You recently left your position as one of two partners at Circle Peak Capital to launch a formal buyout arm of LJH Global Investments, called LJH Linley Capital. What was the motivation for the move?
Jim Hedges of LJH Global Investments and I have known each other for a number of years, and have looked at opportunities together outside of the United States, in Latin America, in Europe and the Middle East. Before that, he looked at a lot of deals we worked on and we always respected each other’s approaches. LJH Global Investments was a hedge fund of funds that’s now morphed into an alternative asset management firm that invests in public equities, real estate, commodities, and specialty finance products. They’ve done some private equity investments before. What we decided to do was to create a formal entity for LJH Global Investments’s equity investments.
Like Circle Peak Capital, LJH Linley Capital will not invest from a traditional buyout fund. Is this structure temporary? Will the firm raise a regular buyout fund down the line?
There are pros and cons to a traditional fund. With a rigidly defined strategy, you can fall into restrictions of deal size, industry, sector and geography. There’s a lack of ability to be opportunistic. So for the time being, we really like this setup, and that is the intent. We’ve built an interesting structure to make pretty significant investments.
So instead of narrowing your strategy and building a specialized focus, like many buyout firms are doing, you are broadening.
We are doing the opposite of specialization. We’re saying that (the private equity) business requires a broad approach and a broad understanding of economic swings that take place in the United States, Europe and Latin America. To myopically focus on one sector, we’d disadvantage ourselves.
At Circle Peak, you had a pretty narrow focus on the consumer products sector. How will you delve into unknown sectors and territories?
I’ll cross that bridge by working with some of the best operating advisors in the industry, and we’ll continue bringing them in. Since we announced the firm’s forming, we’ve more than tripled the number of operating advisers in our stable. The advisers are helping us source transactions, as well.
Are you seeing reasonably priced deals, and can we expect an LJH Linley Capital deal in 2008?
Certainly there are opportunities now, and we have the ability to do transactions valued up to $800 million, thanks to the backing of LJH Global Investments. We’re putting in a letter of intent for a company with substantially lower valuations than a seller would have considered three or four years ago. Valuations are down by around two turns.
Edited for clarity