INTERVIEW: CCMP CAPITAL

In a 2004 interview with this magazine, CCMP Capital chairman Jeff Walker extolled the benefits of pursuing private equity deals around the world under a vast corporate umbrella. Dismissing the numerous spinouts of private equity firms from other bank holding companies,Walker insisted that being part of the JPMorgan institution was a “huge advantage”. He said: “We'd be crazy to leave the institution.”

Although the firm maintains close ties, and an ongoing fiduciary role, with its former parent, CCMP Capital is now no longer part of the JPMorgan institution. But the ongoing investment team seems both sane and happy.

For his part, Walker will leave the firm, stepping down from his role as chairman at the end of this month to focus on non-profit work, primarily at Millennium Promise, a New Yorkbased poverty-fighting organisation, of which Walker recently became chairman.

CCMP president and chief executive officer, Stephen Murray, has nothing but good things to say about his former corporate parent. But it is apparent that he and his team in New York and London are invigorated by the agility that they now enjoy as an independent firm.

“In a large organisation, you have a variety of considerations that you don't have in an 80-person firm,” Murray says, contrasting his firm's current rapid-response abilities with the erstwhile, multi-party deal vetting of JPMorgan Partners.“Let me give you a very clear example. If [CCMP sees] an attractive opportunity in the Czech Republic today, we have experience investing in the Czech Republic, we know what resources we want to invest in that opportunity and the criteria on which to evaluate the prospects for that investment. When you're part of JPMorgan, your first stop is the country risk manager to figure out JPMorgan's overall exposure to Eastern Europe. Then we have to see what their view is on the Czech Republic. Then you're going to have somebody telling you, 'By the way, the Czech koruna is really hard to hedge. What's our plan in a dollar fund for hedging?' Nobody is doing the wrong thing. These are just the necessary concerns of a large, multi-dimensional organisation.”

CORE STRENGTHS
Murray and team argue that the new structure of CCMP Capital is manifestly the right thing, given the firm's core strengths. This structure includes a pared-down, but still expansive, geographic mandate, a closer alignment of interests between CCMP Capital and CCMP Capital Asia and a commitment to deeply resourcing its industry silos.

Just five years ago, JPMorgan Partners was among the largest private equity firms in the world, and in control of the largest fund, the $6.5 billion JPMorgan Partners Global Fund. It was the prototypical global private equity firm, with investments up and down the deal-size spectrum, across industries and around the world.

Part of this dizzying diversity was by design, and part of it was the result a series of mergers and acquisitions over the years, with Walker always landing at the helm of a snowballing private equity platform. In 1984, Walker cofounded Chemical Venture Partners, a new division of Chemical Bank. Chemical acquired Manufacturers Hanover Trust in 1991 and, when it merged with Chase Manhattan Bank in 1996, the private equity arm became Chase Capital Partners. In 1999, the firm bolstered its tech holdings with the acquisition of Hambrecht & Quist, then grew further with Robert Fleming Holdings and, finally, with the 2000 JPMorgan merger, whereupon the firm was anointed JPMorgan Partners.

In 2005, JPMorgan announced that the Walker-led group would become independent once the investment period of the Global fund was completed. The bank did, however, retain JPMorgan's One Equity Partners as an in-house platform.

Over the subsequent two years, the renamed CCMP grappled with how best to structure itself outside of the corporate umbrella. Among the biggest changes was a decision to end its presence in India and throughout Latin America. “We concluded that we had very robust professional capabilities and a base portfolio in the US, Europe and Asia,” says Murray, who came aboard the private equity firm in 1989 after working in the mid-market lending division of Manufacturers Hanover. “We didn't feel as comfortable with our prospects in India and Latin America.”

Murray adds that inherent to private equity investment in Latin America is “indigenous country risk. Just because you're successful in Chile doesn't mean you're successful in Brazil. And then Mexico is different from all of them. It requires a presence in each country which comes at a high operating cost.You can't deploy a $3.5 billion fund efficiently in $25 million to $75 million bites, which is a common deal size in many Latin American countries.”

CCMP, through what is now called CCMP Capital Asia, remains among the longest-tenured investors in Asia. With independence, the two firms reworked their ties to one another. Whereas previously the New Yorkbased CCMP had participated in its Asian affiliate's economics by coinvesting in each deal, today the two co-invest opportunistically in each others' deals but share in each others' carried interest pools. “We participate on their investment committee, they participate in our investment process for deals with exposure to Asia,” says Murray.“We exchange resources much more freely than we had in the past.”

He adds: “We have shared economics and we share ideas and experience. It's basically a global franchise with two independent funding pockets.”

The Asia pocket was refilled in a big way in 2005 with the close of a $1.575 billion fund for pan-Asian buyouts. Last October, CCMP Capital closed on a $3.4 billion vehicle called CCMP Capital Investors II, marking a major new chapter in the firm's long history. With a combined $5 billion to deploy across North America, Europe and Asia, CCMP is now operating in a space vacated by the many other global firms that are working with funds of $15 billion or more. And as Murray stresses, one of CCMP's key strengths remains diversity. In addition to its geographic breadth, CCMP divides its industry targets into consumer retail and services; media and telecom; industrial; energy; and healthcare infrastructure. The firm is bulking up its bench of operating partners to go deeper still into these industries. CCMP recently announced the hiring of John Bowlin, the former CEO of Miller Brewing, to advise on consumer deals, and the recruitment of James Shelton, the former CEO of Triad Hospitals, to advise on the firm's growing healthcare portfolio.

CCMP is about to announce three additional operating partners, who enjoy economic upside from the deals they advise on.

DOWNTURN INSULATION
Murray points to CCMP's recent exit from SafetyKleen Europe, an industrial service provider based in London, as evidence that the firm's geographic and industry diversity “insulates us from a downturn in any one sector or region”. In an otherwise tepid exit market, the company was acquired by Warburg Pincus, generating an overall return for CCMP of just under three times invested equity.

CCMP has not been in a rush to burn through its dry powder. Murray estimates that the new fund is 20 percent invested, which is “a little bit slower” than he originally anticipated. He quickly adds: “But we are in no way troubled by that. What we are aiming to achieve for our investors is an absolute return and a total multiple of money; it's not speed of investment. Quite candidly, I think the discipline we demonstrated in exiting investments in the second half of 2006 and 2007 and in not jumping into the fray during the first two to three quarters of 2007 has already and will continue to pay huge dividends to our investors.”

With the complications of its reorganisation largely behind it, CCMP is poised to focus on building, investing and reaping dividends from its distilled esprit de corps. And if the leaner, meaner CCMP is getting busy just as the rest of the deal market participants are going through painful convulsions of their own, all the better.