JLL Partners Gets Back in the Action
New York, N.Y. — JLL Partners, a New York-based turnaround firm formerly known as Joseph, Littlejohn & Levy, closed its fourth fund earlier this month on $750 million. Though the firm hasn’t done a deal in two years, its co-founder and senior managing director, Paul Levy, says the new pool of investment capital comes at a time of increased opportunity. He says JLL Partners remains focused on the same types of deals the firm had in mind when it was originally founded in 1987 with Levy and two partners who have since left to found firms of their own, Angus Littlejohn and Peter Joseph. Levy is enthusiastic about turning around companies in solid industries, such as healthcare and manufacturing. Levy spoke with PrivateEquityCentral.net about his new fund, the attraction of healthcare, and how deal flow looks to him in these troubled times.
PrivateEquityCentral.net: JLL Partners recently closed its fourth fund. As an established firm, how did you find the fund raising market this time around?
Paul Levy: It was generally slow and difficult. I think there’s a combination of factors that are out there which have already been reported on. General partners at large have had a tough go at it. I think we’ve done better than most. The limited partners have really seen the value of what they hold shrink dramatically. Along with that, their expectations have been lowered significantly, so I think there has been a real consolidation period. People are taking stock and that impacts everything. We have been slow to sell things that are doing well, and certainly might attract better prices in a better economic environment. If we were sending back more money, I think we would have had a better claim on getting the money. Otherwise, I think people are very pleased we stuck to our knitting. We did not participate in any of the tech or telecom investments done by LBO firms, nor did we participate in PIPEs. So I think we got some real credit for being focused.
PEC: Did you find most LPs deciding they were going to stick with their private equity investment programs, or are many of them scaling back?
PL: I think it’s a little of each. There are a lot of different people in this [industry]. I’m not involved with venture capital, but in some ways it’s probably a good time to be going into venture capital, because people have gotten so beaten up. Valuations with venture capital companies and expectations for managers are much lower. I think, while it’s been a very difficult time, it could be a very rewarding time. Similarly, we focus on companies that need some help of some kind. While it could be pretty depressing to have to deal with that, generally it often presents real opportunities for getting something done.
PEC: In terms of valuations, what do you think of the debt market now? Still tight?
PL: We haven’t done [a deal] in two years. We’ve actually been looking at some refinancing on what we own, so I would say generally the market has been pretty tight. I pick up the paper every day, and there hasn’t been that much going on. There are deals that get done but there has not been a lot of money available, generally speaking.
PEC: You mentioned you haven’t been too active for the past few years. What is your deal flow like now?
PL: Things are picking up quite a bit. We’re seeing more companies that are having trouble getting capital and we’re seeing good companies that have had a tough go of it. Business has been bad. I would say that business has been much worse than generally reported by the GDP numbers. Certainly, the manufacturing sector, which is one that we focus on, has struggled much more than the service economy. The high dollar has brought goods in from expensive countries in Europe, and the incredible powers of Asia — China in particular — are making high quality products at very low prices. That has put a lot of pressure on American manufacturing. The key is to find a value-added niche producer of a product that can send its market position.
PEC: Once you make an investment, how involved do you get with the company in terms of operational changes?
PL: We like to be involved but not intrusive, so it’s a fine line. I would say we’re probably more involved than a general level might be. We do not consider ourselves day-to-day, hands-on operators. We try to work closely with good managers. We work closely with them on acquisitions, on financings or refinancing, and we try to be close to what’s going on day-to-day but we don’t run the businesses.
PEC: The firm was founded back in 1987. Since then, Angus Littlejohn and Peter Joseph left to form other firms. Have personnel changes affected the firm at all?
PL: I can’t tell you how our limited partners view it, but the firm hasn’t changed at all. We’re still focused on the same things we’ve always done. We have the ability to help companies restructure their balance sheets and we can help them bring in the right kind of manpower to fix the operations. Again, we’re not a day-to-day operating group, but we haven’t changed at all because the firm never really had in-house operating expertise. We rely on people that we’re close to and bring them in as we need them.
PEC: Is there any particular sector right now that you find attractive?
PL: We love the healthcare field. JLL Partners has now done four significant transactions in healthcare. It’s not necessarily cheap right now, but we have a very strong investment in a company called Advanced PCS, which is the largest pharmacy benefit manager. We invested $150 million in October 2000 and it’s going really well. We bought our stock at $10 a share and it’s now $25. We have a hospital company called Iasis. We own 14 hospitals in good, high growth cities such as Salt Lake City, Phoenix, and San Antonio. We own four hospitals in Salt Lake, four in Phoenix, four in Texas, and three in the Tampa area. We’re also very interested in manufacturing. Because it’s so down on its knees right now, it could present real value opportunities.
PEC: Do you see a time frame for manufacturing to make a recovery?
PL: I don’t know. The dollar is too high, as I said. So much capacity was created during the boom and it has to be worn off. That could take a while.
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