Billionaire J.B. Pritzker is known in Chicago for backing flashy digital startups run by people half his age, but that’s not where his big money is. It’s in metal castings makers and pallets.
Mr. Pritzker and his older brother, Tony, have dropped more than $1 billion of their Pritzker Group’s funds on definitely unsexy companies across the country, with plans to double these investments. Mr. Pritzker won’t say what portion of their $6 billion is tied up in the eight companies they already own, but their goal means the group’s private-capital arm, which buys, sells and operates established businesses, eventually will be its biggest.
The challenge for the Pritzkers will be getting new holdings on the cheap. The family has a long history in the industrial sector: Marmon Group LLC, now part of Warren Buffett’s Berkshire Hathaway Inc., amassed a $7 billion portfolio in the 40 years the family owned it, spanning 160 old economy companies today. But prices have risen as company fortunes have rebounded and more buyers jump up. To guard against overpaying, the brothers have slowed their plans.
“You have to look at a lot more deals to find the ones that are efficiently priced,” says Sara Hamilton, CEO of Chicago-based Family Office Exchange, which consults to wealthy-family investor firms.
Mr. Pritzker acknowledges that the field is crowded. But he says he and his brother have an edge: “Building private businesses is in our personal backgrounds and it is part of our DNA,” he says. “From my dad co-founding and building Hyatt to my Uncle Bob building Marmon, it’s where we bring the most value to the table.”
J.B. Pritzker formed a venture-capital firm in 1996, which included outside investors, but when he teamed up with his brother in 2002, they created Pritzker Group and its private-capital arm to manage just their assets. The group’s asset management division, which is a trading operation, holds most of their fortune, while the venture-capital arm, which invests in fledgling tech companies, is the smallest, with $350 million to $400 million in holdings.
The affable J.B., 49, a former congressional aide and Democratic candidate for U.S. representative, brings a natural deal-making ability to the firm, backed by a degree from Northwestern University School of Law. Tony, 53, who is based in Los Angeles, where the firm has a second office, offers an engineering student’s practical perspective and the experience of running some of the family’s Marmon Group entities.
Like its private-equity peers, Pritzker Group is angling to boost the value of its purchases through restructuring and expansion. Typically, the firm pays $100 million to $500 million for a company—they won’t provide specifics—and says it earns a return of more than 30 percent a year.
The Pritzkers so far have scooped up pallet-rental outfit Peco Pallet Inc. of Irvington, N.Y., and Hartford, Wis.-based Signicast Corp., which supplies metal castings to nearby Harley-Davidson Inc. They also have nabbed Chicago-based Entertainment Cruises Inc., which operates the Spirit of Chicago, Odyssey and Seadog cruises from Navy Pier, and Clinical Innovations Inc., a medical-device maker based in suburban Salt Lake City.
Pritzker Group scooped up Entertainment Cruises Inc., which operates Spirit of Chicago, above, and other cruises from Navy Pier.
But price tags on companies like those have jumped lately as more private-equity firms raise money for such acquisitions, Mr. Pritzker acknowledges.
In addition, more and more wealthy families are buying private companies because they want more control and transparency with their investments, says Ward McNally, managing partner at McNally Capital LLC. Mr. McNally, whose Chicago-based firm advises wealthy families on buying and managing private companies, says about half have such investments, up from a quarter five years ago.
“They like the opportunity to touch and feel the company before they invest their capital,” says Mr. McNally, who’s an heir to the Rand McNally fortune.
The Pritzker brothers are gearing up for battle. In 2012, they hired Paul Carbone, former head of private equity at Milwaukee-based Robert W. Baird & Co., to lead the private-capital arm and gave him leeway to recruit veteran investment and operating professionals. He’s added six, half of them specializing in health care.
Since Mr. Carbone’s arrival, the group purchased just two companies, but it says the acquisition last year of Eden Prairie, Minn.-based manufacturer AV Milestone Technologies from Chicago’s Duchossois family was its biggest.
Part of Pritzker Group’s sales pitch is that it is offering “40-year money,” unlike private-equity firms that often flip companies in five to 10 years. Since the brothers started buying in 2004, they’ve sold only one company, Phoenix-based Amsafe Inc., which makes airplane seatbelts.
They also target capital- intensive companies eager for deep pockets to fuel growth. Entertainment Cruises, for example, was able to add three boats to its fleet after Pritzker Group bought it in 2012 for an undisclosed sum, enabling it to expand services in Washington, Boston, Philadelphia and New York. “They have the resources, and they’re willing to deploy those resources for growth,” says Entertainment Cruises CEO Michael Higgins, who owns a slice of the company.