Advent International’s Secret Sauce: Insights from Regional Chiefs Gathering

In a year marked by much doom and gloom, Advent International has been on fire. Its deal pace has been dynamic, fundraising feverish and returns impressive. At a recent gathering of its 12 senior managing partners in Boston, Amanda Janis sat down with four regional chiefs who shared some of the ingredients comprising Advent's ‘secret sauce’.

It seems every firm is a global buyout firm, these days. So much so that some even refuse to admit that one office in particular is its headquarters. But Boston-based, upper-midmarket firm Advent International has had a global ethos from the moment it spun out of TA Associates in 1984. And it is repeatedly characterised by its buyout peers as a firm worth more than the sum of its numerous parts.

“Part of it is our culture,” says Ernest Bachrach, managing partner and co-head of Advent’s Latin American operations.

“We’ve always been a relatively low-key firm, there isn’t one hero. The fact that you can compliment Advent without complimenting a specific individual makes it easier for peers to say ‘Hey, they’re doing okay,’, whereas if you compliment some other firms, immediately it’s an ego thing.”

The phrase “there are no heroes” is repeated several times during the conversation by Bachrach and hi s fel low managing partners present.

It’s true that Advent has an unusual senior management structure. It is run by a dozen senior managing partners, who every two months gather in different locations across the globe for a face-to-face discussion, and have, on average, been working together for roughly two decades.

But private equity, at its core, is profit-driven – so surely any praise should be returns-related?

Advent declined to discuss its returns in any specific detail, but fund performance data published by one of its longstanding limited partners, the California Public Employees’ Retirement System, paints a picture of a successful firm.

As of 31 December 2007, CalPERS figures show a 54.3 percent net internal rate of return for Advent’s fourth global buyout fund, which announced its final close on $1.9 billion in January 2002. [See page 60 for an overview of firm milestones.] It reveals impressive figures for other Advent funds as well – particularly its fifth global buyout fund, with a 136.7 percent net IRR – but notes these funds are in the early stages of their investment cycle, and therefore too young to provide meaningful analysis.

But with regards to Advent Global Private Equity IV, of all the funds CalPERS has invested in since beginning its private equity programme in 1990, only three that the pension considers mature manage to beat its returns. Of those, only two are managed by traditional private equity firms: Permira’s debut fund raised in 2001 achieved a 74.6 percent net IRR, while Wilbur Ross’ second turnaround fund, raised in 2002, recorded 84.9 percent. First Reserve’s ninth fund, which CalPERS says has a 48.2 percent net IRR, is the closest contender just behind the returns from Advent GPE IV.

“The returns have been good,” admits Humphrey Battcock, managing partner and co-head of Western Europe. “But we strongly believe it’s the culture that drives the returns. The returns are not an act of God or coincidence, they’re absolutely not. They’re across the board, they’re in every region, they’re in every sector. There’s not one or two homeruns in the portfolio, there are several. And it’s all driven by the culture.”

Advent prides itself on being a flat, non-hierarchical firm that encourages everyone to be an active participant in its consensus-driven business decisions.

“The young guys that have been with us for a month absolutely are empowered to say ‘I don’t think that’s right, I think you’re missing the point here’,” says Battcock.

Though that may seem a bit hyperbolic, David Mussafer, managing partner and North America head, adds that in some cases, the firm’s youngest associates may indeed be the ones with the deepest sector-specific knowledge applicable to a particular deal.

The young guys that have been with us for a month absolutely are empowered to say `I don’t think that’s right, I think you’re missing the point here’

Humphrey Battcock

The internal frankness Advent promotes can be partially attributed to the fact that there is no single personality dominating the firm, says Christian Mruck, a managing partner who is co-head of the firm’s Central European activities.

“I think that’s an extraordinary thing, because generally private equity is about champions, people who champion investments. There’s one person who stands up and says, ‘This is my deal’,” Mruck says.

“At Advent, we have several good people in one room able to set their egos aside. They are champions – obviously you wouldn’t be successful in this business if you aren’t able to be forceful – but they’re able to put their egos to one side for a minute and say ‘You know what, I don’t like to hear it, but what you’ve said is right’.”

That atmosphere allows the firm to keep a consistent decision-making process that pays off over the life of an investment, Mruck adds.

Tangent to empowering its staff to become active participants in the private equity process is an apprenticeship approach that Advent employs across the 15 countries in which its 15 offices and 127 investment professionals reside.

“One of the obligations that we put on people as they gain seniority is to make sure the person behind them is also growing,” says Bachrach. “The challenge is bringing the years of experience of the more senior partners to the new entrants at the analyst level. And we all vary a little bit [across Advent teams] as to how we do it, but we’re all conscious that we need to do it.”

In Latin America, all Advent investment staff, from the most senior right down to the analysts, attend investment committee meetings. The practice began because of the region’s relatively small population of seasoned private equity professionals. Advent wanted to ensure its team had a common understanding of the asset class and its facets, gained through transparent exposure to all parts of the process.

“We’ve maintained this apprenticeship approach, and I think some of that, culturally, exists across Advent in that there isn’t a black box,” Bachrach says. “The investment committee isn’t in a shut-off room – it’s a very open process.”

The firm also encourages all level of staff to speak up if they’ve blundered, or if they disagree with others’ analysis.

“Everybody makes mistakes,” Battcock says. “You’ve got to make mistakes and learn from collective mistakes.”

On each deal Advent completes, whether it’s a success or not, the deal team that put it together gives it a thorough analysis as to what was done right, what was wrong, and what could be done better next time.

“So the point is that there is no complacency at all, we can always do better,”Battcock says.“We’re good, we’re right up there, but we can still do better.”

Advent assigns deal teams across geographies, depending upon the size of the team where a deal is being done and the specialities of those team members. The large North American team has subsets specific to the five main sectors Advent targets: business and financial services; industrials; retail and consumer; healthcare and life sciences; and technology, telecom and media.

We kid about this – that we were a decade ahead of the competition. The thing is, nobody was chasing us for 10 years because it was tough

David Mussafer

In Europe, it’s more of a matrix of geography and sector.

“When we look at a deal, we put together a deal team to draw on both of those sets of expertise,” Battcock says. “So for example, we’re strong believers that if a deal is headquartered in Germany, it should be led by German people.

But also you want the sector expertise.”

Other factors, too, determine who comprises the team, such as financing expertise required for a given transaction.

The managing partners caution that borders are lax when it comes to assembling the right team, and that Advent employees across all geographies and levels are in constant contact with one another regarding deals in progress.

“You have the ability, for example, to talk to someone in Latin America as a Central European dealmaker,” Mruck explains. “Well, none of my competitors have that. We may learn something that nobody else knows.”

The firm also draws on the expertise of more than 40 operating partners, most of whom had been running multinational firms as opposed to being past presidents or prime ministers.

“These are working people who can help us source deals, go to management presentations and assist us with the diligence, and then ultimately sit on the board of the portfolio company and help us manage it all the way through,” Battcock says.

One team’s successes or failures financially affect all the others in the Advent family.

“That’s part of the secret sauce of managing a global business,” Mussafer says. “You have a group of highly driven, very intelligent professionals, and you need to create a compensation system that fosters teamwork.”

The key, he continues, is to ensure that the people in each region receive at least 50 percent of the economics from the deals done in their region, and then appropriately balance compensation from the rest of the organisation to “knit the team together”.

Advent has spent a great deal of time developing and fine-tuning its compensation structure, and not just with regard to carry. Bachrach estimates the 12 managing directors spend the largest chunk of their time, when not discussing immediate investment strategies, on human resource issues.

“We’re trading ideas about how we can help people develop their careers; we revisit our promotion criteria to make sure we’re up to date, because at the end of the day our most important asset is our people,” Bachrach says.

“We want to make sure we don’t lose track of continuing to build that asset and continuing to make people feel supported.”

Advent has no limit on its number of potential managing partners, nor strict parameters as to when partners can be promoted, unlike some other firms which may only advance staff at the time of a new fundraise.

“It’s a positive that people who work here know there’s no ceiling on the number of senior partners, and everyone at Advent has the opportunity to grow,”Mussafer says.

That’s one of the benefits from having grown its assets under management. Since raising its first, $225 million fund in 1987, the firm has raised roughly $24 billion from limited partners. For example, its fifth global private equity fund, closed on $3.3 billion in 2005, resulted in staff growth of some 25 percent, Mussafer says.

And the firm is sure to grow more, having in the last 12 months closed a $10.4 billion global fund, a ¥60 billion Japanese fund, a €1 billion Central and Eastern Europe fund and a $1.3 billion Latin American fund.

“We spend a lot of time talking amongst ourselves with respect to expanding a global private equity firm,” Bachrach says.

Advent started building its global platform as soon as it was founded by Peter Brooke as his second spinout (in 1967 he founded Boston-based private equity firmTA Associates as a spinout from brokerage firmTucker Anthony).

In 1989 Advent opened in London, the same year it raised a $231 million European special situations fund, and two years later added locations in Frankfurt andMilan. By 2004, its 20th anniversary, Advent had offices in Buenos Aires, Mexico City, Paris, Sao Paulo, Warsaw, Bucharest, Tokyo and Madrid. It was already investing its second Central and Eastern European fund, its second Latin American fund and its fourth global mid-market buyout fund.

“We kid about this – that we were a decade ahead of the competition. The thing is, nobody was chasing us for 10 years because it was tough,” Mussafer recalls. “We made a whole host of mistakes and worked through a number of challenges, and I think that’s part of the collegial naturewe’ve developed – we’ve worked together for a long time. We’ve built the organisation as a tapestry of nationalities and skill sets.”

Over time, and in contrast to some firms that continue to broaden their franchises, Advent has become narrower in focus, spinning off its venture activities to focus solely on global buyouts.

“When we first started out, the rationale behind having all of the local offices was to be the smart money on the ground, to be viewed as the credible local player. As our deals have become larger – we’re still doing mid-size deals, but what we call ‘mid- to upper-mid’ – a lot of the businesses are more global in their footprint,” Mussafer says.

That now enables the firm to employ its multinational strengths, he adds.

“While we have skills and resources that some of our largest brethren have, we’re applying that expertise to midsize transactions.”

When Advent closed its sixth global fund in April on approximately $10.4 billion, making it the largest midmarket fund raised to date, more than one pundit pointed out that “$10.4 billion” and “mid-market fund” seemed a bit of an oxymoron.

As testament to its track record, which Mussafer says is characterised by “not relying on one or two big deals or homerun deals to make the returns”, Advent actually had roughly double the demand of where it capped the fund.

“We consciously sized the fund so it would be consistent with our approach, our culture and the types of transactions we have been doing,” Battcock explains. “The $10.4 billion figure doesn’t require a step change in deal size; it will require some evolution upwards.”


1984 1996 2005
Spins out of TA Associates Raises first Latin American private Raises ACEE III ( 330m)
equity fund – LAPEF ($230m) Raises GPE V ( 2.5bn / $3.3bn)
1987 Opens Buenos Aires and Mexico City Raises LAPEF III ($375m)
Raises first major institutional fund – offices
International Network Fund ($225m) 2006
1997 Opens Amsterdam office
1989 Raises GPE III ($1.2bn)
Raises European Special Situations Opens Paris and São Paulo offices 2007
Fund ($231m) Opens Prague office
Opens London office 1998 Raises LAPEF IV ($1.3bn)
Raises ACEE II ($182m) Opens Kiev office
1991 Opens Warsaw office
Opens Frankfurt and Milan offices 2008
2000 Raises GPE VI ( 6.6bn / $10.4bn)
1994 Opens Bucharest office Raises ACEE IV ( 1bn)
Raises Global Private Equity (GPE) II Raises first Japan private equity fund
($415m) 2001 – JPEF (¥60bn)
Merges with Trinity Capital Partners Raises GPE IV ($1.9bn)
(UK) Opens Tokyo office
Raises first Central & Eastern
European private equity fund – ACEE 2002
($58m) Raises LAPEF II ($265m)
Opens Madrid office