In the fast lane: Face to Face with Hellman and Friedman's Brian Powers

Along the path of his career thus far, Brian Powers, chief executive officer of San Francisco-based buyout firm Hellman & Friedman LLC, has taken the road less traveled and often has blazed a trail all his own.

A lawyer with an undergraduate degree in economics from Yale University, Mr. Powers began his journey briefly teaching and then practicing law in the mergers and acquisitions group of New York law firm Debevoise Plimpton, Lyons & Gates. He then joined the Ford Foundation, where he eventually headed up venture capital and real estate. After a stint at James D. Wolfensohn Inc., the investment banking firm of the former World Bank president, Mr. Powers became the first American head (dubbed tai-pan by the firm) of Hong Kong-based Jardine Matheson, the 175-year-old business empire James Clavell used as the basis for his novel “Noble House.”

Mr. Powers joined Hellman & Friedman in 1991 as managing director but left three years later to run Consolidated Press Holdings Ltd. and Publishing and Broadcasting Ltd. in Australia. In 1999, he returned to Hellman & Friedman as managing director and became CEO in 2003. Besides being CEO, he is chairman of the investment and compensation committees.

While the firm does not restrict its investments to companies in particular industries, recent investments have included investment management firms, insurance companies and marketing firms. Three years ago it bought value manager Delaware International Advisors Ltd., now known as Mondrian Investment Partners Ltd., London, from its parent Lincoln Financial Corp.

So far this year, Mr. Powers has steered the firm into the fast lane. In April, the firm closed $8.4 billion Hellman & Friedman Capital Partners VI LP, doubling its assets under management. Its $3.1 billion agreement to sell portfolio company DoubleClick Inc. to Google Inc. will be the biggest gain in the firm’s history. The firm will realize proceeds of $2.5 billion on an investment just over $300 million from Fund V. However, there have been some bumps in the road. On May 29, the Federal Trade Commission launched a preliminary antitrust investigation into the sale, which could halt or at least stall the deal and investors’ expected returns on the firm’s last fund. The next day, two advertising industry trade groups asked the FTC and the Department of Justice to review recent acquisitions of online advertising companies including the Google-DoubleClick deal.

How has the firm’s investment philosophy evolved? The investment philosophy differs from the mid-1980s. As Warren would say, Hellman & Friedman was started by a bunch of recovering investment bankers without a well-developed investment philosophy. We were looking for good deals, not good businesses. ... In the 1990s, we decided to focus purely on the investment side of the business, and move away from the advisory and investment banking side. … We developed a basic investment philosophy of investing in growing businesses that have proven and defensible franchises. We’re not enamored with businesses where a large portion of operating cash flow is required to be re-invested in the businesses simply to maintain the same level of activity. We don’t think those businesses are as attractive from an investment point of view. Accordingly, we most often invest in “people businesses” and partner with their management. We in those cases provide “transition capital” to buy out the company’s founder or strategic investors or to fund a large acquisition.

How do you exit these companies? Our view is that if an investment is very successful, and the business grows its free cash flow, exiting will take care of itself. … Most often, though, we end up exiting five to 19 years down the road. Managers don’t necessarily want a majority investor, they would rather be independent to provide their staff with an incentive to build a business. That’s one option. Or, we could decide to take them public.

How does DoubleClick fit in to your investment strategy? We bought DoubleClick Inc. in 2005. It was a high flier in the dot-com era, at its peak worth $15 billion. Its share price collapsed and had a market capitalization of around $1 billion when we bought it in 2005. We were interested because it had two strong underlying businesses in the advertising and marketing services space. ... We understand advertising. We were the only private equity firm to have made an investment in a large advertising agency, Young & Rubicam (Inc.). DoubleClick was a difficult company to understand and value. While the company had maintained its market leadership, there were questions about the defensibility of its franchise. We decided to roll up our sleeves and take a hard look. We decided that it was a defensible and valuable franchise and were really one of the only people standing at the end of the sale process. Our judgment proved to be correct. Bottom line we put in around $300 million of equity and agreed to sell to Google for $3.1 billion, of which our stake will be around $2.5 billion.

Recently, the FTC launched an investigation of the Google/DoubleClick deal and two advertising trade groups asked the FTC and the Department of Justice to review the transaction ... how will this development and the FTC investigation impact the deal? It is not unusual in situations like this for a second request to be issued. We look forward to cooperating fully with the FTC to demonstrate how the proposed transaction will provide significant benefits to DoubleClick’s customers. We are confident the FTC will clear the transaction after careful review.

What do you think about selling a piece of Hellman & Friedman on the public market or otherwise capitalizing the business? We keep the business focused and have only one fund on a worldwide basis. We like to spend time investing rather than managing a group of investment professionals. If we grew three to four times our size, we would be managing people and the firm instead of investing capital. There’s nothing wrong with that and quite frankly, it could be a lucrative business model. However, we prefer to spend as much of our time as we can working on investments. On your second point on capitalizing our general partnership, we certainly have no plans and would only do so if we were convinced it would be a better business model, meaning that we thought it was necessary to continue to be successful in attracting an retaining the best investment professionals. We don’t think it will turn out to be the case. Also, we don’t think we have an issue to solve by going public. Many people are looking at going public to solve generational issues — we have already successfully dealt with those types of issues.

What are ways to realize value without going public? While we are not currently contemplating this, you could bring in a strategic investor or partner and do a recapitalization. Nobody has done that yet in any scale. Goldman Sachs is working on private placement for {not ours but for others} securities.

Does Goldman Sachs’ private placement securities market interest you? It is an interesting development, but we are not thinking about something like that now. We start with what is the best for our business. If we are doing a good job on that everything else would take care of itself. We don’t have a founder or a senior partner looking to step down and sell a portion of stock. Warren Hellman has embraced the model (that) as you become less active you reduce your interest in the firm.