Texas Firm Sees Final Close Of Debut Fund By Year-End

Prophet Equity, a Southlake, Texas-based private equity firm, is more than 85 percent of the way toward its fundraising goal, Buyouts has learned.

As of early August, the firm’s namesake fund, Prophet Equity LP, had raised $215 million, and will “definitely” hit its hard cap of $250 million from external limited partners, according to a source familiar with the situation. A significant additional close will likely be made toward the end of the third quarter, with a final close coming by year-end, our source said. On top of the capital from external LPs, professionals at Prophet Equity are putting up to $50 million of their own money into the fund. The firm, which began fundraising in July 2008, is not using a placement agent.

Prophet Equity uses a system of “rolling closes,” meaning that when LPs are ready, they invest and close, as opposed the more traditional method of holding a close after a number of investors have signed on. The latest $15 million slug that the fund closed on came from an international fund-of-funds manager that had raised a special situations fund in 2007 and had a few slots remaining, said our source. It decided to allocate one of those spots to an emerging manager and ultimately chose Prophet Equity.

With the new fund, Prophet Equity intends to make two to three equity investments per year of $5 million to $50 million in companies with enterprise values ranging from $10 million to $250 million. The firm will consider a broad spectrum of deal types, including corporate carve-outs, stalking-horse bids, turnarounds and control acquisitions. Sectors of interest include automotive and transportation, consumer products, defense and aerospace, health care, financial services, and manufacturing.

Backers include Danish fund of funds Danske Private Equity; insurance companies; academic endowments; family offices; and a Danish pension fund, Industriens Pensions.

Prophet Equity was founded in December 2007 by CEO and Managing Partner Ross Gatlin and COO George Stelling. The pair chose to name the firm in honor of their ability to spot future value, and also as a playful pun on the word “profit.” Before Prophet Equity, Gatlin helped found Dallas turnaround shop Insight Equity in 2002. Prior to that he gained his restructuring experience while at Bain & Co. and later started a distressed investment strategy at The Carlyle Group. Stelling came from NVIDIA Corp., a visual computing technologies company, where he served as CIO.

Staying true to its name, Prophet Equity already is already planning its second fund before it wraps up its first. The follow-on vehicle, Prophet Equity LP II, will have a hard cap of $325 million, said our source.