NEW YORK (Reuters) - 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 early days.
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 executive chairman.
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 deals.
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 Snow.
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 Euronext ENXT.PA.
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 buyouts ever.
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 the windfall.
“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 me.”
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 <ID:nN21280248>