Nashville Shop Closes Fund VI At $165M

Firm: Gen Cap America

Fund: Southvest Fund VI

Amount Raised: $165 million

Small and steady is proving a successful approach for Gen Cap America. The Nashville, Tenn.-based lower mid-market shop has closed its latest fund at $165 million, completing the effort in roughly six months despite the downbeat capital-raising environment.

The majority of investors in Southvest Fund VI are re-ups from prior Gen Cap America vehicles, although the pool did draw interest from new limited partners as well, according to Don Napier, an executive vice president with the firm. Napier credited the firm’s strong track record—every investment Gen Cap America has made since inception in 1985 has been profitable—and its conservative strategy for the smooth sailing.

“The basic thing we’re telling investors is that we’re going to keep doing what we’ve been doing,” he told Buyouts.

What Gen Cap America does is invest in what it considers good management teams—then lets them run the business. The firm targets companies with annual revenue of between $5 million and $100 million with a history of strong cash flow. Gen Cap America targets the manufacturing, distribution and basic services sectors, in keeping with its meat-and-potatoes style. Accordingly, the shop steers clear of technology and real estate, and also avoids turnarounds and start-up situations. The majority of the firm’s current portfolio companies are located in the Southeast United States, but the firm doesn’t have any mandated geographic preferences or limitations.

The recession hasn’t had a heavy impact on Gen Cap America so far, Napier said.

“To date the portfolio is holding up extremely well, and deal flow is good,” he said. “We’re seeing opportunities with owner-operators who are nervous about the economy and looking to cash out, and in corporate carve-outs, where the parent company needs liquidity.”

Another factor in the firm’s continued success is that leverage is a small part of the equation, lessening the impact of the credit crunch.

“We’re lucky if we borrow 2x to 2.5x on a senior basis,” Napier said. “But, since we’re doing small deals, we’re paying lower multiples. We make it a point to factor a downturn into our [the portfolio company’s] loan covenants.”

It’s been less than four years since Gen Cap America last raised a fund. The predecessor pool, Southvest Fund V LP, closed in September 2005 with pledges totaling $101 million.

The firm’s portfolio companies include Advantage Nursing Services LLC, a New Orleans nurse staffing company; AmBath/ReBath LLC, a maker of bathtub liners and related products headquartered in Phoenix; Belt Power LLC, a Smyrna, Ga.-based conveyor belt company; Calling All Ships LLC, a Miami distributor of health and beauty products; and Van Pool Transportation LLC, a Wilbraham, Mass.-based provider of transportation services for children with special needs.