When Buyouts first approached Thomas H. Lee Partners (TH Lee) about interviewing Tom Lee for this anniversary issue, the firm expressed apprehension about facilitating a personality profile of its founder and CEO. Why the hesitation? Like some of its counterparts, the Boston-based buyout shop views itself as a pure partnership and, as such, it doesn’t like to single out individual partners – for praise, scorn or routine analysis.
So instead, Buyouts decided to focus on TH Lee’s evolution in the context of the larger private capital markets.
The problem, though, is that it’s virtually impossible to separate Tom Lee from the firm that bears his name.
Not only is he still actively involved in the organization’s day-to-day workings, but the group has rarely strayed from a founding mission Lee figuratively penned while Wall Street still dominated the leveraged buyout market. TH Lee may now have a hundred times the capital that it did back in 1974, but it’s still dedicated to investing in growth companies whose management teams are interested in partnering with a financial sponsor.
“I don’t think that our approach has really ever changed too much,” says Scott Sperling, a managing director who has been with TH Lee since 1990. “It’s just that the middle-market companies that once were worth $1 billion are now worth $10 billion.”
While Lee himself could have never imagined how remarkably large both his firm and the market would grow, he was never uncertain in regards to his professional goals. “I wanted to own equities,” he remembers. “I didn’t know exactly how I was going to do it, but I knew that it’s what I wanted to do.”
TH Lee’s Genesis
After graduating from Harvard University in 1965, Lee moved to New York and took a securities analyst gig with L.F. Rothschild. His next move was back home to Boston, where he joined Peter Brooke’s high-tech lending group within First National Bank of Boston. Once Brooke departed, Lee took over the group while simultaneously considering a variety of side projects.
Lee’s first idea was a money fund for small savers, which he unsuccessfully pitched to Dave Harkins, who was with John Hancock at the time. Next, he teamed back up with Brooke to launch a mezzanine fund for growth-stage companies that were being shut out by the banking industry. Once again, however, the venture didn’t fly.
Still wanting to own equities, Lee formed Thomas H. Lee Co. with $100,000 of his own money. Soon a few million dollars began rolling in, and Lee began making more and more deals.
While few folks outside the banking beltway were familiar with leveraged buyouts when TH Lee launched in 1974, it seemed that everyone in America had an opinion of LBO pros during the 1980s. In fact, the LBO market was so omnipresent that the populous even developed a disapproving pet name for such investors: corporate raiders.
Despite its reputation for leading new trends, however, TH Lee declined to participate in the burgeoning hostile takeover market. “That was not the business I wanted to be in,” Lee says.
Instead, TH Lee kept making “friendly” deals, including a 1985 buyout of discount retailer SCOA Industries Inc., a 1988 deal for feminine consumer products producer Playtex Products Inc. and a 1989 LBO of food and vitamin retailer General Nutrition Inc.
As the 1990s’ investment opportunities began doubling and tripling in price, so did the firm’s stash of available capital. Tom Lee’s original $100,000 investment had grown into a giant machine, raising a $568 million general buyout fund in 1990, a $1.37 billion vehicle in 1995 and then a $3.4 billion fund in 1998. Top-shelf limited partners included the State of Connecticut, Commonfund Capital, Duke University, Hamilton Lane Advisors, Liberty Mutual Group and the PSE&G Master Retirement Fund.
Everything seemed to be full steam ahead, but by 1999 Tom Lee was beginning to have concerns about what would happen when his own train reached the end of its professional track. At age 56, his firm began embarking on an ambitious fund-raising drive that would eventually net $6.1 billion, which still stands as the most capital ever raised for an independent private equity shop. Given its traditional investment rate, Lee realized that it would only take a few years to invest the vehicle, which meant he’d likely be around 62 years old when it was through. In turn, he also realized that he might not be as active a partner in any subsequent fund.
Hoping to help ease the eventual transition to younger members of his partnership, Lee helped strike a deal in 1999 that gave mutual fund manager Putnam Investments a 25% stake in TH Lee, for an undisclosed amount. Rather than buying out some of the limited partners, Putnam purchased its stake from the individual TH Lee partners themselves, including Tom Lee, as well as Dave Harkins, Tony DiNovi, Scott Schoen, Tom Hagerty, Hunter Boll and Sperling.
The idea was not only to ease the impending generational transition, but also to follow a trend of LBO shops trying to wiggle out of the narrow niche inside which they had historically confined themselves. For TH Lee, that meant expanding its private equity practice into the venture capital arena.
Originally named TH Lee Putnam Internet Ventures (THLi), the fund was capitalized at over $1 billion in 2000. As its name and vintage suggest, however, THLi so far has yielded more bankruptcies than liquidity events. Both Lee and Sperling acknowledge that the fund was sort of a “me too” exercise, but they also stress that its day-to-day activities did not involve the Boston-based buyout partners.
“Many of our friends were moving into other forms of private capital investing, but we were pretty conflicted about it,” Sperling says. “Ultimately, though, we started the venture fund, but it was a separate entity from [TH Lee] Partners, and was run out of New York.”
Despite the loads of dry powder in its arsenals, TH Lee has been slow to pull the trigger when it comes to closing deals lately. That doesn’t mean the firm hasn’t been in on the bidding action, however. TH Lee is supposedly in the running for some of the biggest deals out there, including QwestDex, Burger King and Tyco Plastics.
Even though the firm is considering further diversification via debt or hedge fund ventures, Lee insists that his original mission still doubles as TH Lee’s official compass. In his corner office stuffed with decorative deal tombstones, Lee puffs on a cigar and says, “I always wanted to own equities in growth companies. It’s still something that I, and this firm, want to do.”
Contact Dan Primack at