At one point during our 45-minute interview, Greg Brenneman, chairman of US private equity firm CCMP Capital Advisors, is talking about the growth of mega-funds. It's at this point I form the distinct impression he would be just as comfortable talking economics at the neighborhood pub as he is at an exclusive club in Philadelphia surrounded by dealmakers.
“We have a $3.4 billion fund. About $2.5 billion of that is dry powder because our chief executive Steve Murray and the other partners had the foresight not to buy a lot during the go-go days in 2006 and 2007. I actually would be fine – and the partners will all come together to decide this as a group when the time is appropriate – if the next fund is the same size,” Brenneman says.
Brenneman is tall and lean and wears a constant friendly smile on his face. The easygoing demeanour masks a fierce determination and merciless work ethic that has driven him to succeed regularly when called upon to demonstrate his turnaround expertise.
Brenneman, who joined CCMP last August, has led restructurings at the likes of Continental Airlines, Burger King, PricewaterhouseCoopers and most recently, sandwich chain Quiznos. These days he plans on taking the same lessons and strategies he learned in past turnarounds and applying them to companies that CCMP buys in private equity deals.
Yet, talking to him during a break at a restructuring conference (what other conferences are there these days?) at the Union League in Philadelphia, Brenneman comes across as just a regular guy doing a job he was hired to do, and trying to do the best job possible.
“I always want to be in a place where I can give more than I take in terms of value, so that at least people around me say, “gosh, isn't it great to have Greg?', instead of “gosh, isn't this guy really expensive”? At heart, Brenneman is a small-town farm boy with a big work ethic. He wrote in an article for the Harvard Business Review in 1998 that he comes from a “little farming town” in Kansas “where hard work is a way of life”.
“I held a paying job when I was in third grade, and no one even blinked. In the summer of my junior year in high school, I worked on the grounds crew at the golf course from 6.30am until noon, delivered office furniture from noon until 6pm, and then baled and stacked hay until midnight. Frankly, I'd rather be working than not any day of the week,” Brenneman wrote.
Brenneman holds an MBA from Harvard Business School and a bachelor's administration of business in accounting/finance, summa cum laude, from Washburn University of Topeka, Kansas.
He started his private equity career with Bain & Company in 1988, where he worked as a vice president, and it was with Bain that Brenneman got his first shot at turning around a struggling company.
As he tells it to a room full of private equity professionals, with the sort of friendly manner that makes him seem more like your neighbour down the street talking over a beer in the garage, Continental Airlines was on its second bankruptcy, closing in on its third. It was, he says, “the worst airline in the world”.
Bain planned to work in an advisory role with Continental's owners, a young firm called TPG, on a restructuring of the business.
It's a hard environment. We are telling our CEOs that ‘flat sales’ is the new ‘up 20 percent’, and that those who survive in a healthy state will be the leaders as the economy recovers
As a frequent flier, Brenneman did his best to always avoid flying Continental, he says, but when Bain gave him the Continental assignment, he was forced to fly for the first time with the carrier. The plane's interior, he recalls, was a patchwork of different colours and textures, and the 36-minute flight was delayed by 50 minutes. On finally making it to Houston, Brenneman took the reins at Continental, where he put in place a basic blueprint that he has used in every turnaround he's been part of since, including ‘marketing’, ‘product’, ‘financial’ and ‘people’ plans.
One of the most important aspects of the turnaround strategy was to get Continental's employees to buy into it. Restructurings involve “cleaning house”, Brenneman says, and at Continental, the turnaround team removed 50 of 61 officers and brought in 20 newcomers. Similar personnel changes were made at Burger King, PwC and Quiznos, he says.
SUCCESS LED TO FUND
“It's hard to have the management team who put you in the ditch actually pull you out,” Brenneman says.
Eventually, Continental's stock soared from $6 to $120, and the firm was ranked number 18 of the 100 best places to work. By 1998, the investment had generated an annual internal rate of return for TPG of 55 percent. TPG's investment in Continental opened the way for the firm to raise its first buyout fund, which closed in 1994 on $721 million.
Brenneman has applied his simple turnaround strategy to every situation he's found himself in, and so far it's not backfired. “I'm not smart enough to reinvent anything, so I just go through the same process and use the same tools over and over again and fortunately it's worked,” he says.
Brenneman wasn't planning to join a private equity firm, despite entertaining several opportunities over the years. But there were several things about CCMP he liked, including the fact that, in his view, it had shown foresight by selling most of its portfolio at the market peak and discipline in not overpaying during that period.
Also, he liked the firm's egalitarian partnership approach put in place by president and chief executive Steve Murray and that the firm, while deeply experienced in private equity from its former guise as JPMorgan Partners, had recently spun out on its own and didn't have a lot of “legacy” issues. “I just saw an opportunity to put a little different mark on the firm than you would if you went into a firm that was very set in its ways,” he says.
CCMP spun out of investment bank JPMorgan in 2006 and collected $3.4 billion for its debut fund as an independent. Since its founding the firm has invested in and exited some well-known brands, including floral retailer 1-800 Flowers.com, food service giant Aramark and airline Jet Blue.
Brenneman agrees “1,000 percent” with the firm's investment philosophy, which was based on the belief – in 2006 amid the leverage-crazed buyout boom – that the market was overvalued.
“It was a very unusual philosophy,” Brenneman reflects. “They said, ‘We're going to sell everything we possibly can, and we're not going to buy very much because we think multiples are high. So in the mid-2006 to 2008 timeframe, they sold and returned to LPs $6.1 billion, and they made less than $1 billion worth of investments. I thought that was stunning in terms of a very simple, very elegant way to think about the private equity business … it was the way I was thinking about the business.”
CCMP's general deal philosophy is to avoid putting too much leverage in its deals, which has helped the firm avoid “hung deals”, Brenneman says.
“I think it's because of their banking heritage at JPMorgan Chase that the CCMP partners believed in not overlevering businesses. While they took advantage of some financial leverage, they really did a great job of not taking on those last couple turns of debt that put the business at risk during a downturn,” he says. “As a result … I was fortunate to join a firm that has very few deals that are under any kind of covenant stress, where many other private equity firms are faced with fighting through many difficult peak-period deals.”
“Honestly, I didn't want to come into a firm where I spent three or four years and all I did was battle bad buys.”
The culture at CCMP was attractive to Brenneman – he describes it as everyone winning together and everyone losing together.
“As Steve Murray took over leadership of the firm, he and the other partners set up a partnership that was very egalitarian and not focused on one or two founders or superstars,” he says.
In his role with CCMP, Brenneman has been sitting down with the chief executives of portfolio companies to talk about what plans should be in place to improve performance. He draws heavily on lessons from the past.
“What I'm trying to do is sit down with the CEOs there and kind of work through things … to ask the question, how can we put a plan in place for you to run this thing really well? We're in very good shape in our portfolio, but that said, in this economic downturn you need to treat 70 to 80 percent of all businesses as troubled businesses,” Brenneman says. “It's a hard environment. We are telling our CEOs that “flat sales” is the new “up 20 percent”, and that those who survive in a healthy state will be the leaders as the economy recovers.”
As the interview begins to wrap up, Brenneman checks his Blackberry, trying to determine how he's going to get back to Texas, where he makes his home, so he can meet up with his family for the Texas State High School Basketball final four.
Before we finish, Brenneman tells me something I'm hearing frequently from private equity professionals – right now, he says, opportunity is everywhere.
The bigger opportunity is looking at companies that are really great at what they do but are a little over-leveraged. “They may be bumping up against a debt covenant and they need some capital to grow. So you sit down with the management team and say, ‘what if we put a PIPE in here or maybe we take convertible stock?’ … you just work through a structure that works, and you fundamentally get a great brand with incredible long-term upside. We're looking at a bunch of those opportunities across all our industries. We probably have 20 conversations of that nature going on with CEOs and management teams right now.”
“We said it's not the time to buy in 06, it's not the time to buy in 07, it's not the time to buy in 08 … now is the time to buy,” he concludes. If experience counts for anything, consider that a useful tip.