| NEW YORK
NEW YORK Ripplewood Holdings LLC, a private
equity firm known for fixing struggling companies, is going
through some major changes itself.
The arrival last year of veteran executive Harvey Golub and
his expanding role at Ripplewood comes as it grapples with
departures of many senior people who joined the firm in its
The firm, whose landmark deal was the highly profitable
rescue of Japan's Shinsei Bank (8303.T), is also putting in
place a more formal structure for decisions on where to invest.
Ripplewood has been slower than some of its rivals in finding
deals in the United States and Europe. The $1.1 billion it
raised around 2002 to do non-Japan deals still has roughly $250
million left to invest, Chief Executive Timothy Collins said in
an interview with Reuters.
Perhaps most importantly, the makeover is also meant to
pave the way for Collins to play a less dominant role at the
firm he founded.
While Collins is among the more respected investors in the
business, he acknowledges that he prefers dealmaking over
management. With that in mind, he is handing off most
administrative duties to Golub, who has taken the title of
Golub, who was American Express (AXP.N) chairman and CEO
from 1993-2001, has taken over everything from compensation to
promotions to office decor. Before American Express, he was a
senior partner at management consultants McKinsey & Co.
"Harvey's job is to run the business and to grow the team
as a team so that my incremental importance is less over time,"
said Collins, 50.
"Harvey has allowed me to do more of the stuff I'm good at.
He does the managerial things, which as an avocation took a
huge amount of time from me because it wasn't my upbringing or
training," he said, noting that the firm plans to do bigger
Collins added that the firm expects to do bigger deals and
will focus more attention on Europe.
Ripplewood's overhaul is taking place while it prepares to
raise another fund, sources familiar with its plans say.
Ripplewood would not comment on fund raising.
Cementing a clear profit sharing model within the firm and
streamlining decision making on deals are key aspects of the
changes and are issues at the heart of its turnover, according
to four former members of the firm who talked to Reuters but
did not want to be named.
They say that an arbitrary compensation system and Collins'
tough management style, explain why despite some very
successful deals, nine Ripplewood managing directors, all hired
within the first six years, have left the firm. Four have
departed in the last six months.
Among the early people who joined Ripplewood, founded in
1995, were John Duryea, Kevin Kelley, Charles Laurey, Tony Lee
and Ian Snow, the son of former U.S. Treasury Secretary John
A second group came on board a few years later in the late
1990s to early 2000 period. That included Frank Baker, Peter
Berger, Robert Berner, Jeffrey Hendren, Robert Lovejoy and
Donald Wagner. All became managing directors, according to
former members of the firm.
Of the two groups, only Lee and Wagner remain.
"Some of the people who have left have not left on their
own volition," Collins said, pointing out that turnover at
private equity firms is common.
In answer to a question about his management style, Collins
said he does not like confrontation, but he is "rigid" when it
comes to obligations to investors.
Certainly, Collins' investment track record is impressive.
A prospectus of Ripplewood's publicly traded fund in Europe
shows gross internal rates of returns of 40 percent or above on
11 of 14 deals. Investments include Western Multiplex, Advance
Auto Parts and Kraton Polymers. Recent investments include
Readers Digest and RSC Equipment Rental.
Collins named the firm after his family's tobacco farm in
Kentucky. Prior to Ripplewood, Collins worked with management
consulting firm Booz Allen Hamilton, became a vice president at
Lazard Freres in New York, and managed the New York Office of
Onex Corp. OCX.TO, a Canadian buyout firm.
The firm started with a $460 million buyout fund, which
closed in 1997, then raised a $1.2 billion fund for Japan deals
in 2000, $1.2 billion for the Shinsei deal in 2000, and a $1.1
billion fund for non-Japan deals in 2002. The $1.2 billion
Japan fund became RHJ International RHJI.BR, a public fund on
In February 2004, Ripplewood celebrated the $2.35 billion
initial public offering of Shinsei, more than double a
Ripplewood-led consortium paid for the company in 2000.
Investors in that deal would ultimately make around 7 times
their initial investment, in what is widely viewed across the
globe as one of the most well-known and profitable leveraged
But the Shinsei deal is what exacerbated some of the
discord between Collins and his troops, according to former
employees, angering some who thought they would get a piece of
"People were disappointed in his delivery of the things he
said he'd deliver," said a former managing director. "That was
especially true with the profit split on Shinsei."
Collins says that he and investor J. Christopher Flowers
did the deal, and that some at Ripplewood did get a windfall,
while some missed out because they left the firm too early.
"A lot of guys who say that (they missed out on Shinsei
profits) made a lot of money off a deal they had nothing to do
with. I don't know what their expectations were, but it's
pretty disingenuous," Collins said.
Regardless of who profited and who did not, the Shinsei
deal highlights what some former employees say was Collins'
whimsical way of handling compensation.
"In the first fund, that was true. I started the fund, it
was my track record, I put up all the capital -- they were all
relatively junior when they joined," Collins said, referring to
the group he started with. "It's evolved. Guys have a lot more
input. Now ... Harvey basically does it with some input from
Ripplewood charges a roughly 1.5 percent management fee and
20 percent of the profits. Collins says he takes home less than
30 percent of the firm's profits.
Before Golub arrived, deal discussions often consisted of
guys getting on the phone, batting around some ideas, and then
pursuing them, Collins said. That, too, has changed.
Discussions are more structured, industry groups more
specialized, and decisions more focused, Collins said.
"My temperament was to let guys do what they more or less
wanted to do," Collins said. "Harvey is much better at bringing
decisions to a head early on and making sure there really is a
good probability for us making the investment, making the
returns and taking on a limited amount of risks."
In the meantime, Ripplewood plans to function more as a
partnership than Tim Collins' buyout firm.
"The goal is to establish organizational arrangements that
make the firm more of a partnership and somewhat less of a
top-down organization," Golub said in an interview with
Reuters. "Over time and as the firm gets larger, it has to rely
less on Tim as the primary leadership focal point in the firm."
For excerpts of interview with CEO Collins click on