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On a chilly afternoon in February 2005, Stephen Murray entered the Park Avenue headquarters of JPMorgan Chase & Co. and rode the elevator that would take him to the 48th floor and the office of the bank’s then president, Jamie Dimon. The famously candid Dimon had joined the bank the previous summer, after the institution he ran, Bank One Corp., merged with JPMorgan, and Murray, head of buyout and growth equity investments at J.P. Morgan Partners, the bank’s private equity group, wanted to get his new boss’s take on business.

For months, Murray, Dimon, JPMorgan CIO Ina Drew, the firm’s famous deal maker James (Jimmy) Lee Jr. and J.P. Morgan Partners’ longtime CEO, Jeffrey Walker, had been hammering out the details of a deal that would spin out the private equity group after more than two decades within the walls of the bank and its predecessor firms. Murray, then 42, was getting the chance to become a partner in the new enterprise.

It was the opportunity of a lifetime, but Murray, who had struck deals with CEOs twice his age when he was in his 20s, had some concerns. He worried about the surging leveraged-buyout market, which he felt was being fueled by low interest rates and easy access to credit. Although few others in the business appeared to give a second thought to the then-record $300 billion worth of buyout transactions that had taken place in 2004 or to the growing size of private equity funds that were being raised as investors rushed to get a piece of what seemed to be easy profits, Murray saw the numbers as alarming.

A fast-talking workaholic who spurns the spotlight as often as his rivals seek it out, Murray had spent the previous year evangelizing to his staff and other investors that private equity’s future would soon lie in operational turnarounds — generating profits from revamped companies — rather than financial wizardry. It was an approach JPMorgan’s group had long followed, but Murray felt he was missing critical expertise at the top to add to the tight-knit group of deal makers on whom he relied. Murray planned to hire hands-on operators — ideally former CEOs — as full partners in the firm. The executives would be paired with a financial partner to help identify investments and turn around businesses in what he confidently believed would be a brave new world, even as competitors were going in the opposite direction.

In their meeting that February afternoon, Dimon thought Murray’s strategy of doubling down on operations was a good one. But he sounded a note of caution about the enthusiastic executive’s ability to get it done. There are few corporate CEOs who are both great operators and great investors, Dimon remembers telling Murray. “First, you’re looking at the top echelon of CEOs,” says Dimon, who became chief executive of JP­Morgan in January 2006. “But then you need someone who thinks like an investor. You’re shooting at a very small target.”

Dimon was right, but he underestimated Murray’s patience, discipline and willingness to go against the herd.

In 2006 the bank spun off the buyout and growth equity team of its private equity group into a new firm called CCMP Capital Advisors. But it wasn’t until August 2008, after Walker retired, that Murray finally brought in the first of three new operations partners: Greg Brenneman, a sought-after leader who had turned around everything from Continental Airlines to restaurant chains Burger King Corp. and Quiznos. Murray also made the now 49-year-old Brenneman chairman of CCMP.

When asked what differentiates Murray from other private equity kingpins, Dimon fires back that Brenneman’s hiring illustrates Murray’s discipline and leadership abilities. Murray was able to set aside his own ego — the same characteristic that kept him out of the fray at the height of the market — to bring on board an extremely charismatic leader as a working chairman who would act almost as a co-CEO. “Look, he was able to attract someone like Greg Brenneman to come join him,” Dimon says. “Then he made him chairman. That’s a hard thing for a CEO to do.”

After Brenneman joined CCMP, it took Murray a year before he enlisted another CEO, Richard Zannino, former chief executive of Dow Jones & Co. Zannino, now 52, had transformed Dow Jones into a diversified media company through $2.5 billion in acquisitions and restructurings, capturing the attention of Rupert Murdoch’s News Corp., which bought it in December 2007. In September 2009, Murray recruited energy industry veteran Karl Kurz. Although Kurz was not a former CEO, he had played a key role in the global expansion of Anadarko Petroleum Corp. as that company’s chief operating officer.

Murray, who sat on all but $1 billion of the $3.4 billion that CCMP raised in 2006, waiting out the boom, has positioned his team to take advantage of the changing face of private equity. In this world, success will depend on the ability of firms to dig into the business strategies of their portfolio companies and generate gains based on old-fashioned turnarounds rather than financial engineering — the process of layering debt on companies and relying on cheap money to free up cash for shareholders.

“To survive by just doing financial engineering is not possible,” says Joshua Lerner, a Harvard Business School professor who has written a 25-page case study on Yale University CIO David Swensen and that school’s so-called endowment model, which includes large allocations to private equity and other alternative investments. “The market has gotten more competitive. As a result, old strategies like financial engineering have become a commodity.”

CCMP has the benefit of a superior long-term track record; a fund raised by J.P. Morgan Partners in 2002, now part of the new firm, had delivered a 32 percent annualized internal rate of return as of December 31, 2010. The firm also showed unusual discipline during a period when even the most experienced deal makers overpaid for mediocre properties and lost the trust of many big and influential investors.

CCMP’s deal makers have a history of investing in troubled or underexploited small and midsize companies. CCMP, whose initials hark back to its onetime owners Chemical Bank, Chase Bank and Manufacturers Hanover Corp. as well as its former incarnation as J.P. Morgan Partners, takes equity stakes of $100 million to $500 million in businesses that have scared away other buyers or in companies in need of capital and new ideas to grow. It focuses on enterprises with $500 million to $3 billion in enterprise value, where it can have the most direct influence on strategy, targeting, among others, corporate spin-outs and companies owned by their founders, with all their quirks.

The companies in which CCMP invests are hardly household names — Crosstown Traders, a direct marketer of women’s clothing based in Tucson, Arizona, or Tennis Channel in Santa Monica, California. CCMP’s partners roll up their sleeves and reorganize, restructure and restrategize to generate big profits from their holdings. Before going independent, CCMP, which oversees $7.4 billion in private equity assets, invested around the globe, including in Asia and Latin America, in mezzanine debt, real estate, venture capital and other areas. It has since narrowed its scope to buyout and growth equity in North America and Europe, where it had the best track record, focusing on only a handful of sectors: consumer/retail and media, energy, health care and industrial. Murray recently hired Robert McGuire, 46, former vice chairman of JP­Morgan Cazenove, in London to expand the firm’s European operation.

“CCMP has the right recipe,” says André Bourbonnais, who oversees private equity investments for the Canada Pension Plan Investment Board, one of CCMP’s biggest investors, with a $368 million investment. “They’re not trying to be everything to everyone. They really focus on four or five core sectors, and they have people with operational expertise in each. If you can deliver operational results, you’ll really be able to distinguish yourself.”

CCMP’s own operation is a meritocracy by design. Brenneman and Murray lead a 12-person investment committee that must approve every deal, but most of the firm’s 69 other employees, including 15 analysts, get involved in the investment process at some stage.

Now, after a period of abstinence, Murray and his team are leveraging their two decades of experience turning around companies. Last year, CCMP did three deals: It bought controlling stakes in Francesca’s Collections, a family-owned retailer that wanted liquidity, and Infogroup, a troubled information company with significant upside; and it became the single largest shareholder in Chaparral Energy, an independent oil and gas company with too much debt and underexploited assets. These investments came on top of four in its first fund, CCMP Capital Investors II: a $128 million investment in Plano, Texas–based LHP Hospital Group; a $160 million acquisition of Edwards Limited, a U.K. technology company that makes industrial vacuums; a $212 million stake in Aramark Corp., a Philadelphia-based food service and facilities management provider; and a $433 million investment in Generac Power Systems, a Waukesha, Wisconsin, company that manufactures generators.

CCMP’s focus on operations isn’t unique. Eric Dobkin, the founder of equity capital markets at Goldman, Sachs & Co. who led the underwriting of such titans as Microsoft Corp., says every private equity firm these days will boast that it has the capability to manage these businesses, but few have a track record that can support that claim. “There are lots of financiers, but not as many owner-managers,” says Dobkin, who retired as a general partner in 1999 but still serves as an advisory director to Goldman Sachs Group and a member of the firm’s commitments and capital committees. Dobkin, like Dimon, says Murray is different from other leaders in that he is very open to new ideas and will implement advice. It was Dobkin who recently advised CCMP to hire someone in London to gain critical mass overseas.

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Related Topics: CCMP Capital Advisors· private equity· Jamie Dimon· Steven Murray· Greg Brenneman· Karl Kurz· Richard Zannino