Masters of Private Equity: Warren Hellman, Tully Friedman and Joseph Rice

The episode is a walk through Robert Finkel's book The Masters of Private Equity and Venture Capital, presented by Mikk, host of Buyers and Builders, and focused on the private equity half of the book. Mikk opens with the book's framing: that private investment professionals are the best mentors for understanding how businesses succeed or fail, and with Finkel's account of growing up at a dinner table where his father impersonated Harvard Business School professor Georges Doriot, widely considered the founding father of private equity investing. Doriot's idea, quoted at length, was that the study of a company is not an autopsy but the study of living things and relationships that fall apart unless constantly pushed ahead or improved.

The first master is Joseph Rice III, founder and chairman of Clayton, Dubilier & Rice. Mikk traces Rice's track record, including Hertz, Lexmark, Kinko's, Sally Beauty, Uniroyal, Goodrich, US Foodservice and Scotts, and the firm's scale: about $10bn under management when the book was written, roughly $87bn in recent regulatory data, and a twelfth flagship fund that raised $26bn alone. Rice's central idea is that CDR combined financial skill with real operating capability inside the firm; its operating partners have stepped in as interim CEO in about a third of its investments, and the firm reviews about 100 offering books for every deal it does. Mikk digresses to Urs Wietlisbach and Partners Group's sweat-equity model, where senior managers own shares and some CEOs have made $100m or more from their equity, and Partners Group made about four times its money on BCI Pharma Services.

Rice's stories follow: a 1969 magnetic tape deal that failed because all four partners were finance people; the 1978 founding with Martin Dubilier and Gene Clayton, who came from crisis management; Uniroyal, bought after Carl Icahn's hostile bid, combined fifty-fifty with Goodrich and eventually sold to Michelin after Chuck Ames took over as CEO; the Lexmark carve-out from IBM, where employees got ownership worth more than $1bn at IPO, the development cycle was cut from about 30 months toward 15, and the deal closed in March 1991 with $300m of debt repaid the same year and more than four times the original investment returned to LPs by 1995. Kinko's, bought in 1996 and later sold to FedEx, shows George Tamke's quality lining; US Office Products, a roll-up of more than 100 distribution businesses, shows the loss and Rice's admission that CDR thought it could do anything. The response was an operating review with seven former CEOs and an investment screening committee, and Jack Welch's arrival as a special partner. Rice's five lessons, and his own career from Williams College and the Marine Corps through Harvard Law School, Sullivan & Cromwell and Laird and Company, close the section.

The second master is Warren Hellman, cofounder with Tully Friedman of Hellman & Friedman in 1984, with $25bn under management at the time of the book and $107bn in March 2025, headquartered in the Salesforce Tower. Mikk covers the 1959 lesson from Hellman's father Marco Hellman about markets that seem to have changed; the firm's preference for lasting franchises, asset-light businesses and aligned management; the rule that every investment is guilty until proven innocent; and the painful Mobile Media loss after it had been worth three times the investment. Fred Wilson's argument that the biggest risk is not investing is set against that. Hellman's family history with Isaias Hellman, Farmers and Merchant Bank and Wells Fargo, his Lehman Brothers years with Pete Peterson, and the Levi Strauss buyout — $1.6bn, with about $1.2bn borrowed, about $400m of family stock rolled, the family left with about 93% and H&F 7% — lead into American President Lines, Western Wireless at 10x and VoiceStream at 8x, and Hellman's personal life: Hardly Strictly Bluegrass, running at 3:45 each morning, two Western States 100 finishes. The episode ends with Hellman's five rules and a call to subscribe.