Apax Partners Worldwide LLP

15 Portland Place
London, W1B 1PT
United Kingdom
Telephone: ( +44 20) 7872 6300
Fax: ( +44 20) 7666 6441
Web site:http://www.apax.com

Private Company
Founded: 1969 as Alan Patricof Associates
Employees: 274
Sales: $166.6 million (2006)
NAIC: 525910 Open-End Investment Funds; 525990 Other Financial Vehicles

BACKGROUND OF FOUNDER

PENSION FUNDS BECOME AVAILABLE

RENAMED AND BRANCHING OUT

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

FURTHER READING

Apax Partners Worldwide LLP is a leading global private equity investment firm focused on five growth sectors: Tech and Telecom, Retail and Consumer, Media, Healthcare, and Financial and Business Services. Through its subsidiaries, Apax has $20 billion in funds invested around the world. Investors include major corporations, pension funds, foundations, and endowments. In addition to its headquarters in London, Apax maintains operations in New York, Madrid, Milan, Munich, Stockholm, Tel Aviv, Hong Kong, and Mumbai. Apax Partners started as a venture capital investment firm and was an early investor in America Online, Apple Computer, and Office Depot. Numbering among its latter-day investments are clothing giant Tommy Hilfiger Corporation, Dutch telecom provider TDC A/S, acquired in 2006, and educational publishing leader Thomson Learning, Inc. and insurance brokerage Hub International Limited, acquired in 2007.

BACKGROUND OF FOUNDER

Apax was cofounded by Alan Joel Patricof, who was born the son of a stockbroker on the Upper West Side of New York City in 1934. He left the city to earn a degree in finance from Ohio State University in 1955 after just three years despite working part-time jobs, then returned to the city to enroll at Columbia University Graduate School of Business, where he received an M.B.A. two years later while working full time as a research analyst at the investment counseling firm of Naess & Thomas. In 1958 he moved on to Lambert & Co., a development capital firm, and two years later went to work as assistant vice-president of Central National Corp., a private investment management firm, and ultimately became vice-president. It was while he was at Central National that Patricof helped found New York magazine and became the chairman of the board. He also helped to found Datascope Corporation, a medical technology company, and became involved in the media through the creation of LIN Broadcasting Corporation, which owned radio stations in Louisville, Indianapolis, and Nashville (the initials of which led to the LIN name), and added television stations, record labels, and other media assets. In 1968, Patricof became assistant to the chairman at Northwest Industries, responsible for Acquisition and Pension Fund Management, but he was soon ready to strike out on his own, and in 1969 he established the venture capital firm of Alan Patricof Associates, which employed just four people and managed $2.5 million in funds.

Venture capitalism was a relatively new endeavor. According to Nation’s Business, “Originally, new businesses were capitalized by a handful of wealthy families—the Rockefellers, Whitneys, and Phippses among them—who saw some higher social purpose in it all.” By the 1960s, however, many new companies were raising funds through stock offers, and the old patriarchal system passed away. The venture capitalists of the period were in large part wealthy amateurs, but their ranks, which numbered in the hundreds, would be pared down to a handful after the 1970 recession led to massive losses. The ones who remained were the seasoned professionals, like Patricof, who knew what was required to start and grow a business. They also knew how to make a profit for themselves and their investors. “In the 1960s,” opined Nation’s Business in 1979, “venture capitalists were content to take stock in the new companies their money helped start, with the hope that the stock would appreciate. No longer. Today, they want more. ‘Before, you would put up $1 million and take a ten percent interest,’ says Mr. Patricof. ‘Now if you put up $1 million, you want 60 percent.’”

PENSION FUNDS BECOME AVAILABLE

After starting his firm in the midst of a recession, Patricof successfully negotiated another downturn in the economy in 1974. Moreover, a new source of funds became available to manage when regulations covering pensions were eased in 1978. In the second half of the 1970s Patricof invested $315,000 to help launch Apple Computer, selling out after the company went public in the late 1980s, realizing a 5,000 percent profit. Patricof also looked for new opportunities overseas during this period. In 1977, he forged a partnership with a pair of Harvard Business School classmates from Europe, Ronald Cohen, an Egyptian-born British national based in London, and Maurice Tchenio, operating out of Paris. Two years after graduating from Harvard in 1970, Cohen, following a stint as a consultant with McKinsey & Co., and Tchenio along with two others partners formed an investment banking firm called Multinational Management Group (MMG) with offices in London and Paris. The idea of venture capital was a new one in Europe. “We had to create the industry in Europe in order to build the firm,” Cohen told Management Today, in a 2005 interview. “In 1975, the four [MMG] partners each wrote a paper. Two compiled calculations on how it could never work, and I wrote mine on the relationship between perseverance and so-called luck. The two left the company.” Cohen’s erstwhile partners were not alone in thinking that venture capital would not take root in Europe. “When I went to Europe, everyone thought I was crazy.” Nevertheless, Patricof joined forces with Cohen and Tchenio to create Alan Patricof Associates to do business in Europe. They also founded MMG Patricof on both sides of the pond to pursue an investment banking function.

Patricof continued to operate in the United States as Alan Patricof Associates and played an important part in building the private equity industry both there and in Europe. In 1982 he invested $100,000 in a company founded by a pair of GE Global Research employees who wanted to create the world’s first online communications and game network. They developed the PlayNet software and in 1985 Patricof arranged a license to another portfolio company, Quantum Computer Services (formerly Control Video Corporation) in which they had a $500,000 investment. Using the PlayNet software as the underpinning of its platform, the company ultimately took the name America Online, and became the behemoth of Internet service providers during the era of dial-up connections. Patricof realized almost a fifteenfold return on the investment in AOL. Another Patricof success story in the 1980s was Office Depot, which was launched in Florida in 1986 and went public in two years.

COMPANY PERSPECTIVES

Our mission is to help management teams create value for the benefit of the company, its employees, and ultimately the millions of individuals whose pension funds and investment plans commit to our funds. We provide this service with the utmost integrity and professionalism.

The 1980s also proved to be a difficult period for venture capitalists. In the United States the stock crash of 1987 brought lean times for the industry. In Europe conditions were even worse. In the 1980s, according to Forbes, “there was virtually no public market in Europe for startups. This made it hard for Patricof to exit from its investments.” As a result, Patricof began to lessen his exposure to start-ups and placed greater emphasis on later-stage financing. Thus, in 1989 he launched the APA Excelsior III fund, which devoted only 15 percent of its capital to start-ups, while allocating 62 percent to more developed companies, and almost one-quarter to restructurings and buyouts. Just five years earlier, the Excelsior II fund spent almost 60 percent of its funds on start-ups. In 1988, MMG Patricof put together a European management “buy-in” fund, created to purchase poorly run companies and replace the management to create value. The trend away from small start-up investments continued through the 1990s and into the new century until the focus of Patricof-related funds was on management-led buyouts.

RENAMED AND BRANCHING OUT

In 1992, the Patricof-related companies were renamed. Alan Patricof Associates became Patricof & Co., and Alan Patricof Associates PLC & Alan Patricof Associés & Cie. became Apax Partners. According to company sources, Apax derives from Alan Patricof Associates, but Forbes in a 2000 article implied that Apax was chosen because it was the classical Greek word for “unique.”

In the later 1980s, Patricof, who had backed Ronald Reagan as president, befriended a Democratic governor from Arkansas named Bill Clinton while jogging in East Hampton, Long Island, after being introduced by a mutual friend. The two men engaged in a lively debate about how to use the methods of venture capital to benefit poor neighborhoods. Patricof was soon won over, telling the New York Times, “He actually stopped to think.” When Clinton ran for president in 1992, Patricof became involved in his campaign, although many of Clinton’s tax proposals would hurt him personally. Rather than being asked to use his contacts to raise money, however, Patricof was named chairman of Entrepreneurs for Clinton, tasked with convincing prominent businessmen to endorse his candidate. After Clinton gained the White House, Patricof remained an important supporter for both Bill Clinton, and his wife Hillary, playing a key role in raising money for her senatorial campaigns in New York state and eventually her own run for the White House.

Well before he became one of Hillary Clinton’s chief backers, Patricof demonstrated that he was comfortable with the idea of a woman serving in a position of authority. In 1993 he named Patricia M. Cloherty president of Patricof & Co., making her the first woman to head a major venture capital firm. A native San Franciscan and Peace Corps volunteer in Brazil in the early 1960s, Cloherty met Patricof around that time and he convinced her to come work for him when he started his company. She was working on her doctorate in political sociology at Columbia University when she quit to become a research assistant for the new firm. Venture capital appealed to her and she grew with the business, her tenure interrupted for two years in 1977 when she left to work as deputy administrator for the Small Business Administration for President Jimmy Carter. In addition to taking over as president of the firm, Cloherty eventually shared the chairmanship with Patricof.

At the end of the 1990s each firm exited their corporate finance activities; in the United States to the Bank of New York and in Europe to Altium Capital. Patricof remained highly involved with Patricof & Co. (also renamed Apax Partners in 1999) as the 1990s neared the end. He helped keep the firm from becoming overly exposed to the dot-com mania of the time. Nevertheless, he was burned like everyone else. Notable failures included Garden.com, seller of gardening supplies, business-to-business firm iVendor, and GoRefer. com, an electronic-commerce service. At one point Patricof found himself taking a meeting with a pair of young men who had just dropped out of college after their freshmen year and were raising money to start a company that already had $250,000 lined up. According to Red Herring, Patricof was alarmed and “suggested they borrow his phone, call up the dean of admission, and tell him they’d changed their minds and wanted to go back to school. ‘I said, “On what basis can you be helpful to a young company. What credentials do you have?” That’s how far it got.’”

KEY DATES

1969:

Alan Patricof Associates is formed.

1977:

MMG Patricof is formed in Europe.

1992:

MMG Patricof is renamed Apax Partners.

1993:

Patricia Cloherty is named president.

2002:

U.S. and European operations are brought together as Apax Partners Worldwide LLP.

2006:

Alan Patricof leaves to form Greycroft Partners; Apax completes acquisition of Tommy Hilfiger Corporation.

2007:

With OMERS Capital Partners, company completes $7.8 billion acquisition of Thomson Learning.

The Patricof-related companies continued to grow at the start of the new century. In 2000, Apax Partners opened offices in Milan and Stockholm, bringing the total number of international offices to nine. In 2002, due to the increasing number of transatlantic and global ventures they were involved in, the two firms combined under a single global brand using the Apax name. In 2002, the U.S. and European operations were formally brought together as Apax Partners Worldwide LLP. The following year, a 48-year-old Austrian named Martin Halusa was named worldwide CEO of the firm. He was well suited to lead one of only a handful of truly global private equity concerns. The son of a diplomat, he was born in Bangkok and grew up living around the world, including in India, Paris, and Washington, D.C. He spoke three languages, German, English, and French, and held an M.B.A. from Harvard Business School and a doctorate in economics from the University of Innsbruck.

Under Halusa’s leadership, Apax took its brand to new parts of the world, opening offices in Hong Kong in 2005 and Mumbai in 2006. However, it would also have to carry on without the charismatic, 71-year-old Patricof. In 2006 he decided to return to his venture capital roots, establishing Greycroft Partners to operate out of the Apax offices in New York, although he would continue to serve as an adviser to Apax. Greycroft was an intentionally small fund, just $75 million, drawn only from individuals rather than institutional investors, dedicated to emerging wireless, media, and entertainment companies. While Patricof believed there was an opportunity at the smaller end of the market that was being ignored by most venture capital firms, his reason for launching his new venture was not entirely monetary. “It’s a disease,” he confessed to Business Week.

Ed Dinger

PRINCIPAL SUBSIDIARIES

Apax Partners España S.A.; Apax Partners, L.P.; Apax Partners S.r.l.; Apax Partners Beteiligungsberatung GmbH; Apax Partners (Israel) Ltd.; Apax Partners Hong Kong Ltd.

PRINCIPAL COMPETITORS

Draper Fisher Jurvetson; Hummer Winblad Venture Partners; Kleiner Perkins Caulfield & Byers.

FURTHER READING

Der Hovanesian, Mara, and Heather Green, “Media’s Favorite Control Freak,” Business Week, November 27, 2006, p. 59.

Hayes, John R., “Starving the Young,” Forbes, March 30, 1992, p. 138.

Holloway, Nigel, “Globetrotter,” Forbes, April 17, 2000, p. 128.

Lawlor, Julia, “Alan Patricof As Entrepreneurial Curmudgeon,” Red Herring, September 1, 2001, p. 38.

Martin, Douglas, “A Venture Capitalist and His Politics,” New York Times, November 2, 1992.

Paul, Mary, “Venture Capital Prospects: Tight but Tolerable,” Nation’s Business, April 1979, p. 76.

Primack, Dan, “Patricof Bags $50M for New Fund,” Private Equity Week, March 20, 2006, p. 3.

Reingold, Jennifer, and Nanette Byrnes, “Something Ventured ...,” Financial World, September 13, 1994, p. 42.

Smith, Peter, “The Chief’s Progress: All Eyes on Halusa,” Financial Times, August 5, 2004.

Sorkin, Andrew Ross, “New Fund for Prominent Investor,” New York Times, March 6, 2006, p. C2.