Headwaters MB Raises Second Mid-Market Fund

Headwaters MB has raised $75 million for its second fund, which will invest between $10 million and $20 million into mid-market companies in “capital constrained” situations.


Headwaters MB announced the formation of Headwaters Capital Partners (or “HCP”), its second merchant banking fund. HCP has a $75 million capital commitment to provide investments in lower middle market companies in “capital constrained” situations. Investment size is generally $10-20 million but can grow if circumstances require a larger investment. The fund will invest in US and Canadian companies with positive EBITDA but with short term business issues to overcome or overleveraged capital structures or threatening near term debt maturities. The fund will invest in both “control” and “non-control” situations and often invests alongside management and/or existing sponsors/investors. The fund is managed by an independent investment committee from Headwaters banking effort to avoid real or perceived conflicts of interest. There is no requirement for Headwaters to show any opportunity to the fund.

“The MB in Headwaters MB stands for merchant banking”, commented Philip W. Seefried, Headwaters Co-Founder & CEO. He continued, “We had excellent success with our first fund, Rio Grande, backing great management teams that we were advising. Today’s market calls for this new kind of capital to address immediate needs in these constrained and disjointed markets. We are pleased to offer this capability and option to our clients and our referral sources.”

The investments in the new fund can be custom structured to the situation. The investment team can work through intercreditor issues and can use prepackaged bankruptcy if the situation requires. Its primary focus is the “good company, bad balance sheet” phenomenon, although the fund does not shy away from turnarounds. It is expected that many of the investments will involve the deleveraging of sponsor owned companies, which may involve a deep restructuring. However, there is no requirement for sponsor involvement.

Paul Janson, Headwaters COO, added: “We are very focused on adding capabilities to empower our bankers better serve their clients. We expect significant investment banking expansion in 2010 by industry, product and geography. As we aggressively grow our footprint, we will continue to add more tools for our teams to utilize.”

All inquiries for the fund should be directed to Phil Seefried at pseefried@headwatersmb.com.