Here we are in March…only 5 months left of graduate school and of our time together. This month I give you more of a story- so that you understand my dedication to getting inside information for you. I hope you it find it to be an interesting read…
Courtsey of Ann Johansson for The New York Times
My PE journey recently led me to Freeman Spogli & Co. I called the offices in late June2009 in hopes of scheduling a meeting with Mr. Bradford Freeman, co-founder of the firm. I was sent to his Executive Assistant's voicemail and was sure that it would take at least a couple months to get a call back, as I am convinced that a long waiting period is the heaven's way of testing one's will. I noticed in my initial call that the woman who answered the phone was quite pleasant and willing to listen to my 90 second pitch. Comforted by her amiability, I left a message for Mr. Freeman's assistant as she suggested and felt quite good about my prospects.
Three weeks later, I received a call from Ms. B., Assistant to Mr. Freeman, to schedule the meeting. I could not contain my excitement, though she contained hers. She diligently and very seriously helped me wedge myself into Mr. Freeman's schedule… and here the Freeman Spogli theme continued; she was pleasant and patient.
I thought surely this was a farce; the general consensus is that private equity firms are populated with cut-throat, relentless deal-makers who certainly don't have time for a non-Ivy Leaguer looking to understand the business" Surely, I assumed, Mr. Freeman would prove this theory to be true. I prepared to extract as much information as possible in what I expected to be a very brief meeting. I figured Mr. Freeman's responses would be thrown at me in quick, terse statements and for heaven's sake; I better have some good questions.
I arrived at the Freeman Spogli offices at 8:25 a.m., five minutes before the scheduled meeting. Actually, I'd been in the building lobby for fifteen minutes, but as Dr. Gertmenian (Pepperdine's beloved Economics Professor) explains, one should arrive for this type of meeting precisely five minutes before. Any earlier and you will annoy the front desk guard who will have to entertain you and watch you shuffle around in the lobby. Any later and you will make the Executive Assistant nervous that he/she has booked a meeting that is not going to happen.
So, at 8:24 a.m. I boarded the elevator and exited on the 19th floor. The sound of my heels on the sparkling marble and the rustling of papers in the distance were the only audible sounds…
I lightened my step as I approached the entrance. The wide windows ahead gave view to what I assumed to be all of Los Angeles; the earth colored décor spoke to an assured virility; the glass enclosed conference room with monitors and large leather chairs announced we close deals here.
Soon I found the source of the shifting papers and asked for Ms. B, lowering my voice to avoid startling the well-suited gent. Before I could take my seat in the lobby, Ms. B arrived and informed me that it would be a few minutes. She offered me a glass of water — flat or sparkling, my choice. As Dr. Gertmenian also suggests, "∫always take what the Executive Assistant offers, but don't make a maid out of her". So, I took the sparkling… and I didn't ask for a single thing more. As I sat, I noticed the books around me. Nothing on finance, private equity, or the like. Just big, beautiful coffee table books on art and art history. I flipped through the nearest one. “Strange", I thought, "∫no copies of Barbarians at the Gate?”
Before I could ponder the observation, Mr. Freeman was before me. I quickly stood and straightened my jacket as he reached out to shake my hand. He introduced himself with a firm shake and the most delightful smile. "∫Perhaps they really are pleasant here", I thought. With a brisk stride we were off to his office, which was bright with the early Los Angeles sun and matched his cheery demeanor.
I told Mr. Freeman a bit about myself and my reason for being there. He informed me that he is from North Dakota (I hear he was quite the athlete at Fargo High) and gave me his best Fargo "∫don'tcha know?" With that, the meeting began. Within five minutes, I was convinced that the reputation Principals of PE firms have been given as those who operate in a mode of an almost defiant self-interest and disregard for common folks is complete rubbish"at least in this instance. Here sat a man, who through hard work (he holds a BA with distinction from Stanford University and a MBA from Harvard University), sheer will, and what he calls the good fortune of serendipity created a firm that is not only highly beneficial to its investors and portfolio companies, but to its employees- from the new Analyst to the most senior Partners. The Freeman Spogli motto is share the economics.
Mr. Freeman was funny, interested in my story, and open to helping me move forward with my project. He also shared his wisdom, his thoughts on what has made Freeman Spogli one of the premier PE firms in Los Angeles, the current state of the private equity business, and how an ambitious grad student should look to build a career in the industry. I suspect that is the most important part of this story to you. Herein lie the details:
Freeman Spogli Facts
Prior to co-founding Riordan, Freeman & Spogli in 1983 with Partners Richard Riordan and Ronald Spogli, Mr. Freeman was Managing Director of Dean Witter Reynolds Inc.’s Los Angeles Corporate Finance Department. The next step up the ladder would have required a move to New York; a move Mr. Freeman was not interested in making. As the good fortune of serendipity would have it, Richard Riordan suggested that Freeman and Ron Spogli (who was then Managing Director of the M&A Division at Dean Witter) take an outside meeting that led to the team partnering in a buyout deal. That deal closed in just 75 days. Mr. Riordan co-founded Riordan & McKinzie, a boutique corporate law firm, eight years earlier and was an expert in venture capital transactions. He would handle that part of the business while Freeman and Spogli focused on leveraged buyouts.
Soon a full-fledged alternative investment firm was born. Mr. Riordan later went on to a life in politics, elected as Mayor of Los Angeles in 1993; at which point the firm was renamed Freeman Spogli & Co. Ron Spogli was appointed by President George W. Bush to serve as the U.S. Ambassador to Italy in 2005. He left post in February 2009 and has since returned to the firm. Currently, Freeman Spogli focuses its efforts on leveraged buyouts of mature organizations, primarily retail, direct marketing, and distribution companies; holding them for four to seven years. As of 2008, Freeman Spogli had invested over $2.5 billion of equity in 42 companies.
To begin the interview, I asked Mr. Freeman to help me understand what has made his firm successful for over 25 years.
He explained the following:
1. Freeman Spogli partners with existing management; ensuring the interests of all invested parties are aligned.
- Managers move from being employees to equity holders, giving them the authority to make substantial changes to meet performance goals and a sense of ownership, which significantly changes the way they run their organizations.
2.Heavy due diligence
- While managers of the company of interest provide the numbers, Freeman Spogli intensely analyzes them. There is a fierce effort to understand the company's current position and its potential for growth- assessing the value of its asset base, the manageability of its debt levels, and the strength of its management.
3.Freeman Spogli creates value by growing its portfolio companies
- Although the firm uses leverage, it does not "∫leverage up" as much as its counterparts. The Partners like to leave room to adjust, in the event that unforeseen events disrupt the intended strategy.
- Contrary to the popular thought on PE firms, Freeman Spogli is interested in maximizing the value of its investments, not in extracting exorbitant fees from the transaction or in conducting a fire sale of the company's assets. The firm has a long -range view that ultimately allows it to sell at an optimal price.
4.The firm controls the exit
- Freeman Spogli is never in a position where it has to sell an asset. As such, the firm can hold on to an investment until an attractive proposal comes along.
The Current State of Private Equity
As credit markets have frozen over the past several months, many private equity firms have not been able to complete deals or have had to adjust the terms significantly. However, there are still opportunities to put private equity to work.
According to Mr. Freeman. Instead, private equity firms should be focused on good divisions of companies, as many companies are looking to restructure and need to sell. This is also a good time for PE firms to look at customizing deals for family-owned corporations (hello Porsche family?). The goal is to make the deal tax efficient for the members of the family.
Career Start-up Information for the Spirited Grad Student
Analysts are hired on a two-year basis at Freeman Spogli. Most have gone through a rigorous two year Wall Street training program where one is bludgeoned and dragged through 100 hour work weeks. Proper preparation for life in private equity. While Mr. Freeman is a nice guy; the work done at his firm is not for the faint-of-heart– so be ready to work. During this two year run at Freeman Spogli, the Analyst is expected to be able to make suggestions and have real input in the firm's decisions. Otherwise, you are not of much value to the team. You see, all at Freeman Spogli work as a team.
After the two year assessment period, one is then expected to go to business school. If you are already in business school, you have a leg up"well, theoretically. Mr. Freeman says that (again, theoretically) a graduate student is more mature post-studies and should advance with a bit more speed- perhaps taking on more responsibility, meeting with clients alone and ultimately making Partner sooner.
Lastly, Freeman Spogli has no time for fickle Gen X and Yers. Once hired, the firm expects you to stay for the duration of your career. Time well spent. Remember the firm motto- "∫share the economics"? As you grow, so does your share.
Mr. Freeman's Personal Success Philosophy
Mr. Freeman believes "∫serendipity plays a role in one's success". His life is evidence that if one is prepared and in a mode of expectation; wonderful opportunities will find their way to you.
For more information on Freeman Spogli & Co. please visit: http://www.freemanspogli.com/
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