfway to the internal target of $300 million, said David Dupree, a Halifax managing partner and former partner at Washington, D.C.-based The Carlyle Group.
In addition to Dupree, the three managing partners that formed Halifax in January include William Rogers, founding partner of Los Angeles-based Colony Capital, James Lumsden, formerly managing principal of Raleigh, N.C.-based Franklin Street/Fairview Capital, and Billie Ellis, formerly senior partner and chairman of the commercial and real estate law group Kelly, Hart & Hallman of Fort Worth, Texas.
Dupree said the firm plans to maintain offices in all four cities, with the Washington office handling administrative duties and the other three offices managing deal flow in their respective areas.
“As it turns out those regions are the four best markets for deals under $1 billion,” Dupree said. “Those areas also import a majority of their capital, so to get a deal before it gets to New York is an advantage for us.”
The new firm’s investment charter was created with a broad brush that leaves open a variety of options. However, the firm expects initial opportunities to emerge in low-end technology and pharmaceutical companies.
Following a Safe Path with Tech Cos.
Within technology, Dupree said the firm expects to invest in companies with specific applications that are less speculative, but provide integral infrastructure support. For instance, he noted that Halifax is evaluating a publicly traded switch manufacturer that bridges traditional telecommunications and Internet protocol. The firm will not pursue software development deals.
Despite the reluctance of some groups to invest in health care at all, the Halifax partners expect to pursue investments in the sector, particularly in companies that have mature drugs that can be marketed more effectively, or drugs that could be re-targeted through a change in dosing. Like software, the firm will not invest in companies that have heavy development work ahead of them.
“The theme is to find things that are underloved and/or slightly out of favor,” Dupree said.
Halifax investments will feature equity commitments that range from $10 million to $50 million, although Dupree indicated the sweet spot would likely fall in the $25 million to $30 million area. Enterprise values on portfolio companies could range as high as $250 million.
The firm did not disclose limited partners that committed to the fund beyond private and public pension funds, corporate vehicles and some individuals. The minimum investment is $10 million, but Dupree said the firm accepted some $5 million commitments. Fees on the fund include an 80%/20% carried interest split and 2% management fee.
Dupree said the final close should be held by year end at approximately $300 million. The partners intended to stick to that number from the beginning, but one LP wanted a further assurance and insisted the firm put a hard cap of $400 million on the fund.