November 27, 2009
Prophet Equity closing 2009 with three buys
By: Chad Eric Watt- Staff Writer
A private Equity firm that started up in 1008 in anticipation of a worsening business climate is set to wrap up 2009 with three acquisitions.
Although many new funds are just now being raised to buy companies or assets from distressed sellers, Southlake-based Prophet Equity completed one buy this fall and has two more deals like to close before year’s end, said Ross Gatlin, CEO and managing partner of Prophet Equity.
Earlier this month, Prophet closed the purchase of a pair of emergency responder supply companies previously owned by another private equity group. The firm aims to integrate the two companies- Eugene, Ore.-based Chief Supply and Charlotte, N.C.- based Law Enforcement Supply- under the banner of Public Safety Supply Resources. That integration is in the early stages.
It has also signed a deal to acquire Milford, Pa.-based Altec Lansing Technologies Inc., a maker of speakers for computers and digital music players, from Santa Cruz, Cailf.-based Plantronics Inc. (NYSE: PLT). And it’s backing the management team of computer memory make Silicon Storage Technology Inc., based in Sunnyvale, Calif. in a $176 million going-private transaction.
“We’ve got a fistful of opportunities that that we’re executing on,” Gatlin said. “You can’t overstate what it’s like to have fresh capital and a fresh team in a time like this.”
All three acquisitions are asset-heavy businesses on the lower end of the middle market, Gatlin said. Prophet aims to make equity investments of $5 million to $50 million in companies with annual revenue of less than $500 million. Similarly, Prophet’s plan for all the businesses is to improve their balance sheets with fresh capital and reinvigorate their operations with improvement ideas from its team.
In addition to making acquisitions, Gatlin and Prophet’s Chief Operating Officer George Stelling have grown their business from a duo to a staff of 14.
“We created a team with a very broad set of capabilities beyond financial engineering,” Gatlin said.
That mirrors Gatlin's history at consulting giant Bain & Co., where he worked in the 1990s.
In addition to bringing money and financial expertise to its portfolio companies, Prophet aims to improve its operations as well.
“We have operational plans in place before we close the deals,” Gatlin said.
A growing portion of private equity firms now are claiming to have that sort of capability, said Louis Robichaux, Dallas managing director of Bridge Associates LLC, a turnaround advisory firm, and president of the Dallas chapter of the Turnaround Management Association.
“I would guess 30-40% espouse that they have that skill,” he said. But the percentage of firms that actually have that sort of capability is likely less.
Prophet Equity was formed in late 2007 by Gatlin. It has raised nearly $225 million and now aims to end up with about $275 million to put to work in buyouts and fixing up businesses. Prophet originally planned to raise $250 million.
“We’ve got investors who are up-sizing their commitments,” Gatlin said.
Abundance of opportunities
Broadly, deals are few and far between in the acquisition world, Robichaux said.
“The general sentiment is the capital markets haven’t freed up,” he said. “There’s an abundance of opportunities if you have capital and you can ride out the rest of the down-cycle.”
But getting a deal with even the slightest tinge of distress to closure takes extra time and work right now.
Shortly after Prophet and Silicon Storage (Nasdaq: SSTI) announced the going-private deal, law firms representing Silicon shareholders began filing suit.
“Large of small, there are people who will bring suits in order to up the ante,” said Orrin Harrison III, a partner at Akin Gump Strauss Hauer and Feld LLP.
Harrison recently worked to help Affiliated Computer Services (NYSE: ACS) resolve shareholder complaints that its was selling to Xerox Corp. (NYSE: XRX) for too low a price.
Article featured in the Dallas Business Journal the week of November 27, 2009.
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