Prophet Equity foresees beating $250M target

Dallas-based Prophet Equity has already accumulated indications of interest exceeding the $250 million target for its first fund, according to a source familiar with the fund-raising effort.

The firm, which was co-founded by Ross Gatlin and George Stelling in December 2007, launched fund-raising in July.

Gatlin was co-founder of Insight Equity, a turnaround shop that’s also based in Dallas, which he split with just prior to launching Prophet Equity. He declined to comment on his reasons for leaving Insight Equity, except to say he did not believe in firms raising the size of their funds with each progressive fund-raising. Insight Equity has significantly boosted the size of its latest effort, coming to market with a $500 million target for its second buyout fund after closing its debut 2005 fund at $300 million. Insight Equity is also raising a new mezzanine vehicle with a $275 million target, according to previous reports.

Gatlin, who declined to comment on the status of Prophet Equity’s fund-raising, said that the firm’s strategy calls for a permanent hard cap on the fund at $250 million, a larger than usual general partner commitment of up to $50 million, and wide distribution of carried interest among investment professionals.

The firm looks to make equity investments of between $5 million and $50 million. It is open to a wide variety of deals, including corporate carve-outs, turnarounds and control acquisitions. The shop focuses on automotive and transportation, consumer products, defense and aerospace, health care, financial services and manufacturing.

Gatlin believes that the lower middle market has the most fertile deal opportunities. “It is the largest addressable market in the U.S.,” he says. “Ninety eight percent of available companies have revenues between $20 million and $500 million.”

Alignment of interest is so important to Gatlin that the firm distributes carried interest to the entire team, including the administrative positions. “Every single person on our team has their number one goal as driving value creation, and people generally do what they’re paid to do,” he says. Prophet Equity’s employees all have access to co-investment opportunities, as well. —Erin Griffith