Five Questions With Scott Sperling, Co-President, Thomas H. Lee Partners

Thomas H. Lee Partners is not in fundraising mode, so who are you meeting here in Berlin at SuperReturn?

It’s going to be a while before we start raising another fund, toward the end of the year at least. In our current fund (the 2006 vintage, $8 billion THL Equity Partners VI LP), we still have about 30 percent left to invest. The fact we have so much money left means we are still working hard to put it to work.

Being in Berlin is a good place to stay in close contact with our limited partners. I think they appreciate we have a completely open approach to talking about our portfolio companies and answering any questions they have. So these updates are a good interim report for them, particularly our European LPs.

When you raise your next fund, will it be larger or smaller than your last fund?

I believe it will be smaller, because that fits the size of deals where we can be out of the way of competition in acquiring companies, and then have a huge impact on improving their operating results. Generally, we seek a broad range of deals between $250 million and $2.5 billion, so for our next fund to be consistent with that, it’s going to be smaller. Again, although we’re not in fundraising mode, I would expect that when we make this decision, it’s going to be smaller.

A lot of your big-name deals have been club deals. When you do club deals, what sets you apart from the firms you do the deals with?

We haven’t done any club deals since 2008, and any club deals we do are only because of the overall size of the equity check. We don’t view club deals as being anything other than a way for us to manage much larger transactions. Some deals in 2006 and 2007 were big enough that you needed to have other players. We haven’t done a lot of club deals since then because the deals we’re doing now are substantially smaller, and we can underwrite them on our own. We still have the ability to do substantially larger deals, but only when the underwriting risk is manageable.

What’s the biggest lesson you learned from the financial crisis?

When the availability of credit drives the valuation of transactions, that’s a world you should be very cautious about. One of the things the financial crisis highlighted was that there is an intrinsic value to companies. It’s not about how comparables are trading at any point in time. It’s not the fact you can get lots of cheap credit and make your model look good. It is about finding intrinsic value, figuring out what the level of sustainable growth is, and paying a price that makes sense. In the financial crisis, the whole world was distorted by higher than normal levels of leverage. You just have to be careful about that.

Are people ever surprised when they learn the firm’s namesake is actually at another firm?

In 1999, we agreed to buy him out, and I think anyone who has been familiar with us for the last 20 years knows that Tom was a great founder but wasn’t that actively involved, so it hasn’t been a big issue. The industry has matured in lots of ways, but generational transition is important to investors. The fact we’ve been through that now for 15 years makes it a bit easier.

Edited for clarity.