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Catterton Raising Top-Off Fund; New Fund Coming “In The Future”

Catterton Partners is raising additional capital for its sixth fund, a reflection of the difficult decisions facing buyout firms seeking capital in a dismal environment.

The Greenwich, Conn.-based firm, which last year was expected to come to market with a full-fledged seventh fund, is now seeking to “top off” its sixth fund with an additional $200 million, according to a regulatory filing. The capital raised for Catterton Partners VI-B LP will not be used to support existing investments from the sixth fund; rather it will be used to make new investments alongside the fund’s remaining capital, according to a person familiar with the situation. Catterton had invested almost 60% of fund six as of August 2008.

The effort is not a replacement for Catterton Partners’ seventh fund, a person familiar with the situation said, as that will be raised “in the future.” In August 2008, peHUB reported that the firm was preparing to launch a full-fledged fundraising campaign for fund seven with an expected target of $1.25 billion to $1.5 billion.

Raising “top-off” capital for an existing fund has become more popular in the past year with the decline in the fundraising market. (Catterton’s new capital is not considered an “annex fund,” in which firms raise extra capital to support existing portfolio companies.) A number of firms have successfully raised top-off funds with the aim to invest the capital in new investments. Village Ventures has raised $27 million in new commitments from existing limited partners, which will be added to a $105 million Fund II that originally closed in 2006. KPS Capital topped off its $1.2 billion third fund with an additional $800 million.  MDV and Graphite Capital are both in the process of raising annex funds.

The reason behind Catterton’s decision to raise interim capital likely stems from the unwillingness of cash-strapped LPs to make large commitments. Investors should not be scared by the firm’s track record. In the past year Catterton earned a strong return on two exits: The firm earned around 7x its investement in natural pet food maker Wellness Pet Foods, which it sold to Berwind Group, and it made more than 4x its money when it sold luxury hair product company Frederick Fekkai & Co.

But the consumer products-focused firm isn’t immune to recessionary woes. Portfolio company Lang Holdings, an investment from Catterton Partners V LP, filed for bankruptcy over the summer. The firm agreed to purchase Lang Holdings out of bankruptcy alongside Sun Capital Partners for $25 million. Last year Catterton saw two companies fall into Chapter 11: Sleep Innovations Inc. and Archway Mothers & Cookie Co.