Spurred by billionaire George Soros' announcement in 2004 that, along with transferring greater control of Soros Fund Management to his progeny, the firm would also focus on its core business as a hedge fund manager while winding down its non-hedge fund activities, the firm's buyouts team made the decision to spin out as a new entity in early 2005.
The transatlantic firm that emerged in April 2005 was none other than TowerBrook Capital Partners, which managed to raise $1.3 billion (€1 billion) in less than eight months for its first buyout fund – the TowerBrook Investors II fund closed in March 2006 – as an independent firm.
What was in part formerly known as Soros Private Equity was set up in 1998, and the London- and New York-based team continues to be guided by the leadership of TowerBrook co-chief executive officers Ramez Sousou and Neal Moszkowski. Meanwhile, Frank Sica, the former Morgan Stanley investment pro who started the Soros buyout division, has moved on to New York-based Tailwind Capital.
A ?seamless? transition
Thus far, the transatlantic firm seems to have transitioned into life on its own quite well. In addition to the successful fundraising, TowerBrook has been involved in a number of transactions (see box), including the €215 million PolymerLatex refinancing deal in June 2005, the CHF2.655 billion sale of Swiss cable firm Cablecom, the purchase of French engineering firm GSE – estimated to be a €225 million deal, the acquisition of hockey team St. Louis Blues in a $150 million deal, the acquisition of fine chemicals business of Clariant for CHF110 million, and buying Odlo Sports Group for €104 million in April.
However, the apparently smooth transition didn't take place without a significant amount of effort from the back office. The scale of the effort required to spin out was particularly large – and the learning curve steep – given that the team had previously enjoyed all the trappings and institutional support that went hand in hand with being part of one of the world's most well known and sizeable investment managers.
?There were 150 things on the to-do list, from large scale items like finding a human resources outsourcer to things like finding a new travel agent and setting up a new corporate card account,? recalls TowerBrook chief financial officer Jennifer Glassman, referring to the extensive list of tasks she and Filippo Cardini – the firm's chief operating officer and general counsel – faced prior to the spinout.
Including the newly raised TowerBrook Investors II, the firm now has roughly $2.5 billion in assets under management, including the fully-invested $697 million fund raised in 2001 that has been renamed TowerBrook Investors I. Consequently, TowerBrook required – from the very outset of its existence – extensive infrastructure support for its investment and fundraising activities on both sides of the Atlantic. Glassman and Cardini collaborated closely to work toward the goal of providing a ?seamless transition? for the firm's investment professionals and support staff, who were used to the highest quality of support and infrastructure from their days prior to the spinout, says Glassman.
?It was quite a challenge, but it was also a great opportunity to start fresh,? says Glassman.
Opting to outsource
In addition to deciding on TowerBrook's IT platform, Glassman and Cardini reviewed each administrative and support function to decide whether to manage the function in-house or to outsource it to a third-party. ?Previously everything was done in-house, including tax reporting, investor relations, human resources, real estate, and even meals for employees,? says Glassman. ?Ultimately, we decided on a model of outsourcing almost every function except accounting and investor reporting.?
The principal challenge that loomed was choosing the right IT platform, which Glassman and Cardini felt was the most critical decision they had to make. ?If you don't get [the IT infrastructure] right, it can really, really hurt the business,? says Glassman. ?We needed a reliable, unified, global model that would allow us to share information quickly. Global communication – via Blackberry, email, etc. – is key to our business.?
Despite being a small firm – staffed by 37 employees in two offices – TowerBrook required the IT platform and support on the scale of a large multinational corporation, says Glassman, and this disparity between the firm's size and the IT functionality it required presented a challenge when finding a suitable IT product. ?It was not easy finding a service provider with a single platform that was willing to take on a client of our size,? she recalls.
So TowerBrook went through a request-for-proposals process to find an IT service provider that would cover engineering, day-to-day management, telecommunications, network security, application support, server management, and ongoing support on-site. Through the process, the firm chose an IT service provider called Gravitas Technology, which ?did everything,? including designing and building the communications room in TowerBrook's new space, while charging a fraction of the cost that would have been involved with setting up an in-house IT team.
A critical facet of the new system is that it allows Tower-Brook's New York and London offices to ?function together seamlessly,? says Glassman. ?We can dial into the network remotely from anywhere. The disaster recovery plan leverages our global infrastructure, with London backing up the US office and vice versa. Even the little details, such as being able to dial from New York a four-digit extension to reach a London partner, or vice versa, help our two offices operate as if they were one.?
Meanwhile, the firm's human resources needs are handled by a professional employer organization called Ambrose. ?It is a great alternative for smaller firms like us,? says Glassman. ?They handle all of our HR needs, including payroll, insurance, benefits,? in addition to addressing time-consuming issues, such as helping with legal issues such as visa requirements for employees or offering lower cost insurance options.
Since TowerBrook and its investors preferred to have the ?real time information? be prepared by the firm itself, the investor relations and accounting functions are supported by a team of seven professionals, in addition to Glassman and Cardini. In the US, TowerBrook has two fund controllers, one management company controller and a senior accountant. Meanwhile, the firm has a fund controller – who does fund work and some management company work, a staff accountant, and a lawyer based at the London office. London-based Cardini acts as the chief point of contact for investor relations.
?The ability to have an IR and accounting function inhouse did dovetail with having the right IT infrastructure,? says Glassman. The firm chose Investran as its global fund accounting system, which is used by TowerBrook's controllers on both sides of the Atlantic. The sharing of deal information across the two offices also takes place through a global infrastructure.
Dealing with the details
Apart from the big projects like fund administration and technology, as well as human resources, other key items on the spinout ?to do? list included securing legal expertise, relocating the New York office, and selecting a name for the new firm.
?When setting up a global partnership, you need first rate and practical legal advice,? says Glassman. ?The complexity of structuring a new organization – including legal structure and governance – can't be underestimated.?
Real estate was another challenge the firm faced. ?Finding a space for our New York office took a while,? recalls Glassman. ?We wanted to be conservative because we wanted to keep costs in check, but we also wanted to have enough room to grow. It can be very costly and disruptive to move.? With that thought in mind, TowerBrook selected a 10,000 square foot space on Park Avenue in Midtown Manhattan, to house its fourteen New York-based professionals and provide space for the growth expected to accompany the firm's recent success in fundraising.
Choosing a name for the newly spun out entity was also – surprisingly – a challenge, says Glassman. ?If you are undertaking a spinout, you can't underestimate this process. It is hard to find a name that accurately reflects your firm, which is also available,? she emphasizes. With firm-wide input, the winning candidate was an amalgamation of the names of Tower Bridge in London and the Brooklyn Bridge in New York, signifying TowerBrook's bi-continental presence.
As far as building up the TowerBrook brand, the firm came up with a ?classic and conservative? logo, describes Glassman, but has not otherwise engaged in a large branding campaign or a significant ?PR blitz,? says Glassman.
?We think that over time, our returns and investments will speak for themselves,? says Glassman. ?We certainly want our brand to become known, but we feel like the best way to do that is over time, as our success builds.?
With spinouts seeming to be all the rage right now, fund administrators at other GPs taking the path to independence are finding themselves faced with challenges similar to that which TowerBrook encountered, and many are looking to the successful spinouts for guidance on how best to proceed. ?There is a growing trend of spinouts, and we've received calls from other CFOs and COOs going through this and are seeking advice,? notes Glassman.
To sum up, ?It's been a pretty exciting and challenging year, with the spinout and fund raising process,? says Glassman. ?Both of those were huge experiences for us.?
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