The transformer

If his firm can't change it, Donald Gogel won't buy it. The CEO of New York buyout firm Clayton, Dubilier & Rice oversees an investment team that has since 1978 combined financial acumen with roll-upyour-sleeves operating work. It is an investment model now pursued by almost every major private equity firm, but Gogel argues that few firms are as committed to the granularity of operational change as is Clayton Dubilier. The former Rhodes scholar spoke recently with David Snow about standing out from the competition, his firm's stepped up co-investment activity and his days as a New York City streetballer.

Donald Gogel is a details man. He loves gaining access to details, and he expects those around him to expend great effort in uncovering, analysing and acting on details, or they can forget about working at Clayton, Dubilier & Rice. Big-picture data is available to just about anyone, he points out. “Every investment bank will show you the 50 most undervalued companies in an industry compared to a five-year trading history,” says Gogel. “But that doesn't mean a lot to us.”

What makes this a perfect job for me is that my natural curiosity isn't satisfied in a single industry or a single deal

During a recent interview in his firm's Seagram Building office in Midtown Manhattan, Gogel gives an example of what constitutes far more meaningful intelligence at Clayton Dubilier. He launches into a sort of Socratic dialogue that might be overheard between one of the professionals at his firm and a middle manager at a portfolio company. These “operating assessment” dialogues are, he says, designed to discover why, say, a certain division has not had success penetrating, say, the German market. “At an advanced level of scrutiny, the answer is not likely to be, ‘Oh well, we just forgot about Germany’,” says Gogel. “There are going to be operational issues: ‘We've been having difficulty getting distribution in Germany.’ ‘Why is that?’ ‘The distributors haven't wanted to carry our product.’ ‘Why is that?’ ‘Well, we haven't been able to offer them enough volume.’ ‘Why is that?’ ‘We only offer high-end products.’ ‘Why don't you offer low-end products?’ ‘We've never gotten enough capital allocation from the parent company and so we haven't invested in this.’ ‘Would it take long to do this?’ ‘Well, probably 18 months.’”

Gogel pauses here to apologise for getting into such “tortured” detail, but adds that torturous fact-finding conversations like this are routine for his firm. Often as many as 100 to 200 operating assessments like these are collected and factored into a Clayton Dubilier business model prior to a deal getting completed. They are the basis for significant operational changes and real results, Gogel says.

Gogel has a polite but no-nonsense demeanor that is well-suited to the efficient exchange of information. When not pouring over the details of Clayton Dubilier's existing and prospective portfolio companies, Gogel, the New York buyout firm's president and chief executive officer, spends most of his time meeting with senior executives to learn detailed intelligence about their respective industries, and to scout for the rare person who might make a good fit as an operating partner at Clayton Dubilier or at one of its portfolio companies. He relishes these meetings, he says. “What makes this a perfect job for me is that my natural curiosity isn't satisfied in a single industry or a single deal,” says Gogel. “In having that exposure to different CEOs in two dozen industries over the course of a year, I get to see transformational events in industries all over the world.”

But what Gogel really listens for is the point in the conversation where the executive says: “This is what my team and I did.” Clayton Dubilier is not averse to taking advantage of fortuitous market trends – the liquidity surge of recent years, for example, which allowed Gogel's firm and every other buyout shop to unlock value through dividend recapitalisations. But rising tides alone aren't sufficient for Clayton Dubilier's investment screen. Unless a company can be transformed through “the sheer brute force of management execution”, as Gogel puts it, the firm will take a pass on the deal, regardless of the potential upside. Talented brute-forcers are few and far between, says Gogel, as are the investment opportunities to which Clayton Dubilier assigns them.

“We have what I call a crystalline clarity of focus here,” says Gogel, “We know what we're looking for, and it's not everything. We will do two or three investments per year. Some years we've done none. One of our investments has to fit very narrow criteria. Not only do we have to think it has the potential to be a business in a reasonably benign environment – where we can succeed but see the industry fall apart – more importantly we have to see it as a business that lends itself to a transformation that management can control. You need to work harder and longer and think through all of the issues – engineering, marketing, distribution, sales, service…”

CLAYTON DUBILIER & RICE

Founded: 1978
Headquarters: New York
Other office: London
Key personnel
Donald Gogel, President, CEO Joseph Rice, Chairman Charles Ames, Vice Chairman Kevin Conway, Roberto Quarta, Partner, head of European operations Jack Welch, Special Partner
Recent funds
• Co-investment fund (currently fundraising)
• Clayton Dubilier & Rice Fund VII ($4 billion, 2005)
Recent deals
• Acquisition of HD Supply from The Home Depot for
$10.3 billion, with Bain Capital and The Carlyle Group
• Acquisition of U.S. Foodservice From Ahold for $7.1 billion, with KKR
• Sale of VWR International to Madison Dearborn
• Acquisition of ServiceMaster for $5.5 billion
Recent hires
• James Berges, operating partner, former vice chairman and president of Emerson Electric
• Charles Banks, operating partner, former CEO of Wolseley