Five Questions with Bob Levine of L2 Capital, a PE family office

  • Lower middle market investor
  • Diversified portfolio of companies
  • Plans to convert to a multifamily office

Bob Levine co-founded the private equity firm Milestone Partners in 1995 after decades of participating in lower-middle-market transactions. In 2010, driven by changes in the regulatory environment including the Dodd-Frank Wall Street Reform and Consumer Protection Act and increased oversight, Levine decided to invest his family wealth in L2 Capital, his Devon, Pennsylvania, PE family office. L2 invests in lower-mid-market companies. He is managing partner.

What kind of companies do you invest in?

We look to invest in businesses with healthy free cash flow that have a $2 million to $10 million Ebitda.

A compelling proposition for us is businesses that can survive downturns. We typically don’t invest in businesses that are heavily impacted by cyclicality, are in highly regulated industries, or are capital-intensive.

We have tended to invest in businesses that are in the [eastern U.S.], but we are open to investments anywhere in the U.S. Our most recent investment is in a Kansas company that has a significant sourcing base in Asia. We are currently not looking to invest directly in markets other than the U.S.

What makes you an investing partner of choice?

We have shown demonstrable expertise in building ecommerce presence for our portfolio companies. We help our portfolio companies optimize their new-economy marketing and communication.

As a family office, we can take a long-term view. We are not bound by the pressures of raising the next fund and exiting the investments we have. Thus, the pace of transition from family to institutional ownership can be more gradual.

We also have in-house operating expertise that helps us add additional value to our portfolio companies.

How do you get the deal flow?

We travel. We visit intermediaries like investment bankers, brokers and other intermediaries so we are on their radar. The lower-middle market is very fragmented. We also engage advisers to represent us in specific search assignments. In transaction processes, we demonstrate to potential partners that we are responsive and competitive.

We have made seven platform investments so far, and several add-on transactions. We sift through more than 300 memorandums a year. We visit a couple of companies every month and hold regular calls.

We aim to make one to two platform investments per year.

What is the investment philosophy at L2Capital?

We only lead buyouts and consider ourselves generalists. We hold a diversified portfolio so that we can spread the risk across sectors.

Our current portfolio includes Worldwide Camping Holdings, an outdoor camping-equipment company; Medical Physics Holdings, [which] provides medical physics staffing and support services to hospitals; and Rugs Direct, an online retailer of rugs, all of which we’ve closed in the last 15 months, and two other unrelated platform companies with longer holding periods.

What are your plans for L2Capital?

We aim to invest in six to eight companies in the next few years, and another seven or so add-on transactions.

Importantly though, we are looking to convert L2 Capital into a multifamily office to share our deal sourcing, execution and monitoring expertise and provide tax benefits with like-minded single family offices.

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Bob Levine, managing partner at L2 Capital. Photo courtesy of Levine.