FRIENDS IN HIGH PLACES

The average 25-year-old is passionate about many things – music, dating, beer. Alex Friend was not an average 25-year-old. Upon graduating from Stanford Graduate School of Business in 1986, Friend was “passionate about small middle-market businesses”, he says.

The average 25-year-old is passionate about many things – music, dating, beer. Alex Friend was not an average 25-year-old. Upon graduating from Stanford Graduate School of Business in 1986, Friend was “passionate about small middle-market businesses”, he says.

Friend's family has long been business-minded – his great grandfather founded an automotive upholstery company and Friend wanted to pursue this sector straight out of school.

While other freshly minted Stanford MBAs signed up with investment banks, business consulting firms and bond trading operations, Friend joined classmate Steven Skoler in the pursuit of small-scale LBOs sponsored, transacted and managed entirely by them. Their first acquisition was Madan Plastics, an injection molder.

Thirteen years later, Friend Skoler has closed a debut institutional fund, Friend Skoler Equity Investments, on $231 million (€194 million), $80 million in excess of their original goal. Endowments and foundations were the fund's biggest supporters.

The ‘emerging’ firm was aided by a record of bootstrapping success (the firm claims a total IRR of 63.9%) and by two former classmates. Starting in 1998, Friend and Skoler began investing from a pledge fund that drew most of its capital from two KKR partners, Scott Stuart and Ned Gilhuly, both of whom met the principals of Friend Skoler at Stanford's business school.

The firm has realised two highly successful investments: Kenlin Pet Supply, a roll-up of several pet-store suppliers; and Woodstream, a garden and lawn-care platform that added on several pest-control companies.

“After we sold our second investment in 1996, we wanted to leverage that operating experience and transition to private equity investors” says Friend.

Madan Plastics remains under the ownership of the two friends and their investors because of its attractive dividends.

Friend Skoler will continue to target the small buyout market with investments of between $10 million and $30 million per deal. But with a blind-pool partnership under management, limited partner contributions are now guaranteed.

Business school students pondering how to get into private equity would do well to note the resumes of these two entrepreneurs-cum-fund-managers.