 "Photo: Chris Tang")
The Executives On Campus Program, through its Job$mart Career Hour, continued its track record of bringing interesting executives from the business, government and nonprofit sectors to campus. The professionals chosen for each week are usually from two different companies from a particular sector. The series recently surprised students with a dynamic duo featuring panelists from one private equity firm.
Harvey Mallement and Harvey Wertheim, 1962 Baruch College graduates and fraternity brothers turned certified public accountants, teamed up to co-found Harvest Partners in 1981 and have reaped the exciting benefits and profit ever since. The firm's name comes from each individual's first name emphasizing the pairs' effortless camaraderie. Harvest Partners, a mid-market private equity firm, invests in North American industrials, business services and retail companies with transactions that range from $100 to $600 million.
Mallement started by reflecting on the evolution of the term "private equity."
"It didn't exist in 1981 or earlier. It was 'venture capital,'" Mallement said, "Venture capital is high-tech and private equity is everything else."
The focus of the discussion quickly turned to explore ways of getting into the private equity industry and the job prospects within the field. Wertheim outlined three options. The first was described as "the quintessentially perfect place" to start, which is obtaining an analyst training program position at a bank. Unfortunately, there are fewer banks today, so the market is more competitive. Once a training position is obtained, Wertheim urged students to obtain an MBA, which requires a pre-requisite of three to five years of experience. One can also segue into the private equity industry through "a major consulting firm, [which is] a broader way to go." The third route discussed by Wertheim actually forces students to directly interact with the industry. He said, "You can appeal by being more attractive as an 'operating person.'" Wertheim also marked that "we choose from a large breadth of candidates and it's very difficult to crack unless there's an overwhelming quality. [If there is] no MBA, we don't hire." Harvey Wertheim, who was in Colin Powell's CCNY ROTC unit, holds a CCNY MBA.
As one might expect, staying afloat in such a dynamic field requires specialized reading material to keep you informed. Mallement recommended reading "The Daily Deal," "Buyout" or "Private Equity Analyst." When asked about Harvest Partner's interview process and the skills the firm looks for, the partners highlighted traits that showcase intelligence and talent. He addressed the importance of "great academic credentials [including] a high undergraduate GPA." Mallement was more frank and said, "We put them through a case study, a real, live study." Mallement also said, "Guys that solve the problem the best are determinative." He added, "The things people do at 25 I couldn't do until I was 40. The industry is so much more sophisticated."
Wertheim said, "Computer skills need to be near-perfect, and if it's not, don't even go to the interview." He also emphasized the importance of accounting skills. To gauge the audience, he took a quick poll asking, "How many of you have had two basic accounting classes?" The ensuing scene looked like a hold-up in progress. "We've had philosophy majors in top MBAs. They can't read a balance sheet. That's pretty bad."
When discussing the evaluation of companies, Mallement emphasized that, "No single fact is more important than management." He expanded on this point with an example. "We saw a company with seven subsidiaries in seven countries led by a marketing guy. We knew that we could get it cheap. [But] we needed a CEO who could run U.S. operations or we'd lose it. The guy running worldwide operations acquiesced and we made seven times our money." Wertheim also shared his views on competent managerial vision. "We never bought a company and threw everybody out. But we control the board. We have to have the ability to effectuate some change."
Private equity is currently in a dormant, transitional state. "There are very, very few deals now," Mallement said. "No lending, for all intents and purposes. We think the leverage window will open up in January. We haven't done a new deal in 13 months. There's a retrenching. Allocations have gone down."
Corporations are definitely not in a better position. "Most businesses are in decline. We can't do it [a deal] unless we see the turn coming," said Mallement. One way that Harvest has been able to minimize its exposure to the recession has been through excellent forecasting skills. Mallement said that "2003 and 2004 [were] fabulous for us [because] we caught the end of the curve." Wertheim had a slightly different view on the firm's position in relation to economic changes stating, "Disregard the cycles. The average holding period for us is three to seven years, and in venture capital firms, five to 10 years."
Given current conditions, the founders alluded to the notion that "private equity is now looking into the syndicated bank loan marketplace," Mallement, "The yields are in mid-teens plus. They're redeploying capital efficiently."
He was realistic about the short term, asserting that the "government equitization of big banks is starting to work its way in. Dec. 31 is the key witching hour for their annual reports. Then they can loosen the credit they put out."
For students entering the private equity industry, understanding what will be expected is extremely important. The partners addressed this issue, noting that first-year analysts would be No. 3 or 4 on a deal team, which usually consists of a partner, a principal and a senior associate. First-year analysts can also expect to be doing spreadsheet modeling, research, visiting management, doing due diligence and legal documentation. Wertheim noted that analysts would never be bored and stated that the workload for first-year analysts is very diverse.
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