Getting three to five referrals a day, Trivest gets introduced to about 800 companies a year. It takes a hard look at 150, and closes on five. If the deal was referred by a broker, the broker gets a commission of 1 percent of the purchase price, plus $100,000 and a Mercedes S-Class car.
“Our business is very different,” Templeton said. “All the companies are privately owned, so finding opportunities is harder.”
When co-founders Tony Tamer, a former partner at Bain & Co., and Sami Mnaymneh founded H.I.G. Capital in Miami in 1993, they raised $75 million for the firm’s first leveraged buyout fund.
Today, the firm has more than $10 billion in assets under management, and is the largest private equity firm in Florida, and one of the nation’s largest private equity firms exclusively serving the middle market, said Executive Managing Director Doug Berman. The middle market is typically defined as deals valued between $50 million and $500 million.
H.I.G. has grown from seven employees when Berman joined in 1996, to more than 200 investment professionals. During the same time, it has opened offices in Atlanta, New York, Boston, Chicago, San Francisco and Dallas, as well as London, Paris, Hamburg, Madrid and Rio de Janeiro.
H.I.G. has four leveraged buyout funds and more are planned for the future, said Berman, who is responsible for the U.S. leveraged buyout business.
“Our goal is to be the premier alternative asset manager to the middle market,” he said. “That means, not only do we have the [leveraged buyout] fund, but seven or eight different funds.”
The funds include a $500 million Growth Equity fund that provides capital to smaller businesses with growth potential; H.I.G. Bio Ventures, a $200 million life sciences fund; Bayside, a debt fund totaling $5 billion in assets that makes loans and buys debt; H.I.G. Realty Partners, a real estate fund that invests primarily in multifamily residential buildings and commercial real estate; and a $900 million European fund, which invests in leveraged buyouts in Europe.
H.I.G. has invested in more than 200 companies and remains the controlling shareholder in more than 70, which have combined revenue of more than $9 billion, Berman said. Within the past two weeks, for example, the private equity firm sold Texas Honing, an oilfield equipment business, to publicly traded Precision Castparts Corp., after doubling both its revenues and earnings in five years, Berman said.
To find its investments, H.I.G. looks at thousands of companies a year and makes onsite visits at hundreds of companies, which is unusually high, he said. On average each year, across its funds, H.I.G. invests in about 25 businesses.
“When we are looking at companies, high-quality management teams — management teams that have both skill and integrity, is first and foremost,” Berman said.
What sets H.I.G. apart, Berman said, is that the majority of its professionals have consulting or operating backgrounds from working in managerial positions in corporate America, instead of having investment banking backgrounds. So they work daily with the companies H.I.G. invests in, helping enter new markets, expand product lines, win new customers or find better suppliers.
H.I.G. often also enhances the management team by hiring CEOs, CFOs, or heads of sales and marketing.
“So we work to supplement the management teams when appropriate to really give these companies the best possible opportunity to succeed,” Berman said. “At the end of the day, that is how we make money, by growing businesses. We’re not expert cost cutters. We are looking for companies with outstanding growth prospects, defensible market positions and high-quality management teams, and we help them achieve success.”
Take Fort Lauderdale-based cargo carrier Amerijet , which H.I.G. bought out of bankruptcy in partnership with the company’s management team, in 2001. At that time, Amerijet had $60 million in revenue. It is projected to reach nearly $200 million in revenue this year, and is profitable, Berman said. And the company has doubled its employees to about 400.
PINE TREE EQUITY PARTNERS
Founded six years ago in Miami by Managing Partner Jeff Settembrino, Pine Tree Equity Partners has launched two $50 million funds, and is now launching a third, $100 million fund, that it hopes to close early next year with commitments from its previous fund investors. The investors are wealthy families from outside the United States, mostly in Latin America, Settembrino said. Pine Tree’s management team of six invests alongside, and as a whole, ranks as the single largest investor, he said.
Pine Tree focuses on companies with less than $50 million in revenue, with histories of revenue growth and profitability.
“We only invest in small cap companies where we are the first institutional investor, alongside the founding entrepreneur,” said Settembrino, 38. “We take small businesses that have been around 20 years but only generate $20 million of revenue, and we work with the founding entrepreneur to invest equity and grow his already successful business more than he can do on his own, and take an entrepreneurial success story and transition it into an institutional business positioned for greater growth.”
In the past six years, Pine Tree has made more than 20 investments nationwide, in such sectors as business services, consumer services and financial services.
Pine Tree looks at 750 investment opportunities a year and invests in two or three. The private equity firm generally holds six or seven companies in its portfolio at any time, said Settembrino, who previously worked at Trivest and has been in the industry for 17 years.
“We don’t invest in a business unless the owner is a growing part of the business — some sell us the majority, some a minority,” he said. “They are looking for a partnership to grow their business more quickly than they can on their own.”
Consider Celtic Capital, a Los Angeles-based financial services company in which Pine Tree invested in 2008 and sold this past April. In that span, the company’s assets tripled, its net income grew almost 10 times, and the business generated 4.5 times return on invested capital, Settembrino said.
Pine Tree leaves running the day-to-day operations to the chief executive, but takes an active role on the board, adds management depth below the CEO, improves financial reporting, finds cost savings and operational efficiencies, and makes add-on acquisitions.
On Oct. 18, Pine Tree sold Hi-Tech Testing, a non-destructive testing company that uses radiography to test the integrity of welds in pipelines, tanks and vessels. When the private equity firm invested in the Longview, Texas company two years ago, it had $4 million in profits. Today it has $17 million in profits, after bringing in additional management and making two complementary acquisitions, Settembrino said. The sale netted 12.7 times return on invested capital.
“The key for us is we don’t compete with great funds out there like Trivest, H.I.G., Brockway Moran or Sun Capital,” he said. “We stay in our great niche and create great value for founding owners who otherwise get turned down because they are too small.”
Boyne Capital is another relatively new entrant on the Miami private equity scene, founded six years ago by Managing Partner Derek McDowell, who worked for both H.I.G. Capital and Trivest, and who has nearly 20 years of experience in the industry.
“We are a group that invests in the lower middle market, businesses that are family owned or corporate spinoffs, with less than $100 million in revenue,” McDowell said of his firm of eight people. “We try to find great businesses at good prices.”
Boyne looks for companies that have “an enduring reason for existence,” he said, and for which the demand for the company will be the same or greater five years from today. Yet the companies may be experiencing difficulties.
“We think there are examples of very good businesses with very bad balance sheets or very good businesses in very bad circumstances,” McDowell said.
An example would be Miami Lakes-based Catalina Lighting, a public company whose revenues dropped from more than $400 million to $40 million in the depths of the recession, when Boyne bought it out of bankruptcy in 2010.
The company had great customer relationships, but mounds of debt, McDowell said.
“So we put fresh capital in, helped it come out of bankruptcy and turned it around,” he said.
Today, the company, renamed Evolution Lighting, is healthy, with about $80 million in revenue and growing, McDowell said.
Boyne Capital invests in businesses throughout the United States and Canada, generally taking a majority interest by either investing in equity or buying the debt, and is open to all industries, he said. In the six years since its founding, it has made nine investments, and holds seven today.
“If one is comfortable with the business model, the products, the industry, it really starts and ends with the management team,” he said. “So our goal is to support the management team,” with planning or systems, or by bolstering management with sales and marketing executives or a chief financial officer.
The private equity firm manages about $100 million in capital, through a series of funds. The investments are all from high net worth individuals, mostly based in the United States, McDowell said.
“The idea was to be able to focus on smaller transactions,” he said. “As an investor you can have a more significant or larger impact on the improvement of a company’s operating performance and a company’s management team, and ultimately, return on investment, by focusing on smaller companies.”