Five Questions With … Paige Daly, Managing Director, LNK Partners

1. What has been your biggest challenge since joining LNK Partners in February 2007?

The biggest challenge that we’ve faced as a firm has been putting money to work in the last few years. Leverage was high, and in some of the competitive processes we weren’t able to play because we were just not comfortable putting that kind of leverage on the businesses, particularly retail businesses, where there was already operating leverage. So we had to walk away from some processes involving good businesses that we had been following for years, and it was disappointing. It’s gone in the completely opposite direction now, but hopefully there’ll be a middle ground because the lack of leverage is challenging as well. But we have capital to invest and will find ways to do it.

2. What do you see as the most significant, promising new segments in consumer and retail?

Overall, there are trend dynamics that highlight some interesting places for us to be spending time. We want to think about things that are going to benefit from demographics, healthy living and a lot of core trends that are going to happen thanks to the aging of the population and the growth of the Hispanic population. There’s also a trend toward value. We invest for five years plus, so we’re not looking for a short-term trend but to find a way to invest behind those overarching trends. We invested in Life Time Fitness, a health club chain. There was not a lot of interest in that sector but we saw a company that could benefit from the demographic trends and that had a slightly different business model and a great team. That’s what led to the investment.

3. What are the key criteria for companies that LNK Partners finds attractive in this volatile market?

We’re looking for companies that have a stable base of operations and the opportunity to really accelerate. The three things that we look for are great management, proven economics and a core franchise. It’s hard to get consumers to separate from their money, but it can happen at a very high price point or a very low price point. We don’t care where on that spectrum it is. Having a value proposition that really works for the consumer is something that you know when you see it. We’ve invested in dollar-store chains and in Calvin Klein, the whole spectrum, but every one of those businesses had a value proposition that worked for the consumer.

4. Tell me about your most recent deal and what attracted you to it.

Au Bon Pain is our most recent investment. People think of it as being a restaurant and ask, Who the heck would invest in a restaurant now. But this is a company that had 35 quarters of consecutive same-store sales growth. Its business model has allowed it to be more resilient in certain economic environments. We don’t know if that is going to continue. We hope it does, and we’re watching the company pretty closely. But it’s performed quite well through a lot of different economic environments, and it’s continuing to do so. We invested in February, so it’s been a little less than a year, but we’ve been thrilled so far.

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

The things that we are getting the most excited about right now are good companies that in the last few years put a little too much debt on their balance sheet. We see potential in recapitalizing those companies because the excessive leverage is preventing them from operating the way they want. The other thing we like are companies that are growing and consuming capital from which they get an appropriate rate of return but they want to continue to grow. They’re coming to us and saying, We want an investor. We’ve seen a couple of opportunities like that. We’re looking at a specialty retailer now, which is typically a more defensive sector. If the company’s core performance is strong, and the same-store sales are continuing to grow, even in this economy, that’s a great opportunity for us.

Edited for clarity