Personalities – Geoff Rehnert: Fortune Favors the Bold, Especially in the Middle Market –

To hear him talk about his new private equity firm, Audax Group, you would think Geoffrey Rehnert was giving you the formula for building the next World Series baseball team. Buyout firms become teams, executives become players and the industry, a game. The key to it all, says Rehnert, is team players and a win-win strategy. And he should know – he’s been winning for nearly two decades.

Rehnert began his private equity career in 1979 as a commercial banker with Morgan Guaranty Trust Company, now J.P. Morgan & Co., before the buyout business had really taken off. At that time he developed a taste for venture capital. In 1984, while earning his graduate degree at Stanford University, he began the job that would direct his career for the next 15 years. He was hired as a consultant for Bain & Co.’s California office where he worked with companies in the telecommunications, manufacturing and health-care industries.

When founder of Bain & Co., Bill Bain, decided to start a venture capital group outside the consulting firm, Rehnert had the opportunity to help kick it off as one of the two first associates. “Our first fund was a $37 million fund, which actually for 1984 was a respectable size,” Rehnert says.

Within a year of its debut, the management at Bain Capital realized it could not survive on investment opportunities sprung exclusively from the consulting firm, as originally hoped. “So I, through necessity and desire, took on the role of finding deals outside of Bain and began marketing and deal generating for Bain Capital,” says Rehnert. “And that was a role I continued to play up through July of last year.”

His – and Bain Capital’s – first outside deal was the acquisition of a small company named Calumet Coach Company in 1986. Since then, Bain Capital has made over 120 acquisitions and now manages more than $6.5 billion in assets. But to this day, Rehnert considers that first deal to be one of his finest hours.

“We really learned the business as we went. We bought a very small company, hired a new CEO, brought in an outside management team. I was a young guy. I was in my late twenties at the time and we sold it two years later and made 35 times our money. And I think there have been other deals where we’ve made more money or had more visible success, but there’s something about your first deal and being able to pull all the pieces together. Maybe it was beginner’s luck, but I’m proud of having been able to do that at an early stage in my career.”

Then, last year, after15 years at Bain Capital, Rehnert and pal Marc Wolpow resigned their positions as managing directors to start their own team, the Audax Group, a private equity and alternative asset investment firm. Rehnert gives a number of reasons for his departure last July.

Bain Capital had grown from its four originating members, Rehnert, Bain, Bob White and Josh Beckenstein, and by last year had a total of 130 people. Wolpow joined the firm in 1990, and soon after became a partner. The focus of the firm was changing from mid-market buyouts, Rehnert’s main interest, to the large-cap segment of the buyout business. The evolution of the firm was diverging from Rehnert and Wolpow’s shared vision of the firm they wanted to work with.

“I really like the mid-market buyout business,” says Rehnert. “I had established a large network of deal sources and contacts in the mid-market, and I wanted to be able to capitalize on that.”

When W. Mitt Romney, the CEO of Bain Capital, took a part-time leave of absence to head the Salt Lake City Olympic Committee, Rehnert and Wolpow saw a good opportunity to part with the firm amicably. “The fact that we wanted to focus initially on mid-market buyouts was less competitive than had we wanted to do large-cap buyouts. And so we had the opportunity to structure an amicable separation but still do so in a way that enabled us to establish a scale firm [that would] do the kinds of things that we think make a lot of sense,” Rehnert explains. “It really was the right time.”

The Blair Witch Blessing

The Audax Group has gotten a running start and the partners have no intentions of slowing it down. Before the group was even organized, it purchased a control stake in Artisan Entertainment, and formed the partnership Audax Entertainment. “When we signed our separation agreement with Bain Capital, that was our first order of business,” Rehnert says. They raised a special-purpose fund, with a handful of institutional investors led by Trust Company of the West (TCW) and CIBC World Markets. Their debut acquisition evidently was struck with impeccable timing and luck. That month Artisan Entertainment, which recently filed to go public, released the surprisingly successful independent horror film, The Blair Witch Project.

The House That Geoff Built

For such a young firm, the Audax Group is taking on a number of ventures. The firm now manages Audax Private Equity Fund, a $500 million buyout fund that closed in December, and Audax Venture Capital Fund, a $75 million fund focusing on the Internet. That fund should close any day now, Rehnert says. The firm plans to raise a $250 million mezzanine fund as soon as late May and a CDO fund and a hedge fund by the end of this year or early next year.

Some people may think they are spreading themselves too thin, but Rehnert and Wolpow think Audax is right on track. “We certainly think that it’s a winning strategy and that being in the different businesses, if managed properly, will make each of the businesses more successful than they would be as a stand-alone,” Rehnert explained. “I think the challenge is going to be for firms that are trying to retrofit themselves as such to figure out how to get the various business groups to function as one firm and play efficiently because, culturally, it’s a hard thing to do after the fact. It’s like the difference between renovating a house and turning it into a different style house and building a new house.”

Playing the Field

Not only does Rehnert, who once aspired to be a professional baseball player, speak of private equity like a sports enthusiast, he plays like one too. He wants to pull together a team of strong players – players who work well together and win. And he draws inspiration for success from sources as diverse as Chase Capital Partners and the Duke Blue Devils basketball team.

One of Rehnert’s role models in business is Jeffrey Walker, managing general partner at Chase Capital. “I have enormous regard for what he’s accomplished. He’s a good guy, he plays win-win, and he’s built an exceptional model there,” he says.

Rehnert considers Goldman Sachs to be a model firm “in terms of how they established a culture of team play across a wide range of business units – having people within the firm communicate well with one another, across business lines and really play for the best interest of the firm and the team.”

In terms of business ideals, the Duke University graduate turns to his alma mater. “I think Mike Krzyzewski, the Duke basketball coach, has proven that you can play at the very highest level and win at a very tough game by being a good guy and attracting a good team and drawing the best out of it. So, I hope [Audax Group is] able to do in the buyout business what he has been able to do with the college basketball program.”

Politics, Anyone?

While Rehnert seems plenty busy in the private equity game, rumors have surfaced that he is pondering a move into the political arena – specifically, running for a Senate seat for Massachusetts. Rehnert says he will not endeavor into a political career, unlike his former boss Romney, who ran unsuccessfully for a Massachusetts Senate seat in 1982. “I think I have a much better prospect of being successful at building the Audax Group into an industry leader than I do of beating Ted Kennedy,” Rehnert says.

Private equity was not Rehnert’s first choice for a career. “My greatest frustration is that I never played major league baseball,” he admits. “[But] my desire was greater than my talent.” An all-American boy, he wrestled, played tennis and, of course, baseball. He played baseball through high school and some of college and on a men-over-thirty league up until the founding of Audax last year.

Rehnert, who now resides outside Boston with his wife and two sons, spent his childhood days in Jenkintown Penn., playing sports. During college he worked as a lifeguard at the Jersey Shore. “To this day that’s still the best job I’ve ever had,” he says. Rehnert likes to spend time with his family, usually doing some sort of sports activity, when he’s not working. “I’m just working to make enough money so I can go back to lifeguarding,” he says.