Five Questions With … John Pouschine, Co-Founder and Managing Director, Pouschine Cook Capital Management

1. What has been your biggest challenge in the past year?

For each of our nine portfolio companies, our biggest challenge was to get our costs down as much as possible in preparation for an extended downturn by laying people off or cutting salaries, and looking at marketing expenses and travel policies. For example, we took out the head of sales and marketing and reduced the staff at portfolio company Latex International by about 30 percent. Our other big challenge was minimizing principal repayments by refinancing our debt; renegotiating with lenders to give us an extension of debt repayments; or putting in money to prepay those debt repayments as far into 2010 as we could. So long as a portfolio company can service its interest payments, we feel it can survive.

2. What do you see as the most promising segments in the consumer area?

What we find attractive is sticking with products that are consumables. People still have to eat, take baths, wash their hair and get it cut. Everyday consumables that people need to keep consuming are businesses that are going to be okay in this environment. The home care segment is also very attractive. If our parents or grandparents need home care, they are going to continue to get that care irrespective of the economic environment. Portfolio companies Fantastic Sam’s [a hair salon chain], and Great Lakes Home Health and Hospice are examples of this.

3. What are the key criteria for companies that you find attractive in this volatile market?

We like companies that are not truly cyclical businesses. We believe that 2009 is going to be tougher than 2008 in most sectors tied to the consumer. We look at growing businesses with revenues of $20 million to $200 million, with EBITDA of $5 million to $25 million, and with reasonable management teams and a very strong position in their niche. Consumer/retail is about half of what we do; health care services is about 20 percent to 30 percent; and industrial business-to-business is another 20 percent to 30 percent. For add-ons, we look for significant synergies like buying a competitor where you can cut out their back offices.

4. Tell me about your most recent add-on and what made it appealing.

In September our portfolio company Latex International, a maker of foam for mattresses and pillows, closed a deal for Dunlop Latex Foam, a competitor based in the United Kingdom. We knew they were in trouble, so we proposed to buy them out. We purchased equipment from them at a very attractive price and paid a commission to transfer the bulk of their revenues to our facilities. We did the whole transaction in a week. That’s the sort of opportunity that we’re seeing in this market. Latex International has $90 million of revenue, and theirs was $25 million. If we make a 30 percent margin, that will be at or above the entire cost of the acquisition.

5. What kind of investment opportunities are you seeing now?

It’s mostly add-on opportunities. Half of the companies in our portfolio are looking very seriously at add-on acquisitions, and that’s very exciting for us. For new transactions, we’re seeing recapitalizations. There are fewer buyouts because of the debt market. We’re happy to buy a non-controlling stake in a company, typically for $5 million to $15 million, which is our sweet spot. There’s a ton of family members who need to sell a stake in a family-owned company for liquidity reasons, and because we’re willing to buy non-control positions, we see a broader deal flow than people who are limited to buying control stakes. We think we will close at least one and maybe two of these types of deals this year.