Someone forgot to tell Sun Capital Partners that credit markets are dampening deal activity and altering some firms' expansion plans.
The US turnaround specialist, which targets underperforming or distressed companies, has been growing nearly as quickly as it has been deploying capital from its $6 billion Fund VI, closed last year.
Significantly larger than Sun Capital's previous fund, which closed on $1.5 billion in 2005, Fund VI marked a departure in strategy for the firm, predicated on the notion that bringing a buyout fund to market every two years is too disruptive to a steady stream of deal flow.
Last year Sun Capital kept up its intense investment pace, buying 39 companies, including 27 platforms and 12 add-on acquisitions. And as a result, its ranks are swelling.
“We're growing to accommodate deal flow,” says managing director Gary Talarico. That goes for both its operating partners based in Boca Raton, Florida, charged with managing an ever-increasing number of portfolio companies, “as well as the transaction side of our house, which means people who source deals and do the diligence and make the investment recommendation”.
Later this year, the firm plans to open an office in Shanghai. It already has an office in Shenzhen, where 16 Sun Capital professionals supervised by a Boca Raton, Florida-based vice president source products or operational prospects for Sun Capital portfolio companies.
The Shanghai office will be more deal-oriented, but with regards to add-ons, facilities and joint ventures for existing portfolio companies.
“I think we'll consider doing deals there, but for the most part we're operationally-driven,” Talarico said.
The office will be led by Victor Gao, who from 2000 to 2007 was president of the Greater China division of Eaton Corporation, a $13 billion industrial manufacturer. Gao was also president and chairman of Eaton Investments, where he oversaw regional mergers and acquisitions activity.
Gao is currently training at Sun Capital's Boca Raton headquarters for approximately six months, a process Talarico said the firm has undergone “with all of our Asian colleagues”. The training process in the US allows the firm's new recruits to become acquainted with colleagues, Sun Capital's corporate culture and to begin working on deals.
Akitoshi Nakamura is the most recent such colleague to join Sun's team. Tapped in March to lead to Sun Capital Japan, Sun's nearly two-year old Tokyo-based affiliate, Nakamura was most recently vice chairman and director of Japanese private equity firm Nikko Principal Investments Japan and also held roles at Ripplewood Japan and Citibank Japan. But Talarico highlights the senior position Nakamura held from 2003 to 2007 at the Board of the Industrial Revitalisation Corporation of Japan, a government-sponsored entity established to assist troubled companies with restructuring.
“He's a very, very good fit with us because of his experience,” Talarico says.
Asia is not the only region where Sun is growing and adding staff.
In June, the firm will triple its office space in Manhattan, moving across the street from its 375 Park Avenue position to an office at 100 Park Avenue. Since opening a New York office in 2001, the firm's investment staff has multiplied from three to 17 people.
“As our funds have grown in size, having a larger presence in New York clearly made sense because we're getting more and more deal flow from the larger investment banks here,” Talarico says.
From this point on, however, he anticipates the firm's London and Tokyo offices to grow at the quickest clips, simply because of their newness. Opened in July 2004, the firm's London office has grown from three to 18 investment professionals.
What will remain unchanged is Sun Capital's investment strategy.
“We now are certainly looking at buying bigger companies because of the size of our fund, but we're still interested in the small ones,” Talarico says. “A lot of people change their minimum equity cheque or minimum size of company they'll look at – we're not willing to do that because we see so many smaller companies where we can turn $1 into $20 or more that we like to keep that option open.”