Father-Son Turner Team Gives Investing A Try Hillcrest Capital Is Born –

Jeff Turner wrestled with the decision, even lost sleep over it. During waking hours he thought about it some more, weighing the pros and cons: Do I stay put at U.S. Bancorp Piper Jaffray, where I have enjoyed 10 terrific years, or do I join my dad in a brand new venture before he retires?

While Jeff often thought about working with his father, calling it a lifelong professional dream would be overstating the case. It was a subject the two discussed for several months before Jeff ultimately decided to make the move.

John Turner, 62, retired in December 2001 as vice chairman of ING Americas. Its Dutch parent, ING Group, acquired ReliaStar Financial, which Turner headed for a decade, in a $6.1 billion deal in 2000.

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Jeff, meanwhile, was not exactly tired of being at Piper Jaffray, where he had focused much of his time on M&A advisory work. “For me, it was a difficult decision. I really like Piper. I was given a lot of responsibility there,” he says. “We made progress, and there was an opportunity to continue growing it.”

To a lesser extent, he was concerned about transitioning from a large organization to what is now a three-person act and not likely to grow much more than that.

But despite those concerns, Jeff liked the idea of getting the chance to buy a few companies himself after years of being a lender and adviser. And yes, “there was the unique element of partnering with my father. Given his track record, his great experiences, it was an opportunity I couldn’t pass up,” Jeff says.

So the two Turners took the plunge and formed Minneapolis-based Hillcrest Capital Partners. The new firm will target the sub-$20 million niche within the leveraged buyout market. The pair plans to use a combination of their personal capital and bank loans to finance deals, going after small industrial, food, financial and other firms in smaller deals. They will steer clear of volatile sectors like tech and telecom and from overly regulated segments.

“In our view, this is a market that is underserved,” says Jeff, whose post was co-head of middle-market mergers and acquisitions at Piper Jaffray and is now managing partner of Hillcrest. “There aren’t a lot of sophisticated investors going into that part of the market.

“We’ll raise something like 40% to 65% of the acquisition price in bank debt, and add some subordinated debt, and hopefully we’ll grow the businesses and make them better. It’s a great time to be a buyer. The economy is starting to turn around, but valuations are at historically low levels.”

Turner says he and his father will look for small-business owners who want to cash out or partially liquidate by bringing in the Turners as new equity partners. “These smaller businesses don’t have as many options as larger ones to turn to when they need liquidity for a sale or an equity infusion to expand the business,” he says.

Hillcrest is looking to do perhaps one deal per year, giving the firm ample time to nurture and develop these businesses. The Turners are not looking for an IPO or an M&A opportunity, but rather to build and sustain. It is a strategy that so far has resonated with the investment community and the numerous family-owned businesses that dot the upper Midwest landscape, Jeff said.

“We want to look at a lot of stuff,” he adds. “We’re not going to be the management team. There will be a separate management team. But we expect to be very active board members.”

As for deals in 2002, Jeff says, “We’d be ahead of the curve if we close a deal before the year ends. More likely, it would be next year.”

Hillcrest Capital Partners consists of the two Turners and an administrative person. It is looking to add one more account executive in the fall. But Jeff doesn’t expect the company will grow much beyond four people until its portfolio is chock full with a few companies, which should be a few years away.

What about Jeff’s concerns about getting too lonely? “I’ve been very busy getting out and catching up with friends,” he says. “At the end of day, there was the logical progression to it, of me going from lender to M&A adviser to private equity.”

Less than two months into the new job, Jeff spends a good deal of his daily schedule on administrative issues that go into starting a business. That includes a lot of mundane tasks, such as listening to sales pitches from telecom service providers on phone systems or interviewing health-care providers.

The younger Turner says that his new job means he will be able to spend more time with his wife and three kids, and probably play more golf with his dad. Both are avid golfers. “That has been a fiber in our relationship, and I’m sure we will have some business meetings on the golf course,” Jeff says. But there’s one standing rule: They will not talk shop at family gatherings.

Jeff is one of four siblings. He has a sister that is an actuary by trade, but is currently a stay-at-home mom. One brother has his own private equity business in Houston while another brother is a partner at a wealth management firm. None of the other three Turner kids is likely to join Hillcrest. As Jeff put it, “They’re all chasing their own dreams.”

And now, so are father and son. “A lot of people wish they had this chance,” Jeff says.

“Few father-and-son teams get this opportunity, so we’re very lucky,” John adds. “And I think this is something Jeff has wanted to do for some time.”