04/07/2010

Staff Losses Spell Trouble for Ripplewood

(SEE CORRECTION BELOW) Two more executives have split from Ripplewood Holdings, raising further questions about the firm's future.

Managing directors Tony Lee and Scott Spielvogel left amicably in the past few weeks to start a New York fund-management shop called One Rock. They're joined by operations specialists from Ripplewood and elsewhere.

Lee and Spielvogel focused on chemical, industrial, business-service and telecommunications companies at Ripplewood. One Rock, meanwhile, would take control-oriented positions in ailing companies. The firm is apparently working on a few deals with its own capital, ahead of a fund-raising drive that could come within the next year.

The losses of Lee and Spielvogel are the latest in a series of blows for Ripplewood, reinforcing perceptions that the New York firm may not survive much longer. Talk that Ripplewood might be in trouble began to circulate in 2009, when more than a year of fruitless capital-raising efforts prompted the firm to shelve what would have been its newest fund, Ripplewood Holdings 3. Then portfolio company Reader's Digest entered Chapter 11 bankruptcy protection in August.

Several staffers left around that time, including Andrew Knight, Michael Koike, Andrew Lack and Anthony Vernon. Talk of internal struggles also surfaced as founder Tim Collins temporarily reduced his role due to health problems.

Ripplewood has deployed most of the $1.2 billion that it raised for its second fund, leaving it in desperate need of fresh equity. The firm has twice talked about resuscitating Fund 3, but was unable to exit prior deals that would have served as reference points for its capital-raising campaign. Instead, it received negative attention over the struggles of Reader's Digest and troubles in complying with placement-agent disclosure requirements at Calpers - a matter it has since addressed. The departures of Lee and Spielvogel, meanwhile, point to further doubts about its marketing appeal. "With a not-great track record . . . it's hard to see how they'll raise any money in such a tough fund-raising environment," one placement agent said. "Add to that rumors of dissent in the ranks, and most investors are going to take a pass."

Now word has it that Collins is shifting Ripplewood's broad buyout strategy to focus on investments in banks. RHJ International, where Collins is majority shareholder, agreed in October to buy Kleinwort Benson.

Ripplewood's second fund had returned a mere 1.3 times investor equity as of Sept. 30, making it a fourth-quartile performer among comparable vehicles. Its 1996 debut fund was faring better with a return of two times equity. However, those returns don't include three distributions made in the final months of last year.

CORRECTION (4/28/10): This article contained an incomplete description of One Rock's strategy. In addition to troubled companies, the firm plans to invest in undervalued but otherwise healthy businesses.