Peppertree To Seek $150M For Second Fund

Firm: Peppertree Capital Management

Fund: Peppertree Capital Fund II

Target: $150 million

Legal Counsel: Thompson Hine LLP

Peppertree Capital Management, a Cleveland-based firm whose founders have made millions building out cellular phone towers, is gearing up to launch a $150 million growth equity, recapitalization and buyout fund.

Its debut fund at the 75 percent mark in invested, committed and reserved capital, Peppertree Capital plans to start marketing Peppertree Capital Fund II LP in the first quarter, according to Managing Director F. Howard Mandel. The firm plans to visit the offices of pension funds, family offices and other institutional investors; it has not yet decided whether to hire a placement agent.

According to Mandel, Peppertree Capital has pursued a tightly focused strategy with its $75 million debut fund, investing $3 million to $5 million at a time in small media, telecom and business services companies. The firm, founded in 2003, sourced seven of its nine deals, and played lead or co-lead on the majority of them.

Given its small pool of capital, Peppertree Capital has usually invited in co-investors on its deals, among them Argosy Partners, M/C Ventures and Wachovia Capital. With its next partnership the firm still intends to invite other firms to co-invest. But it also plans to ratchet up its own average investment range to $3 million to $15 million. “We’ve given away a lot of co-investment dollars”—more than $70 million worth, said Mandel. “We’d like to retain more of that.”

The firm has one exit to trumpet from Fund I—the sale of an investment in 4G Towers, a Wisconsin company that leases tower space to cellular phone companies. The deal, though small by Peppertree standards, returned several times capital, according to the firm. The best-performing company yet to be realized is TMW Systems, a Cleveland-based provider of trucking logistics software. Through a combination of add-on deals and organic growth, EBITDA has more than tripled at the roughly 225-employee company since Peppertree Capital first invested in September 2005. The firm has indicated to backers it wouldn’t sell the company without generating a 4x return on its money.

Mandel is one of four founders of Peppertree Capital. He and co-founder Jeffrey A. Howard previously worked together as partners at Dallas-based Tregan Partners, where they made investments in media and telecom. Co-founders Kevin J. McGinty and Jeffrey J. Milius previously worked together at Primus Venture Partners, a Cleveland private equity firm.—D.T.