Radius' Robert Lass Goes Under Distressed Spotlight
Robert Lass, founding managing director at Radius Equity Partners and vocalist/guitarist/producer of Jazz and R&B songs, discusses 363 bankruptcy sales and partnering with lenders.
Radius Equity Partners
Robert Lass is a founding managing director at private-equity firm Radius Equity Partners, where he is responsible for day-to-day executive management and business and portfolio development. Founded in 2002, Radius focuses on distressed opportunities in the middle-market. He was previously a partner in charge of consulting services for Gleeson, Sklar, Sawyers & Cumpata (now Platt & Moran) and served as managing director of Houston-based management consultancy Millennium Group. He was also chief operating officer of the Delphi Energy Fund, an affiliated company of Phillips Electronics. Lass discusses with LMW opportunities with private-equity funds, 363 bankruptcy sales and his singing career.
What led you into the industry and to form Radius?
After the Enron/Anderson debacle, there were fewer opportunities for consultants to work within the confines of public accounting. The recession also had the dual effect of creating more distressed businesses and less cash to pay consultants to fix them. So we decided that it might be interesting to actually buy the impaired companies ourselves, and skip the middleman. So Radius was forged as a hybrid combination of private equity and lean manufacturing/supply chain management/sales channel development consulting. So far, the concept has gained great acceptance in the market.
What type of situations does Radius get involved with?
Radius Equity Partners LLC formed the Radius Equity Opportunity Fund (currently in excess of $310 million) to actively invest in control/majority ownership positions in distressed or impaired middle-market manufacturing, distribution and selected service and retail companies and to provide hands-on involvement in the recovery and growth of such companies. We will buy equity, or debt, or a combination of both, so long as the transaction results in a control investment. We often partner with senior lenders who otherwise would not receive full value for their loans and have developed an innovative strategy in that regard.
What distressed debt strategy do you follow?
We only invest in distressed debt as a means to obtain operating/equity control of a company. Most often, we look to acquire debt in order to package a bid at a 363 bankruptcy sale. So for our purposes, there is still some flexibility in pricing with distressed debt, particularly the closer you get to the actual sale date.
As for the strategy, we purchase debt from banks to bid at bankruptcy auction, usually at a premium to market. Our specific arrangement varies from transaction to transaction, but always involves some sort of consideration for Radius if we are not the prevailing bidder. This essentially positions us as a back-up "stalking horse" to ensure more competitive auctions, produces better results for the bankruptcy estate and the creditors, and assists lenders in realizing better value for their distressed loans. We have been involved in such transactions with banks such as Wells Fargo Foothill, General Electric Capital Corporation and several distressed debt funds whose names I'm not free to disclose.
What opportunities do you see in this market?
For passive debt traders, opportunities might be a little harder to come by as many lenders have cleaned up their portfolios of the last 2-3 years. For Radius, since we deal with severely distressed businesses, opportunities present themselves on a consistent basis. The challenge is to have the capability to perform a high level of due diligence and evaluation in a condensed timeframe. We often have less than two weeks to evaluate an opportunity.
What's the biggest unexplored area of opportunity?
Undoubtedly, partnering with other private equity funds or hedge funds that have underperforming portfolio companies. Radius presents a viable alternative to liquidation or bankruptcy and, in many cases, can protect some of the original fund's investment and upside. Failing portfolio companies are an interesting challenge for sponsors, since those funds are often in the final realization phase, and have no further liquidity to assist a troubled company. More often than not, successful sponsors have already raised several additional funds and are concentrating on new acquisitions.
What's the most interesting situation you've been involved with?
I personally find the corporate frauds, misappropriations, embezzlements etc... to be fascinating on a personal level. I'm always interested in what motivated people to behave in such a manner. Was it sheer greed, or some other motive? And the audacity of the schemes is also entertaining. We are looking at two companies right now with serious accounting frauds/misstatements which resulted in the senior debt going into default and the companies into Chapter 11. In both cases, the respective CFO was extremely clever in masking true operating results, not for personal gain, but to "help the company" until it "got back on its feet." In both cases, bankruptcy could have been avoided and the businesses could have survived if management and the lenders had been made aware of the situation earlier.
Smoky Juke Joints & Jazz Clubs
Lass, a graduate of the University of California at Los Angeles, received a B.A. in Administration. He also received a M.S.Ed. in Psycholinguistics from Pepperdine University, and did post-graduate studies at The Gestalt Institute of Los Angeles. In the early years of his career, Lass was a vocalist/guitarist/producer, having performed and produced numerous albums and TV/movie soundtracks. After a 22-year hiatus, he recently began singing and studying vocal techniques again. Lass enjoys "singing in smoky juke joints and jazz clubs." His CD, "Passing for Normal," was released in December 2004 and contains a selection of Jazz, Standard, R&B and Blues songs with 100% of the proceeds from sales being donated to the Juvenile Diabetes Research Foundation. "Professionals (such as attorneys, accountants, bankers) interested in working with Radius are required to buy several hundred copies," said Lass jokingly.
He is also an avid basketball fan, with impeccable timing, having been at UCLA when John Wooden was coach, living in L.A. when the Lakers won all those titles in the 80s, and then moving to Chicago for the Jordan years. Lass also likes to read fiction, cook, and travel.
Lass' wife Hillary is a paleontologist, so "every vacation is a science field trip." Lass' two daughters Chandler, 12, and Meagan, 27, complete his family. "I have one every 15 years, whether I need one or not!"