Investment Objectives

Wasserstein & Co.’s extensive network of relationships generates significant investment opportunities and proprietary and preferred buyer deal flow.   We generally seek investments where we acquire absolute or significant control or a position of significant influence, including by obtaining negative controls or contractual rights.   However, we may from time-to-time consider special situation investments or structured minority investments where it may not be possible to obtain control but the investment is compelling nevertheless.   We will also consider jointly investing with appropriate strategic and financial partners, whether in controlled investments or in selected minority co-investments.  

Our equity investments generally range from $25 million to $150 million, with the majority of investments near the middle of the range.   Periodically we seek strategic or financial co-investments, including from our investors, in order to complete larger transactions.   We apply reasonable leverage to our investments to maximize returns for investors, and target a gross IRR in excess of 25% generally.

The General Partner intends to invest in businesses in the sectors and with the characteristics described below. The General Partner will generally seek investments where the Partnership acquires control or a position of significant influence, including by obtaining negative controls or contractual rights. However, the General Partner may from time-to-time consider special situation investments or structured minority investments where it may not be possible to obtain control but the investment is compelling nevertheless, particularly in investments within the General Partner’s knowledge network. The General Partner will also consider jointly investing with appropriate strategic and financial partners, whether in control investments or in selected minority co-investments.

The General Partner expects to invest in approximately eight to ten companies, although add-on acquisitions may significantly increase such number. Equity investments are expected to range from $30 million to $150 million, with the majority of investments near the middle of the range. Given the close historical relationships of the General Partner with larger investment banks and deal intermediaries and their respective senior officers, the General Partner frequently sees deal opportunities that may require somewhat more equity than could be invested by the Partnership. This occurred in several instances with prospective portfolio companies, investments completed in U.S. Equity Partners II and historical investments. As it has done in such cases, the General Partner may seek strategic or financial co-investments, including from Limited Partners of the Partnership, in order to complete such larger transactions while complying with the Partnership’s 20% diversification limitation. The General Partner expects to apply reasonable leverage to its investments to maximize returns for investors.

The General Partner will remain focused on risk levels in every investment, and will always strive to ensure that risks assumed by the Partnership are adequately understood, compensated and mitigated to the extent possible. Moreover, the General Partner will continue to be biased in favor of investments with returns at the lower end of its targeted range, but with risks to capital that are disproportionately lower. The General Partner also expects to forego higher risk investment opportunities that may have the potential to generate outsized returns if there is any meaningful risk to invested equity capital.

Targeted Investment Sectors

The General Partner will seek to invest with a focus generally on the following sectors:

Investments in Media and Consumer Products Sectors and in General Partner’s Knowledge Network

The General Partner has had many years of successful investments in both the media and consumer products sectors. These sectors will remain the primary focus for the Partnership. In both sectors, officers of the General Partner have extensive expertise, both from an investing as well as operational standpoint. The General Partner is perceived by many to be a “strategic” investor in these sectors due to its considerable experience owning, operating and overseeing businesses in the sectors; its ability to understand and exploit both apparent and obscured growth opportunities; and its experience and ability in understanding and diligencing complicated corporate challenges and opportunities in these sectors. Opportunistically, the General Partner may also pursue other types of investments within its “knowledge network”, where it has unique access or insight arising out of personal relationships, a specific strategic or competitive advantage developed through industry or other professional relationships, or special knowledge concerning the company or its industry, including trends and industry dynamics.  

Media Sector. The General Partner has broad and deep experience investing in media companies, and believes media remains a compelling investment sector. With unique brands and content, a high degree of scalable, variable costs as a percent of total expenses, and multiple, diverse revenue streams, strong media companies offer stability, dependability and the ability to service debt. This is in part due to media companies’ very strong cash flow attributes: they tend to enjoy favorable working capital, low capital expenditures and frequently feature tax-advantaged acquisition structures. Portfolio companies ALM Media from U.S. Equity Partners I, LP (“U.S. Equity Partners I” or “USEP I”) and Penton Media from U.S. Equity Partners II, for example, convert over 90% of EBITDA to free cash flow, allowing such companies to pay down significant debt and access the capital markets on relatively favorable terms.  

Additionally, media investments often provide the opportunity to pursue numerous growth areas, which allows the General Partner to create value during its ownership. First, media companies continue to explore the challenges and opportunities of the internet as both a business and a distribution medium; the General Partner has significant experience in this area. With focused investments in online media capabilities, nearly all of U.S. Equity Partners I’s and U.S. Equity Partners II’s media investments have achieved 20 – 50% three year compound annual growth rates, creating significant value. Second, the media industry’s competitive landscape is highly fragmented, providing numerous add-on acquisition opportunities in nearly every sector. For example, ALM Media, Penton Media and Hanley Wood (from U.S. Equity Partners II) collectively have completed approximately 25 add-on acquisitions at attractive valuations, generating significant operating synergies and equity value. Third, because of the General Partner’s ownership of numerous media businesses, it believes it has significant insight into best practices, potential cost savings, growth opportunities and management strength, mitigating the risk of a given investment.

Although there is typically competition for purchasing attractive media businesses, the General Partner’s experience and reputation in the industry provide unique investment opportunities. The General Partner believes it is one of the most well-known media investors in the middle market, and has a ubiquitous presence in business-to-business media in particular in the U.S.

Consumer Products Sector.  The General Partner has successfully invested across a wide range of consumer products categories, ranging from companies in personal care products, sporting goods and recreational equipment, luxury motorboats, beverages, and gourmet foods and gifts, among others. The General Partner’s investments in the consumer products sector have included Harry & David, Sportcraft, and MasterCraft, all in U.S. Equity Partners II, and Maybelline, All-Clad, Sunbelt Plastics and Odwalla, among others, from earlier funds. Typically consumer brands targeted by the General Partner have a long operating history, a unique or compelling brand positioning, a loyal consumer following, and compelling growth opportunities. Most consumer products companies targeted by the General Partner are also in need of revitalization or brand focus initiatives, at which the General Partner is deeply experienced. These may include updated packaging or an updated brand imagery, better marketing and promotion efforts, brand extensions to capture market share adjacencies, divestment or closure of non-core brands or businesses, or other initiatives. The revitalization, brand focus and growth initiatives led by the General Partner have created significant value in each of its historical consumer products sector investments.

Although consumer products companies are widely sought by financial and strategic acquirers alike, significant opportunities will continue to be available to the Partnership because of the strategic vision and focus of the General Partner. This sector has always been and will continue to be competitive. Many consumer products companies are divested in auctions, which does not necessarily mean that significant opportunities cannot be found. Frequently, divested subsidiaries or businesses have attributes or challenges that are not readily understood by all potential acquirers, or that present financing challenges, or that cannot be adequately addressed by the skill sets of the acquirers. As such, even in competitive auction processes, the General Partner has acquired exceptional businesses, at low purchase price multiples relative to peer companies.

U.S. Equity Partners II acquired Harry & David, Sportcraft and MasterCraft in competitive auction processes, and paid trailing EBITDA multiples of 5.2x, 5.9x and 6.4x, respectively. While each of these companies enjoyed long-standing brands, leading market shares and compelling growth prospects, the acquisition multiple paid by the General Partner in each case was well below that at which high-quality consumer products companies typically trade. The General Partner has repeatedly succeeded in challenged or misunderstood auction processes where the ultimate purchase price was “below market” by taking advantage of structural or other impediments to the sellers’ maximizing value, and relying upon its strategic vision to recognize value where others may not. For example, Harry & David was a highly seasonal business which had never accessed the capital markets, making financing unusually challenging, while the cyclical nature of the overall boating industry suppressed the perceived valuation of MasterCraft despite its strong free cash flows and elite status within an advantaged market segment. In each of these situations, the General Partner was able to identify and value growth opportunities that other potential purchasers did not. Simply stated, the General Partner had a different strategic vision for each of these opportunities than perhaps all of the other bidders, as well as insights into the sales processes themselves, which allowed the General Partner to prevail in auctions at attractive purchase prices that are expected to help generate favorable returns on these investments.

The General Partner believes there will be exceptional opportunities for the Partnership in the consumer products sector at attractive purchase price multiples. The General Partner will continue to pursue businesses in this sector where it has a specific strategic vision and investment thesis, where the risks of non-achievement are understood and fully compensated, and where there are mitigating attributes to protect invested capital. The General Partner will not overpay in this sector for growth that is speculative or too costly to obtain, which is commonly done.

Knowledge Network. While the General Partner’s primary targeted investment sectors are media and consumer products, opportunistically the General Partner may also pursue other types of investments within its “knowledge network,” where it has unique access or insight arising out of personal relationships, a specific strategic or competitive advantage developed through industry or professional relationships, or special knowledge concerning the company or its industry, including trends and industry dynamics. Moreover, because of the General Partner’s broad and deep network of relationships, it is frequently asked to partner with other investors in situations requiring a high degree of trust and a high level of general investment expertise.

Historical examples of knowledge network investments include a minority investment in American Seafoods and a majority investment in Meyer Material, both investments made by U.S. Equity Partners II. In American Seafoods, the General Partner made a proprietary minority investment in a company with a controlling private equity investor with whom the General Partner has close relationships, and with large minority equity stakes owned by management and a Native Alaskan investor group. The General Partner served on the board of the company, and played an important, consensus-building role among the disparate shareholders. In Meyer Material, the General Partner had a longstanding relationship with the advisor to, and asset manager for, the selling family entity. In addition, the General Partner had relationships dating back many years with the most senior decision makers at the selling entity itself. These well established and trusted relationships with not just one, but all the relevant parties, facilitated this preferred-buyer acquisition and allowed the General Partner to acquire an attractive company for a compelling price. The General Partner expects to continue to review these types of investments for the Partnership.

Risk Considerations/Capital Protection

The assessment and minimization of risk is a critical aspect of the General Partner’s investment strategy and process. The General Partner devotes significant attention and resources to ensure that risks assumed by portfolio companies (and therefore the Partnership) are reasonable under the circumstances, adequately compensated and understood, and likely to generate returns commensurate with the risk. The General Partner will continue to be biased toward investments with returns at the lower end of its targeted range, but with risks that are disproportionately lower. The General Partner also seeks investments with characteristics or elements that inherently lower the risk. These include, for example, businesses with a valuable tangible asset base (as in the case of Harry & David from U.S. Equity Partners II) relative to the purchase price, or brand equity that has been built-up over decades (as in the case of all the portfolio investments in U.S. Equity Partners II), or favorable cash flow characteristics inherent in many business-to-business publishing companies (including Prism Media and Hanley Wood from U.S. Equity Partners II and ALM Media from U.S. Equity Partners I), where customer subscription payments are made up front and capital expenditures are low.

The General Partner also seeks initially to minimize risk through the use of relatively conservative capital structures at portfolio companies. Leverage today is at record levels and borrowing costs remain at historically favorable levels. Today’s leverage environment includes attractive cure features, in some cases covenant-light (or no-covenant) financings, and attractive spreads that do not account for historical default rates. This favorable environment will inevitably change within the investment cycle of the Partnership, and the General Partner will reflect this shift in its strategic thinking. In many of the U.S. Equity Partners II transactions, the General Partner declined to maximize initial leverage, preferring instead to “over-equitize” the transaction in order to ensure that the investment thesis for the particular company was fundamentally sound and proven out initially before adding more leverage later. The General Partner intends to utilize this approach in the Partnership. The General Partner will not risk the overall returns in the Partnership by taking excessive leverage risk on any particular portfolio company.

Special Targeted Investment Situations

Within the General Partner’s primary targeted investment sectors of media and consumer products companies, or in investments within the General Partner’s knowledge network, the General Partner may target the following investment situations, among others.

Carve-outs and Divestitures from Larger Companies

The current business environment, particularly as companies have become more aware of their strengths and vulnerabilities arising from globalization, online threats and opportunities and other factors, has caused a resurgence in focus on corporate core competencies. It is more important than ever for companies to devote their limited human and financial resources to their areas of strength, and to divest or shut down non-core or non-strategic businesses, even if they have good growth prospects. Often these non-core businesses have talented management teams that have benefited from the training and corporate culture associated with large, well-run companies. On the other hand, often management from larger businesses need to be liberated from the processes and restrictions inherent in larger bureaucratic organizations, and welcome the opportunity to work with the General Partner on maximizing the value of their business, without worrying about larger, collective corporate objectives.

As perceived “strategic” acquirers in the media and consumer products sectors, often the General Partner is provided an early window to possible corporate divestitures. While this does not lead to a proprietary deal opportunity in each case, familiarity with a business or early knowledge of a pending divestiture may be extremely beneficial to the Partnership. With advance familiarity of a business or notice of a possible sale, the General Partner has significant advantages over other potential buyers, including in arranging attractive financing, securing co-investors or joint venture partners, recruiting top management personnel and completing the due diligence review of the potential target. The General Partner also has significant expertise in purchasing business units from publicly traded companies, in purchasing publicly traded companies in their entirety and in navigating the complex board, shareholder and general fiduciary issues that often are raised in all such purchases. The General Partner expects that carve-outs from larger corporations will continue to provide significant investment opportunities for the Partnership.

Investments in Companies at an Inflection Point

The General Partner has had considerable experience and success investing in companies that have reached an inflection point in their life cycle. Companies at an inflection point might include businesses that require capital for necessary geographic or product expansion, or introductions to joint venture or strategic partners, or businesses that need additional know-how or guidance to exploit either traditional or online business initiatives. In particular, the General Partner has considerable experience and is viewed as a leader in transformational investments in the media sector from terrestrial to online businesses. This has been accomplished by making targeted investments, completing key strategic acquisitions, the arrangement of joint ventures and strategic relationships, and the recruitment of talented traditional and online managers, among other initiatives. The General Partner’s success generally in this area has led to further opportunities, and the General Partner expects to continue with the theme of investing in companies at inflection points for the Partnership.

Special Situations Investments

On occasion certain opportunities may be special situations that may not necessarily meet the Partnership’s primary stated objectives, but might be compelling nevertheless. This may be the case because such special situations might provide an early look or “toe-hold” investment for the Partnership, or because they may provide an opportunity to either invest with a valued co-investor or to learn more about an industry or company without purchasing control. The General Partner will consider such investments on an opportunistic basis, but does not expect to deploy more than approximately 10% of the Partnership’s capital in any such special situation investment.

Investment Process

The General Partner intends to employ in the Partnership the investment process and philosophy set forth below, which was utilized successfully in U.S. Equity Partners II:

Deal Sourcing and Generation

As it has done historically, the General Partner will continue to leverage its extensive, mega-fund access and network in media, consumer products and other business sectors to generate proprietary, preferred-buyer and competitive deal flow for the Partnership. The General Partner expects that investments for the Partnership will be sourced from each such method, as has been the case historically. While the General Partner reviews numerous relationship-driven investment opportunities that are narrowly marketed or proprietary, it also has been highly successful at identifying businesses not appreciated fully in competitive auctions, or that are the subject of “failed” or challenged auctions, whether as a result of company, industry or macro factors or trends. Simply stated, the General Partner seeks to acquire attractive businesses that can be bought, regardless of the nature of the process. The General Partner is also mindful that, in the sectors and the size investment targeted by the Partnership, auctions occasionally provide bargain purchases, because unrealistic price expectations, distractions by logical strategic acquirers, unique financing challenges, misunderstood opportunities or vulnerabilities, or other factors cause the auction not to yield the highest value that otherwise could be obtained or that is reflected by peer company valuations. Moreover, the General Partner is also mindful that, given the sophistication of most sellers today, often proprietary deal opportunities are simply an invitation to pay a higher price than might otherwise be obtained in an auction. The General Partner will continue to target compelling, attractive businesses for the Partnership, regardless of their source or the nature of the process.

Identifying the Strategic Opportunity through Due Diligence

The General Partner will devote substantial resources to the due diligence effort. The due diligence process will be conducted by a team led by one or two partners of the General Partner, and will often involve outside professionals with expertise in operations, marketing, information systems, law, accounting, tax, insurance, environmental and other areas, to the extent appropriate.