Six Degrees of Heller

If anyone doubts that in M&A, who you know matters as much as what you know, consider the case of Heller Financial. The Chicago finance firm rose to prominence in the 1980s and 1990s by focusing its sights squarely on the burgeoning middle market and by nurturing a deep and talented bench. Not only did the firm score a purchase by GE Capital for $5.3 billion in cash in 2001, but it also scouted and trained a generation of dealmakers. Today, 700-plus Heller former teammates have dispersed to hundreds of firms, where their common culture and collaboration continue to permeate every aspect of dealmaking in the Midwest and beyond.

Heller Financial was born in 1985, out of the phoenix's ashes of Walter E. Heller, which had been founded in 1919 and was acquired by Fuji Bank in 1984. Fuji poached a pair of executives from GE, Norm Blake and Bob Koe, to run the new firm, christened Heller Financial. Blake and Koe quickly changed the firm's focus from a leasing and asset-based commercial real estate lending company to a broader lending institution to serve the middle market - which was becoming increasingly important to the private equity community as middle market firms and divisions started to sprout.

"There was a lot of talk about the larger firms at that time, the KKRs and Fortsmann Littles, but there was real opportunity in the middle market," says Charlie Hubner, a managing principal at RCP Advisors, who had been hired at Heller to run its capital markets division. "Having a laser focus on the middle market distinguished the firm. We weren't trying to be everything to everyone anymore. We wanted to own the market."

The point wasn't lost on GE Capital. "They have built a franchise around the small to middle-market customer, companies with revenues from $5 million to $250 million," said GE Capital CEO Dennis Nayden, in a conference call announcing the acquisition. "That is the fastest growth market in the world.''

In the early 1990s the leverage buyout industry was beginning to boom. In the early 80s, people were skeptical of private equity, largely because the buyouts that had made headlines were mainly unsolicited, but by the end of the decade, the industry started to earn respectability. However, all the deals at that point had been large cap. Looking for pockets of growth and inefficiencies to take advantage of, PE professionals started to focus on the middle market. Black and Koe had the foresight to see this coming.

In its quest to be a top lender in the middle market, Heller launched many new product lines, including an energy investment banking division and a cash lending business, which was a new concept at the time. To run these news products, the company sought out highly creative, energetic and entrepreneurial talent. Additionally, the bank was not afraid to promote young, ambitious professionals from within.

Today, many of the folks who flowed through the once untouchable firm became the next generation of top middle-market dealmakers. What's more, many middle-market leaders today credit part of their success to the time spent at Heller, the relationships they formed there and have since nurtured.

For example, the founding team at Antares Capital, which was acquired by GE Capital in 2005, met while working together at Heller in the early 1990s. In 1996, 12 professionals left together and founded the new firm. Most of that original team still works together at GE Antares Capital. "It's fun to think about our time at Heller. We were in the formative years of our careers and it bound us closely. Relationships are built on common ground and experiences, which we all had. Here I am 15 years later still working with 11 of the 12 guys I started with," says David Brackett, a senior managing director with GE Antares Capital.

Although most ex-Heller employees aren't working together at the same firm, many collaborate regularly. For example, Brian Demkowicz, who worked at Heller out of college for eight years and later launched Huron Capital, a lower middle-market, private equity firm, still works with many of his former colleagues. Last July, Huron closed a deal to recap TouchPoint Print Solutions, a document management and printing business. The lenders on the deal were GE Antares as well as NXT Capital. What's more, RCP Advisors, as well as BMO Harris Bank, are limited partners in Huron's funds.

Mergers & Acquisitions spoke with dozens of Heller alumnae for this article. Here are just some of their stories.

Dave Asmann

David Asmann, co-founder and principal, Triton Capital Partners, an investment and merchant bank founded in 2000 and focused on the middle market. Prior to Triton, Asmann co-founded GMAC Business Credit. Earlier, he was a senior vice president and the Midwest area manager at Heller Financial, where he worked for 13 years.

Asmann and his partner, David Nowlin, met while working at Heller in the 1990s. They recognized early on that the network they built there was important and could be useful in the future. As a result, for the past six years, Triton Capital Partners has hosted Heller reunions in Chicago. "Heller is a great network. I can call on any number of people that I got to know at Heller, who are now in leadership positions at other firms, and get answers about their credit or investment appetite quickly. We came up with the idea for the reunion because it was a good resource and good way to stay in touch and keep track of everyone. It helps us market ourselves and gives all the ex-Heller people a venue to get together," says Asmann.

It was in 1984, before the Fuji Bank purchase, when Norm Blake came into run Heller that a transformation of sorts took place, according to Asmann. Prior to Blake's arrival, Heller was considered a last-resort lender. "But Blake started moving the business into new areas, and the fact is, a tremendous amount of talent was developed during that time," recalls Asmann, who worked in various positions at the firm between 1985 and 1998. "Heller was made up of a lot of Type A personalities that were given a lot of responsibility, at a pretty young age. Those people took advantage of those opportunities and are now leaders in the middle market."

Asmann says that the departure of talent at Heller was precipitated by the company's going public in 1998 and becoming "more corporate, when most of the guys there had been trained to think more entrepreneurially. That's why Nowlin and I left to do our own thing, and we have been doing it for 12 years now," he says. "Still, prior to that, Heller was a great place to work. You worked hard and played hard. That was the consistent approach there."

David Brackett

David Brackett, senior managing director, GE Antares Capital. Brackett was one of the founding partners of Antares Capital and prior to forming Antares he was a senior executive with Heller Financial. Brackett left Heller in 1996 with 12 colleagues to form Antares. GE Capital bought Antares in 2005. Today, Brackett still works with 11 of the 12 people with whom he launched Antares. (Barry Shear left the company and today works at PE firm Pangea Group.)

It's fun to talk about Heller. The reoccurring theme is that it was a great group of people who worked there. We all have a common philosophy. For me, so much about work is being with people you really like and I found those people at Heller and have remained working with them," says Brackett.

He credits Heller's execs Norm Blake and Bob Koe's vision to focus on middle-market sponsor finance as a key to driving Heller's success. "The middle market for sponsor finance was embryonic. We all grew up with the buyout industry. As the middle market matured so did we. It's gratifying to see all the success many ex-Heller people have had. The success at Heller was the combination of our credit discipline and our emphasis on relationships," says Brackett, noting that Heller liked to have high hold levels. "When you know you are going to hold the lion's share of the paper, it's important to make sound investment decisions. This is instilled in everyone who worked at Heller. At the time, Wall Street was originating mega loans to syndicate. We still loan to hold at GE today."

Brackett also notes that not only did he and his colleagues grow up with the lenders of the industry, they also grew up with other middle market-oriented firms, such as Harris Williams & Co. and other mid-market buyout groups, including Chicago-based Code Hennessy & Simmons. "As we opened our own shops, so did others. We all had to transition from being deals guys to running our own businesses. Those relationships have been the cornerstone of our success over the years," says Brackett.

Brian Demkowicz

Brian Demkowicz, founding general partner of Huron Capital Partners, a lower middle-market private equity firm founded in 1999. Demkowicz joined Heller in 1988 after graduating from Purdue. He earned his MBA while working at Heller. Demkowicz entered Heller's two-year management-training program, spending part of his time in the cash flow lending group with David Brackett, now at GE Antares Capital, and Dan Marzelak, now at BMO Harris Bank. Demkowicz then rotated to Heller Equity Capital Corp., Heller's $120 million PE fund. He never left. Demkowicz permanently joined Heller Equity in 1990. At the time, the group was comprised of John Goense, Ned Jessen, Mark Bounds, Brian Boorstein and John Underwood.

When Brian Demkowicz joined Heller in 1988, it had been purchased by Fuji Bank a few years earlier. Norm Blake and Bob Koe had been recruited from GE to reposition Heller as a diversified finance company focusing on cash flow lending. "It was a great training ground where bright people could advance quickly," says Demkowicz, who left in 1996 to pursue deals in a more entrepreneurial setting. He ultimately partnered with an investor in Dallas, Brad Bulkley, and closed a handful of deals working with four Heller colleagues.

His Heller pals went on to do other things as well. In 1995, Goense and Bounds were hired by Allstate to rebuild their private equity efforts. Demkowicz closed a couple of deals with them after he left Heller. Goense and Bounds ultimately went on to spin out of Allstate, forming Goense Bounds. Bounds has now launched a lower middle-market, private equity firm, Bounds Equity Partners.

Underwood went on to join Pfingsten Partners. Boorstein and Jessen each left to launch their own independent groups.

Demkowicz's firm Huron has raised $600 million since its founding and has an IRR of more than 40 percent.

Heller veterans take pleasure in seeing their own do well. "I don't talk to Brian often, but I recall how at Heller he would jump through hoops to get a deal done and it's gratifying to see the success he has had," says Brackett. "He is one of many guys from Heller who has done phenomenally well."

Demkowicz concurs that many who hail from Heller have enjoyed success. "Many people who rotated through Heller have done quite well. Heller tended to recruit folks who were entrepreneurial and energetic. Many different groups were being started at the time and there were many opportunities to gain a tremendous amount of experience early in our careers," remembers Demkowicz.

Demkowicz still has ties to his old colleagues. "I still maintain regular contact with many former colleagues. When I have meetings in Chicago, there isn't a trip that I don't run into some old colleagues."

Christopher Gillock

Christopher Gillock, managing director and equity partner, Collonade Advisors, an investment banking firm that focuses on M&A and capital raising. Gillock has been with the firm since 2004. Previously, he was a corporate development officer for Transamerica. He worked at Heller from 1987 until 1996, holding positions in the equipment leasing division, energy investment banking group, mezzanine group and senior debt group, ultimately in charge of corporate development reporting to the CEO.

Heller was one of the original non-bank financial services firms," says Gillock.

Founded in 1919, Walter E. Heller & Co. got its start by making auto loans because banks refused to finance cars back then. The company then moved into all sorts of commercial finance - factoring, asset-based lending, commercial real estate and equipment leasing. The company was public.

Heller bought American National Bank in the 1970's, and regulators forced Heller to divest its manufacturing operations in order to own the bank. While American National did well, Heller's non-bank operations ran into problems due to high levels of non-performing loans. The company was sold in two transactions - American National Bank was sold to First National Bank of Chicago, and the finance company was sold to Fuji Bank, the giant Japanese institution. Both deals closed in 1984, and Heller was delisted.

"Fuji had no idea how to manage Heller Financial, so they hired a team from GE Capital, led by Norman Blake. Blake had heaps of energy and was able to attract lots of people to Heller, in spite of its portfolio issues. The folks that joined in the mid-to-late 1980's, and those that joined in the next five years, turned Heller into a very interesting place to work," says Gillock. "So many of the old Heller crew left, were fired by the GE guys or retired; there were massive holes in the organization. This led to rapid advancement for the new folks. The 'Heller type' during that period had high energy, intelligence, creativity and not much experience. We didn't always make good decisions, but Fuji Bank provided us with the support we needed to figure out the business."

Gillock left the bank in 1996. The bank went public again in 1998 and was sold to GE Capital in 2001 "at a price that made Fuji Bank quite happy," he says. General Electric's financial services subsidiary, GE Capital, paid $5.3 billion to take Heller Financial private.

After the GE deal, many in the old Heller team moved on. The culture had gotten too corporate for the entrepreneurial bunch that worked so hard to grow the bank.

Since then, Gillock has gotten deals passed his way from former colleagues, as well as gotten new jobs through his Heller network. Collonade Advisory, a three-man shop in 2006, was chosen to sell GMAC's equipment finance group when GMAC was readying to be sold to Cerberus. Gillock had worked with the guys at GMAC. They gave him a heads up on the opportunity. Gillock's team went in and pitched, and ultimately was hired to represent GM. "The transaction was one of the largest that Colonnade completed for a client," says Gillock.

Ryan Golding

Ryan Golding, managing director of the leverage finance group at CapitalSource, a middle-market lending company. Previously, Golding worked in the corporate finance group at Heller Financial, where he originated, underwrote and syndicated transactions. There are at least 15 professionals who spent time at Heller working in various positions at CapitalSource today. John Delaney, the firm's co-founder, had founded HealthCare Financial Partners, which Heller Financial bought in 1999. Delaney then worked at Heller Financial from 1999 until 2000, when he moved over to CapitalSource.

I am always amazed at the Heller legacy and its profound impact across the market. We often talked about what a great case study in business school the GE acquisition of Heller would be. While on the one hand it was a good deal for GE; on the other, it added greater competition to the marketplace as several new lending platforms were launched," says Golding.

CapitalSource's history with Heller is two-fold. In 2000, Delaney and Jason Fish, a partner at Farallon Capital Management, saw an opportunity within the banking industry for a broad-based, middle-market commercial finance company. With an initial capitalization of over $500 million (at the time, the largest private capitalization for a finance company), they founded CapitalSource and included several individuals who had put in time at Heller with Delaney. Then, in 2002, at least 15 additional individuals with Heller backgrounds joined the CapitalSource team to broaden the company's lending capabilities.

What's more, Laird Boulden, CapitalSource's president, had founded Heller's commercial equipment finance group in 1992. He left Heller and co-founded Tygris Commercial Finance, then took his team to CapitalSource in 2010.

"Heller was an exceptional training ground. We were focused on developing a foundation in credit. I not only had the opportunity to develop my credit skills, but also had the chance to develop some great relationships. Heller created its brand based on having good relationships. We cared about our clients, and that resonated with people. There were various platforms across the company, but it was a meritocracy. If you worked hard, they didn't mind giving young people opportunity and responsibility."

Golding keeps in touch with former Heller colleagues at shops including NXT Capital, BMO Harris Bank and Fifth Third.

Charlie Huebner

Charles Huebner, co-founder and chief investment officer, RCP Advisors, a fund-of-funds founded in 2001 that specializes in small to mid-cap funds with $2.6 billion under management. Prior to founding RCP, Huebner was an executive vice president at Heller Financial, where he founded and managed the Capital Markets Group. He also served as a senior managing director at Heller Capital Management.

Huebner spent the 1990s at Heller. At that time, the bank was trying to focus on a few niche products. "They didn't want to continue to put capital all over the place. They saw the appeal in the middle market and went after it," remembers Huebner.

He adds that there were three things that made Heller a success at that time: First, a laser focus on the middle market. "We were done trying to be everything to everyone. We set out to own the middle market--and we succeeded."

The second factor was that the bank hired or promoted talent with strong underwriting and credit analyzing skills. "Heller developed great finance skills and it became known as an attractive place to work for those interested in middle-market buyout finance."

The third factor was an "enlightened -even radical-view on how to serve customers."

"We realized that, at the time, many leverage finance bankers were high hassle and not all that reliable. Private equity guys are trying to get deals done and were frustrated that the lower risk portion of their capital structure often involved the most hassle to close and manage. Heller recognized that timing and reliability were imperative, and we reengineered everything we did to make sure we put the customer first, while still making sound investment decisions. Sometimes that meant a quick 'No' rather than a prolonged 'Yes', but the client had a reliable answer fast and they appreciated that," says Huebner.

Today, Huebner is grateful for his Heller background. RCP Advisors is an investor with Huron and Boston-based WestView Capital Partners, where John Turner, a former Heller crony, is a general partner. "When you share a common background with so many talented people in the market, it provides a great network for the trading of references and other ideas. If anyone looked at our investment processes and knew Heller's approach, they would see an uncanny resemblance," says Huebner.

Earl Mix

Earl Mix is a founding member of New Canaan Funding, a mezzanine firm founded in 1995 and focused on the middle market. Mix was a senior vice president at Heller Financial, specializing in leveraged buyouts and recapitalization financings. He was with the bank from 1993 through 1999. Mix's partner, Mark Thies, also hailed from Heller--as did Brad Ament, who runs New Canaan's Chicago office.

Mix refers to Heller as a breeding ground for lending professionals in the middle market, citing management's smart decision to let other banks service larger clients and let Heller shine in the middle market. "There was no competition there. Chemical/Chase was the only other bank that looked at this market at all, but not much. Cash-flow lending was the one risk arena no one wanted to do at the time. As the LBO business became institutionalized in the 1990s, lots of private equity firms were trying to take businesses to the next level in the middle market. We chased every one of those deals aggressively. We were ambitious," says Mix.

Once professionals started realizing how little attention was being paid to the middle market, new shops started to spin off. "It became Antares, Newstone, Norwest Mezzanine Partners, NXT Capital, Merrill Lynch Capital. Others left and started CLOs."

Mix says the key to Heller's becoming a leader in the middle-market lending space was putting together the best capital structure to build and grow businesses. "We understood that at Heller, and we work that way at New Canaan. We bring our experiences to the table and help the sponsors get the deal together. It's quite simple and the sponsors value it," says Mix. "As for my time at Heller, beside learning a lot about the middle market and meeting my partners, I still work with people I met through the Heller network. The new professionals that are starting out today in the business won't know a place like Heller, but the remnants are there."