Building on a banner 2012, the Riverside Co. continued the momentum in 2013 and raised the biggest fund in the firm's 25-year history. The impressive performance earned Riverside our Private Equity Firm of the Year award for 2012, with co-CEOs Stewart Kohl and Béla Szigethy winning our Dealmakers of the Year award for 2013. (Watch the our video interview with Kohl below or click here.)
Szigethy founded the firm in 1988 and named it after New York City's Riverside Drive, where he lived in an apartment. Capitalized with $150,000, of which only $30,000 was cash, the firm's early investors were friends, family members and a few co-investors. With such a small amount of capital at its disposal, the fledgling firm was limited to backing small companies.
But Riverside quickly scored wins, beginning with its first investment, the 1989 purchase of Future Metals, a maker of specialty metal products for aircrafts. The firm sold it to Marmon Group in 1996, generating a net 25.1 times cash-on-cash return. Another early success was Unipac, a maker of liners for bottle caps, which the firm bought in 1996 and sold to Illinois Tool Works in 1998, generating a net 14.8 times cash-on cash return.
Having demonstrated the ability to deliver healthy returns, Riverside was able to raise larger and larger funds over the years. But Szigethy and Kohl, who joined the firm in 1993, found they liked investing in the middle market. "Small deals are abundant, and they are full of promise and opportunity," says Szigethy, who worked in the leveraged finance group of Citibank NA (NYSE: C) prior to founding Riverside. "In 25 years, we have never changed our focus."
Despite a challenging fundraising climate in 2013, Riverside raised its largest fund ever, Riverside Capital Appreciation Fund VI, with a final close of $1.5 billion. "Raising a fund today can take twice as long, be four times as hard and ultimately yield lower returns than in 2006 and 2007," says Kohl, who became friends with Szigethy when both were undergraduates at Oberlin College and later as colleagues at Citibank. "If your offering holds up to the strict tests of the limited partners, and they see the outperformance, they will invest. We are lucky to be a firm that has raised multiple funds since the crash."
In 2013, Riverside completed 22 deals globally with an enterprise value of $1.8 billion. Highlights included the firm's first acquisition in New Zealand: Simcro Ltd., which makes devices used to deliver vaccines and other medications. The firm also bought Paradigm Tax Group in a classic Riverside deal. With 31 offices, the company provides tax consulting services that help commercial businesses grieve their taxes. "We love the fact that we can make add-on acquisitions," says Szigethy. "We have already completed three and will probably do two to four in 2014."
Riverside also completed 11 exits in 2013, making it one of the most active PE sellers in the middle market. The firm's sale of Align Networks was one of the firm's more profitable sales, generating a 9.4 times net cash-on-cash return.
Riverside shows no sign of resting on its laurels. "There's still so much opportunity for growth, especially abroad. We are looking forward to the next 25 years," says Szigethy.
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Corrected May 5, 2014 at 2:33PM: 3531434225001