1. Your firm, which works exclusively on distribution company deals, just finished its first deal, taking a majority stake in Cone Instruments LLC. Why did you pick this area to specialize in?
There was a void in the market. I had been talking with numerous business owners over the last several years about how to address this void, specifically in the middle market. There are just a handful of funds that have been interested in distribution for a long time, and those funds are now huge. The universe of funds that had success in distribution moved way up market. I spent 10 years in investment banking, and business owners were approaching me saying, “A recapitalization makes a ton of sense for me and my family, but I’m not done. If I’m going to partner with someone, I’d like to partner with someone who’s done it before, but I don’t want to sell to a strategic buyer.” That was the void.
2. What’s the status of your first fund?
We had our first close in October of 2007. We’ve left the fund open, but we’re not actively fundraising right now, and that’s really just an issue of time. While we knew there was a void in the market; we kind of underestimated the size of that void. We’ve had over 120 distribution companies contact us, and we want to be responsive to them. We don’t have time to be actively fundraising right now. We’ll probably hold a final closing in late 2008.
3. Is this your first time raising a buyout fund?
It is. Hardest job ever, period. Most of our limited partners are distribution professionals—high net-worth individuals who ran and sold successful distribution businesses. They know distribution. They’ve built some of the top companies in the United States. So it was a two-minute sale up front. But they’re not professional investors. Walking them through the investment documents, and getting their understanding of the mechanics of the fund was another story. It involved hosting loads of breakfasts, lunches, dinners, just explaining the mechanics. I was putting on about a pound every three days.
4. What do you intend to do with Cone?
Cone actually approached us because of our distribution expertise. It’s a very good company that, frankly, we intend to turbo-charge by implementing some of the best practices from some of the best catalog distribution companies. So we’ve got two of our LPs that formerly ran two of the top catalog distribution companies in the United States working with Cone on their business plan and their growth initiatives, most of which right now are focused on the sales and marketing side. We intend to make two to four add-on acquisitions as well.
5. Have you faced difficult questions from LPs regarding the sluggish pace of buyout deal flow?
That was actually viewed as a positive by our investors. They all owned platform distribution companies and did a lot of acquisitions during cyclical downturns. They made a lot of money doing that.
Edited for clarity