Brand new buyout shop Hillcrest Capital Partners plans on testing the old adage about not mixing money with family. Founded by the father and son duo of John and Jeff Turner, retired chief executive officer of ReliaStar Financial and co-head of middle-market mergers and acquisitions at U.S. Bancorp Piper Jaffray, respectively, the Minneapolis-based private equity firm will focus on acquiring control positions in companies with a transaction value of less than $20 million.
“We think that should provide us with the opportunity to generate above-market returns, because this part of the world is under-served, which means not a lot of sophisticated private equity is going into this area,” said Jeff Turner.
Large buyout shops have ignored this segment of the market because it makes more sense for those firms to put more dollars to work in a few bigger deals, rather than build up an unwieldy portfolio of tiny companies, Turner noted.
Turner and his father will finance their deals with a combination of bank debt, sub-debt and their own equity capital. He declined to reveal how much equity he and his father will put up for Hillcrest’s deals. The firm has no plans to hit the fund-raising market for a new vehicle right now, but this does not rule out the possibility of a fund in the future. “Our desire is to keep our options open about a fund. Initially we are doing this with our own capital, and we will see how things go and how much fun we are having,” Turner said.
While Turner said he is sad to be leaving U.S. Bancorp, he had been thinking about getting involved with private equity for some time. “The chance to be a principal instead of an agent is nice, and it’s a pretty logical progression from middle-market lender, like I was earlier in my career, to M&A adviser to private equity investor,” he said, adding that the chance to partner with his father and have more control over his own life than the typical investment banker was too good an opportunity to pass up.
Hillcrest plans to concentrate on companies in the Midwest with a solid management team in old economy industry sectors, including manufacturing and financial services, Turner said. The firm plans to work closely with the management teams it backs to define a particular company’s strategy and to that end will only do three to four deals over the next three to four years.
Turner and his father will use the next few months to get a good look at the market and its current dynamic. Generally speaking, Turner said he feels that now is a good time to be jumping into the fray. “The economy is turning around, valuations are low, and we are starting from a clean slate without a lot of hurting portfolio companies, so I think the key for us is to just start seeing a lot of deals,” he said.
Because they have no investors to answer to, the Turners will also be able to take their time working with Hillcrest’s portfolio companies. “We don’t have to worry about returning capital, so it is extremely possible we will hold onto these companies for a long time before we exit them,” he said.
Contact Alistair Christopher at: