Philip Miller has a second career going, and Allen Questrom appears to be on a similar path.
Miller, the former chairman and chief executive officer of Saks Fifth Avenue and, before that, Marshall Field’s, is an operating director at Tri-Artisan Capital Partners, which provides advice on mergers, acquisitions, divestitures and other financial plays and is involved in private equity transactions. Miller worked with Tri-Artisan in advising NRDC Equity Partners on its $1.2 billion acquisition of Lord & Taylor this year.
He’s also interim ceo and a board member at St. John Knits, which is owned by Vestar Capital Partners, another private equity firm.
“Private equity firms are bringing in people like myself to advise them, help them examine the business model of potential acquisitions and study the opportunity,” Miller said. “They are asking people like myself to recommend talent. Their interest in retail talent has heightened considerably.”
Two weeks ago, leveraged buyout pioneer Thomas H. Lee announced a new fund, Lee Equity Partners, and hired Questrom, the former J.C. Penney, Federated Department Stores and Barneys New York ceo with a reputation as a turnaround specialist.
“It could be health care, finance or retailing, but whatever they invest in, private equity wants people with experience in running those businesses,” said Questrom. “Buying a company is easy, then you have got to manage it.”
Asked what his role would be at Lee Equity, Questrom responded: “It would depend on the situation, I would not want to limit myself. This is a different dimension to my background. I will learn something about something I don’t know about,” while also focusing on consumer products and retail, he added. He could be an adviser, an operator or an investor.
From retailing’s limited talent pool, private equity firms are scooping up the marquee names and providing second careers for seasoned executives, many of retirement age. The trend, reflecting private equity firms’ growing retail portfolios, started picking up three and a half years ago when Mickey Drexler, the former Gap ceo, was recruited by Texas Pacific Group to revive J. Crew. He did so, taking the firm public in one of the hottest-ever retail initial public offerings and reducing his percentage in J. Crew to 12 percent from 22 percent.
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Robert DiNicola, another turnaround specialist as well as a former Zale Corp. chairman and ceo and longtime Federated executive, probably started the trend when Apollo Management tapped him to revive Zale in 1994. At the time, Apollo owned 10 to 15 percent of the jewelry chain, and DiNicola was able to take a stake. He retired in 2002 but hooked up again with Apollo that year to be its senior retail adviser, helping to find opportunities that would prove to be rewarding.
“We looked at a whole host of things that came across the transom,” DiNicola said. “Many we took a serious stand on. Many were distressed companies, but we also looked at Neiman Marcus,” which was purchased by Texas Pacific and Warburg Pincus for $5 billion. “If we bought something, I would become the leader of the management team and put together a team to fix the business,” DiNicola explained.
Currently, he’s chairman and ceo of Linens-N-Things, which Apollo bought control of for $1.3 billion last year, including debt. Before, he was interim ceo of Apollo’s GNC nutrition chain for 18 months, bringing it back to health. He remains GNC’s executive chairman.
Apollo was drawn to DiNicola because of his turnaround record and his years of experience in a wide variety of product categories, from apparel, home and cosmetics to private label and children’s wear at stores around the country.
The appeal for DiNicola at Apollo — and other executives joining private equity players — is multifold. “It’s the opportunity to look at a wide variety of possibilities, to look at business from a slightly different angle, to have the ability to have an equity stake in a bigger way and help to steer them in a successful direction,” DiNicola said. “I respect greatly their approach to the business. They allow us to fix businesses the right way. We have been together for over a dozen years.”
There are numerous former retail executives who have been tapped as either advisers, operators or investors or in a combination of those roles, including Vanessa Castagna, former chairman and ceo of J.C. Penney stores, catalogue and Internet, who was recruited by Cerberus Capital Management and is executive chairman of Mervyn’s and a senior member of Cerberus’ operations team. Rick Leto, a former star merchant at Kohl’s, was also recruited by Cerberus to work under Castagna as president and chief merchandising officer of Mervyn’s.
And the quest for retail talent appears to be widening, putting pressure on retailers and related companies to keep their top executives. Private equity firms also offer a new career path for many, though they could run into conflict with non-compete clauses in their contracts.
Scott Friend, former president and co-founder of ProfitLogic, a retail technology firm, has become a venture partner at Bain Capital Venture. “My work at ProfitLogic gave me the opportunity to meet with and learn from many of the best retail executives across the U.S. and Europe and provided exposure to a range of opportunities for new retail concepts and for technologies that can improve retail operations,” Friend said. He said he will help Bain identify early-stage retail and consumer businesses and tech businesses, for investment purposes.
“Private equity opportunities have been attracting superior talent because the lure of equity in companies that ceos are managing is really something relatively new to the industry,” observed Robert Kerson of the executive search firm Kerson Partners Ltd. “Over the last decade, it’s emerged as a major attraction for people that wouldn’t otherwise have looked at high-risk situations. It’s much more exciting for these ceos to have the opportunity to personally invest in the companies they’re running. For those who are confident and have accumulated some wealth, the equity world is a major lure. Equity firms really want people with accomplished track records and lots of experience.
“The problem is, there is really a dearth of superior talent,” Kerson added. “Everybody is chasing the same bunch of names. Equity players won’t buy a company until they fully understand its talent or who is out there that can run it. They generally have no interest in running it,” Kerson said, though he did cite the example of hedge fund manager Edward Lampert, the money manager who took over Kmart and Sears and actively runs the combined Sears Holdings as chairman.
Equity firms know how to cast the bait. Typically, Kerson said, a ceo of a private equity-controlled chain can get a 5 to 10 percent ownership stake in it; a senior management team could have around 20 percent ownership in total. According to one former retail head, the private equity arena represents “a huge opportunity to launch into a second career. A professional can make so much more money without the aggravation of Wall Street. You can get back to running the business without the microscope on you. But I am not looking to run a company, I am looking to advise these firms on deals.”
Said another source involved in retailing and equity firms, “If someone puts in $10 million to the fund, they might give him an incentive, a higher return than the average investor, in return for his advisory skills.” On the other hand, with the chance of making more money comes greater risk, though those retail veterans aligning with private equity have accumulated enough wealth through their careers to afford a fall.
“The chase for retail talent [by private equity firms] will not die down anytime soon,” predicted one fund manager and consultant who works with private equity investors. “They are still very much interested in making investments in this space, which includes hiring managers not only to work for their own firms but also to run the acquired company. And in many cases, the investors are also adding directors to the boards.”
— With contributions from Arthur Zaczkiewicz