August 11, 2011 / 8:20 PM / in 6 years

Buyouts-New crop of buyout shops boasts operational talent

* Emerging manager replenish market

* Backers value hands-on strategies

* Early funds often boast best returns

By Bernard Vaughan

NEW YORK, Aug 11 (Reuters-BUYOUTS)-Back in the day, buyout firms such as Kohlberg Kravis Roberts & Co (KKR.N) raised billions from investors largely on the strength of their financial and deal-making expertise. Not so today.

When it comes to the next generation of firms, pensions, endowments and other investors in private equity want to see not just financial wizardry but hands-on experience running companies.

That's what Buyouts Magazine, published by Thomson Reuters, determined in its annual assessment of buzz-worthy emerging managers, loosely defined as buyout firms working on their first or second pools of capital.

Here's more about five of the most promising such firms:

-- The co-founders of EDG Partners, seeking $150 million for their first conventional buyout fund, met in 2002. That's when Mike Gaffney, who led health-care investments for Allied Capital Corp, partnered with future co-founders Steve Eaton and Alan Dahl, both health-care executives and investors, in the acquisition of Housecall Medical Resources Inc, a provider of home health services and products. EDG Partners invests in health-care IT and outsourced services.

-- Flexpoint Ford LLC, formed in 2005, is largely rooted in a relationship between Don Edwards, a former principal with the private equity firm GTCR Golder Rauner, who specialized in health-care deals, and Gerald Ford, a billionaire with more than 30 years experience in the banking industry. The firm, which has raised more than $1 billion, focuses on deals in the financial services and health-care sectors.

-- Goode Partners was founded by David Oddi, a former partner with the private equity firm Saunders Karp & Megrue; Ron Beegle, a former CFO of Banana Republic; and Joe Ferreira, who held several executive positions with Avon. Since its launch in 2005, Goode Partners LLC has made a name for itself investing in small consumer-focused companies such as Skullcandy Inc, a maker of colorful audio headphones that raised $188 million in its initial public offering last month. The firm raised $225 million for its debut fund, and is trying to raise $300 million for its sophomore effort.

-- Stripes Group was founded in 2003 by Ken Fox, who previously co-founded publicly traded investment firm Internet Capital Group, among several other companies. The other managing partner is Dan Marriott, who spent 11 years in various roles with Internet company IAC/InterActiveCorp, including overseeing the company's M&A activity. The firm, which is preparing to raise a second fund, targets companies involved in the Internet, digital media, e-commerce, enterprise software, information technology and other software-related assets.

-- Sycamore Partners is generating buzz thanks in part to founder Stefan Kaluzny's background in consumer and retail, and his leading role in several deals while at Golden Gate Capital, the firm he left earlier this year to launch Sycamore. Kaluzny was previously a consultant with Bain & Co, and a co-founder and CEO of Delray Farms, a Hispanic specialty food company. Sycamore Partners, which is seeking $500 million to $1.5 billion for its debut fund, recently struck its first deal, taking a minority stake in women's clothing retailer The Talbots Inc.

Through August 1 of this year, emerging managers like these had raised $9.27 billion, or about 24 percent of the $40.6 billion raised by all U.S. buyout shops over the same time period, according to Thomson Reuters data.

Buyouts Magazine is a Thomson Reuters publication. Editor: david.toll@thomsonreuters.com. www.buyoutsnews.com

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