Consumer products-focused JH Partners LLC, the San Francisco-based private equity firm, which used to raise capital on an ad hoc basis, briskly hit its $200 million hard cap on JH Capital Partners LP — the firm’s first institutional investment vehicle.
The inaugural fund received approximately 70% of its dry powder from its five institutional investors which include Harvard Management Co., MIT, Princeton University Investment Co., Stanford Management Co. and Yale University. The remainder came from friends of the firm, past co-investors and JH principals.
A target of $150 million was expected when marketing began last spring. But it soon became clear that there was more interest in the small-middle market fund than the firm had anticipated.
;I’ve heard of situations where [raising an inaugural fund] takes a long time and we feel very fortunate that that was not our first fundraising experience. We actually found ourselves in the somewhat embarrassing situation, after talking with a few other institutions, of having to tell them that we didn’t have any more room [in the fund] for them,” John Hansen, president of JH Partners told Buyouts.
The desire to keep the same lower-middle-market strategy of investing between $5 million and $25 million of equity in consumer-oriented companies with revenues of $10 million to $150 million led JH Partners to call a halt to fundraising in October 2004.
Since the firm’s founding in 1986, it has made more than 30 investments and put approximately $190 million of capital to work in consumer brands such as Peet’s Coffee & Tea, Bare Escentuals, Performance Bicycle Shop and Design Within Reach.
Rather than going to a placement agent to raise the fund, JH Capital relied on co-investors and friends of the firm experienced with institutional investors to make the necessary introductions. “[Not employing the help of a placement agent] fits our consumer-focused philosophy of staying close to our customers,” Hansen said. “In this case, we added five new customers and we want to make sure that we get to know them as best we can.
The fund’s geographic boundaries have not been set in stone but most investments will likely take place in the firm’s back yard. “Because we don’t make a whole lot of transactions coupled with the fact that we are extremely involved in each one, our deals tend to be oriented toward the Western United States,” Hansen said.
Since fundraising began, the firm has completed three deals with JH Capital Partners dollars. In June 2004, the firm led and investor group that included Boston-based Berkshire Partners to complete the recapitalization of MD Beauty Inc., a developer and marketer of cosmetics and skin and body care products. In November the firm acquired the print and online cooking equipment catalog, CHEF’s Catalog Inc., from The Neiman Marcus Group. And last month, the firm acquired Bell Automotive Products Inc., a supplier of air fresheners, seat and steering wheel covers, from Los Angeles-based buyout shop Brentwood Associates.
Ever since fundraising began on the inaugural fund, deal flow has dramatically increased for JH Partners. “We’re not a really well-known name and we sort chose to keep our heads down until recently. It didn’t take long to find out that we were completely unprepared for the amount of interest we’d receive,” Hansen said.