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BROKEN HEARTLAND

David Stockman's deal legacy at Blackstone is stellar. But his own private equity fund has hit the skids.

Last month, Collins & Aikman, an automotive parts company of private equity firm Heartland Industrial Partners, slipped into Chapter 11 bankruptcy. The company's chairman, David Stockman, resigned.

Stockman is also founding partner of Heartland Industrial, which is headquartered in Greenwich, Connecticut. Before he launched the firm in 1999, he was a senior managing director at The Blackstone Group.

Blackstone, which is currently seeking to raise a Fund V with a target of $11 billion, owes some of its best deals to Stockman. According to an LP source, Stockman was the originator of Blackstone III's investments in oil refinery business Premcor. Stockman was also behind Blackstone II's investments in automotive companies UCAR and American Axle. All three investments have been huge successes for the firm, according to the source, and figure prominently in the latest PPM.

Stockman departed Blackstone to focus “systematically” on industrial deals, which he described at the time as overlooked by mainstream private equity. Joining him at Heartland Industrial were Dan Tredwell and Timothy Leuliette, former executives from Chase Securities and Penske Corporation, respectively.

On the fundraising trail, the new Heartland team described to investors how America's industrial sector was starved for investment capital. In 2001, the group closed its debut fund on $1.4 billion, having set out to raise $2 billion.

Central to Heartland's investment play was Collins & Aikman. The firm acquired a 60 percent stake in the automotive flooring company in 2001 for $260 million. Later that year Heartland added on Textron Automotive for a total transaction value of $1.34 billion.

Since then, the US automotive industry has not fared well. Two months ago, General Motors had its debt rating cut to junk status as the company struggles with the rising cost of steel and oil.

The outlook of other Heartland Industrial portfolio companies is unclear. Metal components company Metaldyne recently had its credit rating downgraded by both Moody's and Standard & Poor's. TriMas, a diversified manufacturer, recently pulled an IPO registration after a delay of more than a year.

A call to Heartland Industrial's offices was not returned.

Stockman may be the victim of poor timing, but no one doubts his smarts and skills as a visionary. As the “whiz kid” budget director in the Reagan White House in the early 1980s, he was the initial champion of the president's supply-side “Reaganomics”, but left the administration disillusioned with the results of that policy. Stockman and team are no doubt at this very moment rethinking their approach to the restructuring of America's Rust Belt.

HORBACH QUITS FORSTMANN FOR CARLYLE
Sandra Horbach, former general partner at Forstmann Little, will join The Carlyle Group's New York office this September to head the firm's consumer/retail sector group. Horbach most recently served as a general partner with New York's Forstmann Little & Co., which she joined as an associate in 1987, eventually becoming general partner in 1993. Prior to joining Forstmann Little, Horbach worked for two years in the mergers and acquisition department of Morgan Stanley. Horbach's departure from Forstmann Little follows last year's pledge from the firm's founder, Theodore Forstmann, to shut down the firm as soon as 2006, and to possibly release investors of their remaining capital commitments before then.

JAMES BAKER JOINS EWING MANAGEMENT
A month after retiring as a senior advisor at The Carlyle Group, the former US secretary of state has joined the Dallas-based turnaround private equity firm, founded by former Carlyle professional Ed Ewing, as a partner. Baker, who served as a Cabinet member under President George H.W. Bush, was a senior advisor to Carlyle for more than 10 years. Baker will fulfill a similar role with Ewing Management. The firm, which has offices in Dallas and New York, has recently opened an office in Shanghai – a statement released by the company noted that “Baker will advise [Ewing] in the implementation of its strategic activities in China and throughout the region.”

INVESTMENT VET KINSMAN JOINS BUNKER HILL
Bunker Hill Capital announced Brian Kinsman joined the firm as a managing partner and will open an office in San Diego. Kinsman joins from San Diego-based Kinsman Capital, which he founded in 1998. Before that he was senior managing director at nearby Pacific Corporate Group. In a statement, Kinsman said: “As a small regional firm, I felt it was best to join forces with Bunker Hill Capital and its very experienced group of senior investment and operating professionals.” Bunker Hills was formed last year by a group that spun out of BancBoston Capital, the middle-market investment arm of Bank of Boston.

KKR ADDS FREEMAN AS HEALTHCARE PRO
Ken Freeman, the former Quest Diagnostics CEO, has joined KKR. In 1996 Freeman led the spin-out of what was then a comparatively tiny diagnostic testing, information and services company from technology group Corning Incorporated. At the time, the business was worth a mere $350 million. Nine years later, Quest had a valuation of more than $9 billion. Freeman isn't the first industrial heavyweight to be added to KKR's roster. In January, the firm hired former United Business Media chief executive Lord Hollick as a managing director as part of a plan to build a presence in the UK media sector.

GOLDMAN'S KIMMELMAN TO START POWER FUND
Doug Kimmelman, one of the major players behind Goldman Sachs' power investments, will launch a $1 billion (€800 million) private equity fund to invest in North American electricity assets. Reportedly, Kimmelman left Goldman last month after 22 years of working for the financial services giant, to set up Energy Capital Partners. He will be joined by Scott Helm, a co-founder of Goldman's Orion Power Holdings, and Thomas Lane, a senior Goldman mergers and acquisitions advisor. Energy Capital will reportedly be based in the New York area. It will focus on US-based investing in power plants and transmission lines, in addition to natural gas distribution and storage.

PAUL CAPITAL HIRES PRINCIPAL IN SAN FRANCISCO
Paul Capital, the secondary and fund-of-funds specialist firm, has hired Michael Darby as a principal in the firm's San Francisco office. Darby comes to Paul Capital after serving as a general partner at Silicon Valley venture capital firm Battery Ventures. He also worked at Cisco Systems in the business development division. At Paul Capital, Darby will commit capital to venture capital funds. Paul Capital manages a series of funds called the Top-Tier funds of funds. Most recently the firm closed on $478 million in 2002. Paul Capital was founded in 1991.

SILVER LAKE'S HUTCHINS JOINS NASDAQ BOARD
Silver Lake Partners managing director Glenn Hutchins has been elected a Class 1 director of the New York-based NASDAQ Stock Market. Hutchins will serve on the market's finance and compensation boards, with his term expiring at the 2007 annual shareholder meeting. Hutchins was reportedly elected under the terms of an amended security holders agreement between the market and the private equity firm. NASDAQ sold Silver Lake the institutional broker division of the Instinet Group, which the stock exchange acquired in April. Silver Lake, which has offices in Menlo Park and New York, closed its second vehicle in 2004 on $3.6 billion (€2.9 billion) and focuses on technology investments.