Linsalata Capital Partners Earns First Deal Maker Award in Cleveland

ACG Cleveland, hosting its 9th Annual Deal Maker Awards program in January, gave Linsalata Capital Partners the Deal Maker Award in the Buyout Firm category, one of five awards made. Larry Cruise, partner at Ernst & Young, which made the nomination, said, “Linsalata Capital has done a wonderful job of selecting companies for acquisition in industries they know, growing revenues and EBITDA through organic and add-on acquisitions, and executing successful exits.” Chairman and CEO Frank Linsalata offered the following remarks in his acceptance speech: 2004 marked our 20th year doing leveraged buyouts in what we now recognize as the lower end of the middle market. Over that time we have grown along with the industry, and have made adjustments to the evolution of the buyout business. The evolution has been twofold. First, we have had to adapt to the ever-changing global economy. When we started in the early 80s, we looked for asset-intensive businesses. Our early deals almost inevitably involved metal – stamping presses, press breaks, and machining centers. Now we invest in few such deals. Our two most recent platforms, by comparison, are similar to what we used to call “virtual companies,” which do not manufacture everything they sell. One, a designer and sourcer of sportswear, has captive manufacturing located in Mexico. The other – a consumer products lamp and wall art company in Mississippi – is a throwback to the merchant enterprises of old. Its customer value is its ability to travel the world and design, locate, and bring back lamps and wall art products on behalf of retailers; the company owns almost no manufacturing assets. But for our LBO models, these investments, with great cash generation and low capital spending requirements, can be very attractive. We are active in direct-marketing, with our Potpourri collection of catalogs. Now we spend time considering select areas in heath care and medical devices. These types of businesses follow recent economic developments, and we have had to adapt. We still invest in manufacturing businesses but to a far lesser degree. The private equity world has also changed in the evolution of the general partner-limited partner relationship. Our limited partners have progressed from a few long-time friends in the Cleveland area – both banks and some high-net-worth individuals – to predominantly institutional investors – banks, pension funds, funds of funds, and endowments. Today we deal with sophisticated investors, some of whom hire advisers as middlemen to our relationship. Expected returns have trended downward through the years, and our industry has become cyclical, driven by both economic and lending cycles. Our new vocabulary includes words like “clawback,” “make-well,” and “preferred returns.” Today’s hot topics are “operational experience” and “generational transition.” The former has been part of LinCap’s culture for 20 years. The latter we are dealing with now by giving much of the responsibility for the firm to two senior managing directors – Eric Bacon and Steve Perry. They are younger but have significant experience and a commitment to the LinCap tradition. We have watched as large limiteds advise us on the correct size of our fund, what the carry and management fee should be, how it should be split, and what types of deals we should be doing. Recently, we have witnessed the first lawsuits in which limited partners have sued the general partner with 20/20 hindsight over what turned out to be a “bad investment,” giving no recognition to the many “good investments” or overall fund return. Throughout this, we are all fortunate to participate in a wonderfully rewarding and exciting industry. LinCap has adjusted to change and continued to experience success. We have been able to grow through five funds of ever-increasing size and deliver top-quartile returns to our investors in each fund. We have grown from two professionals to 12 and have one of the best teams in the middle market buyout world. We are preparing to launch our sixth fund and will be adding seasoned professionals to our firm. The future looks bright, and we are grateful for the support of loyal investors and strong financial supporters. Copyright 2005 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com