interviews Lauren Leichtman, co-founder and chief executive officer, Levine Leichtman Capital Partners.

Levine Leichtman Capital Partners is looking for entrepreneurs who don’t want to sell. Far from it – the Los Angeles-based private equity firm wants to back managers who are motivated to continue pushing their company’s growth and transformation so as to realize the best future upside possible. Lauren Leichtman, who co-founded the firm with her husband, Arthur Levine, in 1985, says the Western U.S. is the best place to find companies still run by their original founders. In a recent interview with, Leichtman discussed her firm’s non-control approach, the allure of the California deal market, and how to being married to your business partner can be a wonderful thing. Your firm specializes in the middle market, but you do not seek out control investments. Can you elaborate on this strategy?

Lauren Leichtman: We invest in middle-market companies with $50 million to $750 million in revenue in the Western United States. We do non-control deals, but we like to call them structured equity investments. We try to leave the management team and the entrepreneurs with the lion’s share of the equity going forward.

PEC: Buyout G.P.s are more eager now than ever to highlight the fact that they insist on control. Why aren’t you?

LL: Since we are opportunistic and invest across many industries, it would be impossible for us to be so arrogant as to say that we can go in and buy control, run these companies and put in management teams. We want to sponsor the management teams that are already in there, so we take non-control equity positions. But we use a structured equity investment approach, where we invest typically in the subordinated debt of the company or the packaged junior securities. The covenants attached to those securities give us economic protections for our investment and, to some extent, economic control in the event of a meltdown. We also have control through the investment documents

PEC: Has a management team ever selected your firm as an investor over a buyout firm because the managers didn’t want to cede control?

LL: We don’t typically encounter other buyout firms looking at these companies because their owners are not looking to sell. They are looking for capital that will let them retain a majority of the equity stake and the equity upside in the company.

We closed our first institutional fund in 1994. Prior to that, when we were investing our own capital, we were investing only in California middle-market companies. We wanted to match our financial skills and our capital with the entrepreneurs’ skills. What the entrepreneur needs is the capital and the appropriate capital structure to enable growth and we are the right financial sponsor to provide those.

The entrepreneurs that we met in California during the first 10 or 15 years of our business were people who had founded their business and had been through some tough times. They typically were distrustful of Wall Street and had financed their companies through their internally generated funds or through regional banks. These companies were not for sale.

PEC: How did you come to found your own firm in 1985?

LL: I practiced securities law for just a little bit less than 10 years. I worked with the Securities and Exchange Commission in New York, and then I worked in private practice in California. My partner, Arthur Levine, was one of the co-founders of Westwood One, which is a radio syndication business. He left that company in late 1984 to start this business.

One of the things that we offer people here is that we do understand what it takes to run a company and we understand the problems that CEOs encounter. We don’t get nervous when business hit rough times because every business hits rough times.

Our first investment was in IDB Communications. We owned about a quarter of that company. But across a variety of investments, we invested in the equity of companies and provided them financial sponsorship.

At the beginning of the 1990s, when all the equity was sucked out of companies, we started investing in debt and helping companies that way. We decided raise an institutional capital in 1993 and closed our first institutional fund in 1994. We decided we could do a better job if we had institutional money available to us rather than going out on a deal-by-deal basis.

PEC: What is unique about investing in the West?

LL: I think what is unique is the fact that companies are not for sale. My experience in the East, which is more limited, is that you have companies that have been in existence longer, have much more stable cash flows, and may not have founding management there any longer and so have more professional management teams. Companies in the East are much larger. You have most of the Fortune 500 in the East. Those companies are fit for a buyout fund. In the West, where you have the entrepreneurs still running the business, the managers still believe there is substantial equity value in the business and want to retain control of that.

PEC: What happens after you make an investment?

LL: In the middle market, as companies get larger and more profitable, they can access cheaper forms of capital. What we do is provide them more of an institutional, professionalized focus, so that if when they grow, and it’s time for our capital to come out, they’re ready for the next stage of investor.

PEC: What was your most recent investment?

LL: Our most recent investment in a new company was Simeus Foods International. We made the investment in late 2001. It’s a Texas company located just outside of Dallas. They are the largest minority-owned business in Texas. They are in the meat-processing and manufacturing business. They provide a lot of value added products, not just processed meats. Since then, we’ve done a lot of follow-ons.

PEC: How did you come across Simeus?

LL: We came across that opportunity through a lawyer who was on their board, with whom we have developed a relationship over the last 10 years. He felt that Simeus would be an appropriate fit for them and for us. The management team wanted to retain equity.

PEC: How does your deal flow look now compared with three years ago?

LL: I think the environment is much better. Three or four years ago, prices were being bid up. There were valuation issues in the minds of the entrepreneurs because of the multiples in the public marketplace. Now is a great time for us because the marketplace has become more rationalized. There are many growth opportunities as well as balance-sheet restructuring opportunities.

Part of what is driving this is the tightened capital markets environment. There are not a lot of capital alternatives. During the last six months, we have seen much better activity, and earlier. There was a period when the markets were just falling and people were like deers in the headlights.

PEC: In 2001, your firm was sued by GMAC over a failed apparel company. But GMAC later dropped the suit and invested in your fund. What did you learn from that incident?

LL: I learned never to invest in the apparel industry [laughs]. How about that? There was a big misunderstanding. Every bit of litigation has been resolved. There are all kinds of confidentiality letters, so I really can’t comment.

As for GMAC, we’ve had a very successful resolution with them. I think they had a lot of misinformation, which is why they sued us, and they gave us a letter to that effect.

PEC: Next question – and you must get asked this quite a bit – what is it like working with your husband, co-founder Arthur Levine?

LL: We’ve been married since 1979. We started this firm because we wanted to build something together. Working together as a married couple can be extremely rewarding. You and your mate have identical interests that are important to you. I see Arthur in a different light than I did than when he and I had separate careers and we came together in the evening as husband and wife and parents. I have a completely different level of respect for him and it’s really brought another dimension to our relationship which has been very positive. We feel really good about building this firm.

For us, it’s worked. I don’t think there are any other married couples in this industry. It was a little strange at first, but I’ve enjoyed it.

PEC: You’re the CEO and your husband is president. How was that decided on?

LL: Arthur and I have very distinct skills. I have very good internal managerial skills in terms of looking at people issues within the firm. We both have legal backgrounds. Arthur has very good financial skills and we marry those together.

Reprinted with the permission of The original feature appeared on the Web site on May 9, 2003