Shasha Dai | Private Equity Beat
In early March, Paul Carbone left Baird Private Equity after an 18-year run to join the Pritzker Group, run by Tony and J.B. Pritzker, as head of the firm’s private equity business. Four months in, Carbone took a minute to discuss how his new job differs from his old one.
PE Beat: What is the biggest difference between deploying institutional funds and investing capital committed by a wealthy family?
Paul Carbone: There are many differences, but the most important is that investing proprietary capital allows us meaningful flexibility in terms of our investment horizon, approach to value creation and transaction structuring.
At the Pritzker Group, we have the flexibility to hold an investment for the long term and are not constrained by the time limits of a traditional PE fund. In addition, we can create value in different ways with a focus on investing our companies’ excess cash flow in their businesses, not just using it to pay down acquisition debt as fast as possible. In fact, we are eager to invest follow-on equity capital into our companies to finance their growth.
Finally, with our focus on long term returns and growth, we can be flexible in terms of our transaction structures including using modest amounts of acquisition debt and can address the specific needs of a seller.
You had said that Baird’s global network was important to sourcing deals while you were at the firm. Now that you are no longer part of Baird, did you find that to be a benefit lost? How do you source deals at the Pritzker Group?
Having a broad geographic reach and relationship network in the market can only help with deal sourcing. At the Pritzker Group, however, we are focused on investing in North America. There are significant opportunities in the domestic market, and we see an increasing flow of opportunities coming to us.
Meanwhile, we are actively going out into the market to create our own opportunities. Because of who we are and how we approach investing, we believe we offer a real alternative to companies looking for growth and liquidity capital versus the options offered by traditional PE funds or strategic acquirers.
What competitive advantage is there in the Pritzker brand? What types of companies are a better fit than others to be owned by the Pritzker Group?
The Pritzker Group is led by Tony and J.B. Pritzker. Their deep capital resources, extensive history of successfully building businesses and their interest in creating a world-class investment firm make for a powerful story and brand – especially with family and entrepreneur business owners.
In terms of our specific investment criteria, we look to acquire companies with enterprise values of $75 [million] to $400 million. In particular, we target companies in the manufactured products, services and health-care sectors.
How are you dealing with the issue of operational improvement at your companies? And how are you building the investment team?
We look to partner with our management teams to create value and understand where to draw the line between managing a business and providing support and oversight. Also, we believe our companies can benefit from being a member of Pritzker Group family of companies.
We will be adding experienced investment and operating talent to our already strong team. In these challenging fundraising markets, having a captive source of capital makes us all the more attractive to professionals in our industry who want to focus their time and efforts on investing and building great companies.
Have you made any deals yet?
We have not closed any new investments so far in 2012. We are seeing strong deal flow but are staying disciplined about where we want to invest, and with whom. We are looking to step up the pace of our investing. However, we will continue to be selective about where we want to apply our resources and relationships.