As its communications team put it when describing an April acquisition of railroad company Central Power Products, The Riverside Company “keeps chugging ahead” while many of its mid-market competitors watch deal flow grind to a halt. The New York- and Clevelandbased firm, which manages $2 billion across nine funds, cites its unconventional culture as one of the key ingredients to over coming weakening economic conditions. PEI caught up with Riverside cochief executive Stewart Kohl to explain the firm's approach.
Riverside's deal activity seems high in contrast to other private equity firms reeling from the credit crisis. What has activity been like this year – and where has it taken place?
We've completed 11 acquisitions. By way of comparison, in all of calendar 2007 we did 30 acquisitions.We are expecting to meet or slightly exceed last year's deal pace. Geographically, we're basically half and half domestic and international acquisitions. The percentage of our deal flow that is outside of North America has grown steadily over the history of Riverside. If you went back to before 1997, we were 100 percent North America. We've been growing steadily in Europe since that time, and last year we opened in Asia.
Your press releases are significantly more light-hearted and tongue-in-cheek than many of your peers. What inspired this approach to communications?
It is who we are.We're a bit quirky in a way, our culture. I hope in the ‘good’ sense of quirky not the ‘weird’ sense. And we take very seriously what we do, but we try not to take ourselves too seriously. We feel a lot of responsibility to be outstanding stewards of our investors' money, and we are big investors ourselves in Riverside, so we certainly want to be good stewards – it's not Kindergarten here. But we also think there's no need to be carried away with yourself, and a sense of humour and perspective can make you a better investor. So it starts with who we are. But it also becomes our approach to marketing, because we do want to stand out, we do want to be different.
Does unique branding help when courting LPs?
The investors that know us know our quirky culture.We try to make the letters to our investors fun reads even while conveying serious information. Our annual meetings we try to make as entertaining as possible. Maybe there are some investors that it doesn't appeal to as much as others, but it seems most respond in kind and appreciate it, particularly because we make sure to marry that with substance and transparency, especially around failures or problems. We know that we're not perfect, and when we have a problem we try to get ahead of it with our investors and tell them what happened, why it happened what we're doing to remedy it – and why we won't make that mistake again.
How is credit market dislocation affecting the smaller mid-market (SMM), and specifically Riverside?
It varies a little bit based on size and geography. To simplify it, volume is down in absolute numbers and it's down a little bit more in terms of quality.We see fewer terrific companies and more companies that are flawed. Our origination team has to do more work to go out and find the opportunities. One of the advantages of focussing on the SMM, if you think about all of the companies in the world, and rank them based on their size, you end up with a triangle. There's not a whole lot of GEs, but there's a ton of Luigi's Pizzas. But our portion of that triangle is a very fat part of the triangle. So to say that the opportunities are down is still to say that there are lots of opportunities. Another thing we like about the SMM is that businesses get sold for many reasons. Sometimes it's a purely price-based financial transaction, but sometimes it's because the owner is dying, getting divorced, or wants to go to the beach and retire. In each of those circumstances, price matters, and we must be competitive, but it isn't the sole determinant and we like that.