Prudential Raises Second Mezz Fund –

Prudential Capital Group has closed on its second mezzanine fund, Prudential Capital Partners LP II, Buyouts has learned. After about seven months in the market, Fund II topped out at $775 million, exceeding its $600 million target. Fund II is about $150 million larger than its first mezz fund, which was raised in July 2001.

Fund II will follow Fund I’s lead and invest in the middle market over a five-year investment horizon. The firm expects to put about $150 million to work per year and to be invested in about 50 companies when the fund is fully committed. Fund I is just about fully committed with 30 investments.

“We will continue to follow the same strategy. We’re likely to close one more deal for Fund I, and so now all of our origination activity is for Fund II,” said Jeffrey Dickson, a managing principal with Prudential Capital Partners. “We expect the mix to be the same as the last fund’s. More than 50% of our deals will be sponsorless, however, with M&A activity increasing, here’s a key focus on working with equity sponsors. We hope to do more business with typical middle market equity funds that range from $150 million to $400 million in capital.”

Approximately 65% of Fund I’s deals were sponsorless while 35% had equity sponsors. North of 50% of the deals completed were recaps.

Fund II will invest in distribution, manufacturing and business services companies with revenues of between $20 million and $300 million. Prudential targets companies that have average revenues of $130 million and will invest up to $50 million in a single transaction.

Prudential raised this fund from 22 investors, including a handful of fund of funds, pension plans, family offices and banks such as CIBC Capital Corp., AEGON USA Insurance Management, Minnesota State Board of Investment, VCM Venture Capital Management.

“At this point we have good diversification. And our legacy portfolio is 95% realized so we have an established track record. So when LPs look at what we have done and ask: Did you maintain your focus?’ We can say we have for 10-plus years and show them the proof,” said Dickson. “The key is most firms have one team in one location. We have over 100 professionals making cold calls in five regional offices. And our brand identification goes back to the 1930s. Much of our business at this point is repeat business.”

While it’s true that Dickson and his team have kept their investment strategy from changing, when they started in this business they were operating under a different name. Prudential Capital Partners has only been around since 2000. Prior to 2000, Prudential Capital Partners was investing capital from Prudential Capital Group, the investment management business of Prudential Financial. Although Prudential Capital Partners has raised money from outside investors for the last five years its relationship with Prudential Capital Group is as strong as ever and allows the funds to leverage Prudential Capital Group’s networks. Prudential Capital Group has offices in Atlanta, Chicago, Dallas, New York, San Francisco, Frankfurt and London, where Prudential Capital Partners has people cold calling for deal origination.

“By 2000 we had done 38 investments with Prudential being the only investor. When we reviewed our track record, we decided it was good enough to raise money from third parties and they obviously found our offering attractive,” said Dickson.

Prudential Capital Group’s legacy fund was a $500 million middle market fund. In late 2000, the firm decided to take $200 million from outside investors and wound up with $619 million with 21 outside investors.

Fund I invested in companies such as Home Care Supply, Century Gaming, Imperial Parking Corp. Wise Alloys and MSC-Medical Services Company.