MGMT 495 Summer 2011: Kelly Bossolt Marta Kovorotna Sarah Smith

 “ We try to mix our investment culture with third-party objective management experience and local knowledge. We have done this across all our funds. We’re never satisfied that we’ve built the best model. We constantly try to morph the catcher’s mitt to the pitch that’s being thrown.”  Diniel D’Aniello, Carlyle co-funder  Investors chose funds, Carlyle decides where to invest the fund’s money

 Financial Analysis  External Analysis  Market Entry  Rivals & Substitutes  Investors & Activities  International Entry  Internal Analysis  Early Years2  2008  Structure  Resources  Capabilities

 Relatively Easy to Enter  Need expertise  Need cash flow  Need investors  Based on Trust & Performance  Carlyle was founded in 1987

 The Blackstone Group, KKR, TPG  Mostly NY based Companies  Focused on the biggest acquisitions  Carlyle focused on small & mid-market deals  Hard to substitute  Different strategy, and ideas  Easily imitated with the right expertise

 Investors  Public & Private Institutions  High net worth Individuals  Investment Activities  Very Conservative  Only invest in places with expertise  Always get multiple approvals

 Europe – 1998  Smooth Entry  Asia – 1999  Hong Kong & Seoul  Rocky Beginnings  Strategy – Buyout, they wanted Growth Capital

 Washington, D.C. location  Extensive government contacts  Identified investment opportunities overlooked by Wall Street  Heavy investments in Defense industry  BDM  Hired people with top public sector experience  James Baker, former Secretary of State  Arthur Levitt, former SEC Commissioner

 September 11, 2001  Defense industry caught a bad rep. Carlyle pulled back  Began buying distressed companies  Titanium-component maker Stellex  After reviving them, Carlyle sold making 6.3 times it’s invested capital  Change in team  Strong business and leadership skills, opposed to those with strong political connections

 Able to sustain growth through the financial crisis  Four main investment activities  Buyout  Specialized by industry: “Industry trumps everything-it trumps product type & geography”  Leveraged Finance  CDOs  Real Estate  Commercial & residential  Growth Capital  Assisted companies in getting started and growing quickly

 Employees belonged to 1 of 3 groups  Deal makers  Investor relations & fundraisers  Investor Service  Each of the 48 funds operates as its own regulatory and legal entity  2008 Decentralized decision making through 5 investment sectors

 “Good investment professionals don’t grow on trees”  “We want people to help us build a cannon” not here for personal gain”  2000  HR was established  Annual reviews, employee retreats, 360 degree evaluation  Take time to mentor your team  “Do good deals and everything else will take care of itself.”  Talent must have strong entrepreneurial orientation to make and close deals

 Shared information and expertise across funds, industries and geographies  One Carlyle approach  Had a knack for reviving distressed companies some of which were in distressed industries  BDM, Forged Metals & Firth Rixon, Dex  Experts in every industry  Known to be Risk-Averse  Resilient and diversified across asset classes  Succeeded by doing things slightly different from others  Global Financial Services ( Not traditional among PE firms)

 Their team:  203 MBAs  34 JDs  11 Ph.Ds/M.Ds  33 offices in 22 different countries  Internationalize through localization  Regional offices opposed to only one per country  “We don’t parachute Americans in.”  Important to hire foreign national that are deeply rooted in the local business culture

 Be cautious within the financial services sector  Probably not traditional for a good reason  Too complex and far too risky  Example: Boston Private Financial Holdings not doing well