Buyouts
Published by Venture Economics, A Thomson Financial Company
Vol. 15, No. 9 · April 29, 2002

Castanea Is New, but Its Partners Aren't

It's been a while since there's been a new kid on the block as fund-raising has slowed over the last year. However, there's always room for one more. Castanea Partners, founded in late 2001, is putting together its first pool of capital and preparing to close its first transaction.

Castanea Partners, based in Newton, Mass., may be a new firm, but its partners have been around the block a few times. Senior management is made up of co-founders and managing partners Robert Smith and Brian Knez, both of whom were vice chairmen of The Nieman Marcus Group Inc. and co-chief executives of Harcourt General Inc. from 1999 until its sale to Reed Elsevier in 2001. Smith and Knez are joined by Partner and Chief Operating Officer Paul Gibbons, former vice president and treasurer at Harcourt General; Partner Steven Berg, formerly with Bain Capital and Bain & Co.; and Operating Partner Peter Hoenigsberg, former president and CEO of Harcourt General. The four partners from Harcourt have been a team for 15 years.

Each member of the management team brings a background in investing and operating that they hope to extend to their partners and portfolio companies. "We're hoping to position ourselves as truly value-added partners," said Smith. "We're investors that are going to have an operating bend."

Castanea Partners is currently managing a $75 million fund that derived its capital from the partners. The firm plans to use its debut fund to show potential investors and partners what they're made of. "We believe that we can position ourselves with this first tranche of capital to have the potential of building a successful record by proving our competencies, by building the internal management processes, by reaching out and showing where we can add value across different transaction types [so that we can], if we desire, raise additional capital," said Smith.

At this time the firm has no immediate plans to raise capital from external sources; the focus is on giving a strong performance. "We think there's a real advantage to having only our own capital to invest at this point," said Berg. "We can be patient. We can also conversely react very quickly. And we think that flexibility, given the investment climate that we're in right now, is a real advantage for us."

Castanea Partners intends to invest in approximately six transactions with the current fund, investing in the ballpark of $10 million per deal. Smith said the firm will take either majority or minority stakes as long as it is able to add value to the company.

The partners will look first to invest in industries where they have experience. The team's alma mater, Harcourt General, had a portfolio of education, training, assessment and professional information businesses. Therefore, the team will look to invest in businesses in those areas as well as retail, business and marketing services, financial services and consumer products.

The firm expects to see its first transaction close in the upcoming weeks, but declined to disclose the details just yet. However, Smith warns that while Castanea is structured like a classic private equity firm, its portfolio may look a little different. "The fact that we're committing our own capital really puts us in a different place," he said.

"Each deal is going to be important to our success. We're not going to have as diversified a portfolio as a classic private equity firm, so we intend to be able to spend some time, hopefully based on our experience and skill set, that will be value-added time with those companies." -C.F.

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