Sun Capital shines in buying, fixing and selling companies
When they lost initial bids to rivals, they turned to investing in distressed companies.
Today, about one-third of the businesses they buy are losing money. More than half are underperforming, “making money but not as much as they should,” said co-chief executive Rodger Krouse, who runs the business with buddy Marc Leder.
Sun Capital usually takes at least a 51 percent interest in companies, and it often retains many in management who can stay with the company after it is sold.
“We are team-oriented with management,” Krouse said. “We don’t dictate.”
The firm employs a group of experienced top-level operations executives to work with managers at portfolio companies. They roll up their sleeves at factories, mines, stores and others to help revamp operations, strategy, marketing and other corporate basics.
“There’s only so much you can learn in a conference room,” Krouse said of how his team chooses companies and helps run them. “You have to go out in the field.”
The firm is selective about investing. Offered more than 700 business opportunities yearly, it has averaged about 30 purchases annually in recent years, Krouse said.
It mainly buys leaders in their respective markets, companies with average annual revenue between $50 million and $500 million, known as “lower- and middle-market companies.”
The firm generally keeps the companies around five years, enough time to show buyers that a turnaround is sustainable and not a one-time event, he said.
Investors typically are large pension funds, endowments and other institutional investors. Returns on their investment are commonly five times, while some have reached 10 times and one more than 100 times the initial investment, Krouse said.
One high-profile success is American Standard. The bathroom and kitchen products company was losing $34 million a year in 2007. When Sun Capital sold it last year after revamping operations, American Standard was making nearly $50 million in annual profit.
The firm returned more than $1 billion to investors in 2013, a record amount, Krouse said.
“They are the premier private-equity company in the U.S. Southeast,” said banking and finance analyst Ken Thomas of Miami. “I wish we had more Sun Capitals in South Florida. They’re one of the most respected in the nation, without a doubt.”