Judy Mencher, founder, CEO, Race Point Investors, is one of 36 dealmakers named in Mergers & Acquisitions’ 2019 Most Influential Women in Mid-Market M&A. Click here for the full list. This year, we asked the dealmakers to tell their stories in their own voices through Q&As.
How did you get into dealmaking?
I have been in business for 40 years. I started my career as a bankruptcy and corporate financing attorney. After 9 years of practicing law, I realized that I could do the deal negotiating better than most of my clients so I left the law firm to join Fidelity Investments, who was starting a distressed investing platform as part of their High Yield Group. At Fidelity, I developed a method for mutual funds to acquire bank debt and working with a small team we began a control distressed investing program, meaning we would acquire the debt and usually convert to equity in a restructured company. The restructured company’s securities would trade at a higher value since the excess leverage overhang was removed. I was involved in almost all the major restructurings of the early 90’s including, R.H. Macy and Company, Trump Plaza, Drexel Burnham Lambert, Eastern Airlines, etc. I personally negotiated the sale of R.H. Macy to Federated Department Stores as Fidelity funds had become the second largest creditor through acquisition of distressed debt.
How has a mentor helped your career?
I have had many mentors, but the one that stands out is Daniel Harmetz. I met Dan when I joined Fidelity. Also trained as a lawyer, Dan had worked for Columbia Savings and Loan Association, a purchaser of a significant amount of high yield bonds. He had skills in both high yield and distressed investing. He encouraged me to learn as much as I could and worked with me on the significant investments I described in the answer to 1. He also pushed me to get Fidelity to allow the team to make investments outside the norm, such as bank debt and other distressed paper. To this day, Dan remains one of the smartest persons I have ever worked with. He introduced me to several of the significant investors of that time including Leon Black, David Tepper and David Bonderman.
What is your current role?
Currently, I am CEO of my own investment/advisory firm, Race Point Investors, LLC. I had a very successful career at DDJ Capital Management, LLC (“DDJ”), a firm I co-founded in 1996 with Dan Harmetz and David Breazzano. While I was at DDJ, the firm had assets under management of approximately $3 billion dedicated to distressed, high yield and hedge funds. I was responsible for managing the distressed portfolio. After I sold my equity in DDJ, I tried several careers before I settled on doing my own thing. A typical day for me involves spending considerable time on the phone talking to connections, evaluating new investments or advisory opportunities or attending meetings. I am often consulted on how to value assets or how to structure balance sheets. The firm is currently involved in two interesting situations, a distressed real estate play in Puerto Rico and a cannabis investment in California.
Describe your influence on the middle market.
Over the years I have worked on many middle market M & A deals, mostly from distressed investments made by DDJ, where the debt has been converted to equity and DDJ funds had obtained control. Some examples include the sale of Smith & Hawken, Ltd, a high end garden supply retailer, to Scotts Miracle-Gro Company, the sale of Waste Systems Internation, Inc., a solid waste hauling and landfill company, to a private equity fund managed by AIG, and the sale of CML Innovative Technologies, a specialty lighting company, to Grupo Antolin, Spain.
Describe a recent deal.
While not too recent one of the most significant deals for me was the sale of Smith & Hawken, Ltd. (“S & H”) to Scotts Miracle-Gro Company (“Scotts”). S & H was founded by Dave Smith and Paul Hawken in 1979, as a high end gardening tool supplier. The first retail store opened in 1982. In 1993, it was sold to CML Group, the owner of Nordic Trac. When CML when bankrupt, DDJ acquired S & H through the distressed debt. I personally was a customer of S & H and the bankruptcy had a materially negative affect on S & H management. I had to spend several years on the Board of Directors helping S & H recover and returning the company to profitability. It required tremendous personal capital. When I was first approached by the CEO of Scotts about Scotts wanting to acquire S & H, I rejected his overture as I did not think Scotts was a good fit for the S & H brand. He persisted, finally offering a significant sum of money compared to DDJ’s purchase price and the Company was sold to Scotts. I led the negotiations for DDJ and closed the sale. Unfortunately, I was right about the poor fit and Scotts gave up a few years later selling the S & H brand to Target and closing all the retail outlets.
Describe a challenge your overcame.
An early challenge in my career was that having trained as a lawyer, once I moved into distressed investments, I had to spend a lot of time with investment bankers and others who had trained in finance. I felt that those I dealt with looked askance at me when it came to understanding the numbers. In reality, having been good at math my whole life and being a bankruptcy lawyer required an understanding of assets and liabilities, I knew what I was doing. But, in order to be able to move on to the business side from the legal side and with encouragement from co-workers, I returned to school and got my MBA attending night school. It was very challenging to work full time at Fidelity and also be a student. Needless to say, I had no free time. However, I found the courses in finance and accounting to be very worthwhile.
How do you support women?
I am afraid that I this question I do not have too much to offer. While at DDJ, I would encourage the firm to hire qualified women. DDJ had a generous maternity leave policy and part time work policy for parents with small children. Other than that and the usual connections and introductions, I have not done anything special for other women in financial service.
What is your advice for women?
Unfortunately, I would tell younger women that despite progress in many industries, investing is still a male dominated industry. If a woman chooses to pursue a career in private equity and hedge funds, she will still have to work harder and trying to have both and career and family will be challenging, not impossible, but challenging. I would still encourage women to try to join the industry, but with a realistic understanding of the sacrifices it entails.
When you’re not making deals, what is your favorite thing to do?
Play tennis.
What other career path might you have chosen?
My initial response to this question is that I could have remained a bankruptcy, corporate finance attorney, sought a partnership at a law firm and had a satisfying career. However, that would not have satisfied my entrepreneurial bent. I had to respond to my own desire to run my own business and co-founding a private equity/hedge fund shop certainly did that. Before I joined Fidelity, I explored the opportunities to work for a turn around consultant. Ultimately, I decided I wanted to be “in the deal” instead of consulting from the outside, a decision I have never regretted.