In the arms race for skilled and well-connected executives,
The Los Angeles-based buyout firm has launched an affiliate called the Four Star Group, composed of industry executives and retired high-ranking military officers, to source deals, perform due diligence and serve on the boards of companies in the aerospace and defense sector, and of companies that focus on homeland security. Gores Group gets a first look at any deals the Four Star Group might be contemplating. The firm also intends to tap the know-how of the generals throughout the life cycle of its defense and homeland security deals. The group can also take part in deals that don’t involve Gores Group.
“Not everything they do will be with Gores,” said Scott Honour, a senior managing director at the buyout firm. “However, everything we do in aerospace and defense will involve the Four Star Group. Half of the companies we own are looking to tap the generals.”
Limited partners say they prefer backing firms that can generate returns by improving portfolio company operations rather than relying solely on leverage. That’s become even more urgent in today’s credit-thin, return-threatening environment, which requires firms to invest more equity and issue debt at higher interest rates. In the last six months especially, buyout firms have signed on a number of retired industry executives, including former high-ranking military officers. Earlier this year, for example,
The Four Star Group is led by William B. Patton, a veteran executive of technology and computer systems companies, and Matthew Spain, a former managing director in the mergers and acquisitions group of UBS AG. The group’s calling card, however, is its advisory board of six retired generals. Those officers include Gen. John P. Jumper, former chief of staff of the U.S. Air Force; Gen. Lance W. Lord, retired commander of the Air Force Space Command; and Maj. Gen. Paul A. Weaver, who was the director of the Air National Guard and is chairman of the advisory board.
The Four Star Group has already taken up roles in two newly acquired Gores Group companies: satellite communications provider Gilat Satellite Networks Ltd., based in Israel; and CompuDyne Corp., a security products maker that focuses on the homeland security market. The Four Star Group is advising both companies on behalf of Gores Group, and the advisers have obtained equity stakes in both companies by virtue of their involvement.
The generals’ expertise and backgrounds should be useful to Gores Group not because the officers have some deep connection with procurement officers in the Pentagon. Rather, the generals, with decades of experience in planning and strategy, have a nearly unmatched sense of how the armed forces will spend its money to fight the next fight.
“We’re going to be helping companies visualize how they’re going to fit in with the Pentagon,” Jumper said.
In many cases, that will mean prodding companies to think about their products in very different ways. Thanks to the generals, for instance, United Road, a recent addition to the Gores Group portfolio, expects to begin offering its long-hauling services to the military, which is constantly in need of logistics assistance as it moves its equipment around the country, Honour said.
“There’s this sort of ‘wow’ moment,” Jumper said of portfolio company executives when they consider new uses for their products. “It’s not the world they live in.”
Gores Group has previously created a similar kind of affiliate. The Glendon Group, a team of about 20 professionals, provides operational support to Gores Group companies, assisting them with sales and marketing, tax advice, technology support and facilities expertise.
Gores Group is investing from its second fund, a $1.3 billion pool closed in 2007.