Lee vs. Lee

Its finally happened: Thomas H. Lee and Thomas H. Lee Partners are simultaneously vying for institutional LP attention. No, thats not a misprint like my Leonard Greed & Associates flub from earlier this week and I pity any unknowledgeable LP associate whos been assigned to conduct due diligence on both. Or maybe not (My boss is so dumb. He assigned me to do the same thing twice Ill be out of here early tonight. Wanna get some pizza).

Anyway, for the uninitiated: Thomas H. Lee founded Boston-based buyout firm Thomas H. Lee Partners, and ran the place for quite some time. He then went into semi-retirement mode, and was expected to cede complete control to a trio of second-generation guys when the firm went out to raise its sixth fund well over a year ago. But each side turned out to have some different ideas of how to compensate a retiring founder, which led to an acrimonious split and, arguably, to Lees decision to form a brand-new private equity firm.

The new firm was originally envisioned as a small-cap sort of endeavor, which might even complement Lees existing hedge fund operation (both of which are in New York, whereas TH Lee Partners is in Boston). But the effort has since been repositioned as a mid-to-large market operation, with a target capitalization of around $2.5 billion. Lee himself has been on the road this month pitching to prospective institutional LPs (alongside placement agent CSFB), after having first raised a sizable nugget from wealthy individuals. Its also taken minority positions in a bunch of deals, albeit only one with which its been publicly identified.

Thomas H. Lee Partners, on the other hand, has been raising its new fund for well over a year. It originally began with a target of around $7 billion, which since has been raised to $9 billion. It held a first close earlier this year on around $6.5 billion, and claims to have nearly $8 billion in verbal and closed commitments. That said, it continues to solicit new limited partners in part because some prospective LPs were turned off by a since-abandoned commitment deadline.

Some LPs have told me that they feel a need to choose sides although insist that need is not being forced by either GP but all expectations are that both efforts will close at or near target in the first half of next year. So the real competition wont be in terms of fundraising, but rather in terms of performance.

It is admittedly difficult to compare a $2.5 billion fund with a $9 billion fund, but LPs already are gearing up to do so. LEP fans say that the Lee Equity Partners model is far closer to what his namesake firms model was back in the 1980s and early 1990s, whereas todays THLP is concentrating almost exclusively on mega-market transactions. They prefer the former. Detractors, however, counter that Tom Lee hasnt led any LBO deals in several years, while some of his partners either worked at troubled firms (like Cap Z) or at stronger firms (like Bain) where they werent senior partners.

Only time will tell which fund produces the better IRR, butone thing is certain: We won’t be seeing any collusion out of these two firms…