DIFFERENTIATED POSITIONING In a very competitive industry, co-CEOs Stewart Kohl and Bela Szigethy have positioned Riverside differently.
ROI IRR ROE EBIDTA D/E
Stewart began his career differently - he led the Oberlin Student Cooperative Association and then the Nat’l Cooperative Business Association.
the 1970s When he joined Riverside, he created a major firm presence in Cleveland.
ROI IRR ROE EBIDTA D/E
1993 He and Bela focused.
Let’s focus on the mid-sized!
Early 90s -1-
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Up at 5.0am, Stewart deals w/emails, works out w/ a trainer, drinks a shake, watches Today, takes the 7.45am RTA and gets to his desk by 8.15. He does calls and mtgs every 30 mins.
5.30 am He is naturally focused.
FOCUS
I believe habits are powerful patterns. My health shake and workout every morning - these habits don’t take long to set, and they etch deeply.
RESONANT VALUES
CLEVELAND
I believe private equity in general - and Riverside specifically - is a force for good.
Stewart works hard to bring his values to life at Riverside & in the industry.
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We actively look to allocate capital to businesses which we think do no harm, in the negative, and in the positive, make the world better.
CLEVELAND
Stewart feels strongly that Riverside is a force for good.
n2y, a Riverside portfolio company, designs special education materials for teachers who work with kids with special needs.
N2Y n2y is one of the companies I love.
Today, Riverside has $7 billion under management, and 80 companies with 18,000 employees.
With the help of Riverside resources, it has thrived.
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NOTES Page 1 Scottish Economist Adam Smith introduced the term “Invisible Hand” in his 1776 work, An Inquiry into the Nature and Causes of the Wealth of Nations. This quote by Stewart is on the cover not because Stewart does or doesn’t believe in self interest or government intervention but because it emphasizes the brutal competitiveness of the industry. Riverside has distinguished itself among private equity firms. In an industry of over 8,000 firms, it is 95th largest in capital under management, or top two percent. The modern private equity industry started around 1955 and grew to $3 trillion in assets by 2018. The industry that helps the growth of thousands of businesses has many interesting angles. Results (IRR and ROI) matter most. Fund sizes vary from tiny funds to mega funds, and everything in between. Some famed deals include RJR Nabisco, the largest ever buyout (in real dollars), to the billion-plus dollar failure, Regal Cinemas (KKR & Hicks, Muse, Tate). There also are brand name funds like KKR, Bain Capital, and The Blackstone Group, and industry icons—like Tommy Lee (Thomas H. Lee Partners), Jerome Kohlberg Jr. (KKR), Leon Black (Apollo), and Steve Schwarzman (Blackstone). Evolving strategies and arbitrage opportunities—like the original debt tax shield—helped advance the modern private equity industry, and subsequently there have been eras of (for instance) roll-up and platform strategies. The main cycles and trends are, it seems, whether banks are or aren’t lending and whether purchase price multiples are really, really high or just very high. Stewart graduated from Oberlin in 1977. He headed the National Cooperative Business Association in the 1980s. Béla started Riverside in 1988 and Stewart joined in 1993, building up the Cleveland office. Stewart grew up in New Jersey and came to Northeast Ohio when he attended Oberlin College. Creating a major presence for Riverside in Cleveland may not have been an obvious choice—at least two thirds of PE funds have their major presence in metropolises (and Riverside headquarters are now in New York)—but Cleveland probably was a smart choice for differentiation and market access. (Here’s how the industry locations break out, for active funds: New York 19%, London 13%, San Francisco 7%, Chicago 5%, Paris 5%, Boston 4%, Beijing 4%, Toronto 3%, Shanghai 3%, and Menlo Park 3%) Riverside has more people in Cleveland than in any of its other 15+ locations spanning 4 continents. Page 2 Riverside has made masterful use of the talents of “operating partners,” people who know the heart and soul of mid-sized businesses. It has also built a team of committed analysts whom it relentlessly trains in targeting businesses that fit the Riverside model. Stewart is an avid cyclist. Currently, his favorite bike is a Seven Cycles brand bike. He and his wife, Donna, became founders of VeloSano, a charity bike ride dedicated to eradicating cancer by supporting research at Cleveland Clinic. He has also served on the Board of Trustees of Cleveland Clinic (and many other boards). Riverside has maintained its differentiated position with fierce discipline and consistency. As industry trends have come and gone, Riverside has consistently reaffirmed its specialty in the mid-sized (and smaller) company segment.
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Page 3 Stewart estimates habits like these take about six weeks to form. He observed pretty good habits in his youth. Of his father, who sold resistors and capacitors, he says “He never made, by our standards, a lot of money, although he managed to save a lot of money. I think there was a discipline there. He was a member of Mensa. He was brilliant.” Of his mother, who worked her way up from legal secretary to become chief of staff of the president of the New Jersey State Senate, he says, “When she graduated from college, the New York Times profiled her, because having returned to school later in life, after she had my brother and me, she graduated with the highest grade point average in her school’s history. She’s brilliant, and today she would’ve been not the legal secretary, but the lawyer or maybe the Supreme Court Justice, but in those days women just didn’t have that option.” Page 4 Stewart travels 2-3 days per week. Newark airport is the most frequent airport he flies into because of Riverside’s headquarters location in Manhattan. Stewart says Riverside prides itself on diversity because “underrepresented people make us better at what we do.” On every investment, the firm considers a value system it calls “ESG+V.” ESG is industry standard term for “environmental, social, and governance” investment criteria. Riverside adds the “V” to stand for “values.” Stewart says, “One of the luxuries of being in the business of working with smaller companies is that some of them are really cool.” n2y of Huron, Ohio designs special education materials for teachers, speech pathologists, and assistive technology professionals who work with kids with special needs. Its products, such as news-2you, a weekly current events newspaper, can be tailored to fit each teacher’s and student’s needs. As a result, students and their support systems flourish. Back Page The criteria for being a Harvard Business School Club of Northeastern Ohio Dively honoree include that the honoree’s company must have achieved rapid growth and solid financial metrics as well as reached a significant position in the market. Financial metrics include revenue size, revenue growth, and profitability (or, if not currently profitable, demonstration of rapid customer acquisition and a profitable business model in the longer term). The fact that Riverside has invested in over 550 companies since 1989 shows it really knows how to deal with mid-sized (and smaller) companies). Stewart emphasizes the “we” part of Riverside. To him, “we” may at various times refer to Béla and him, to all 250 associates, or to all associates and portfolio companies. The quote about Riverside culture is a review from the employer reviews website, Glassdoor, which is (by the way) a company co-founded by an Ohioan who is (by the way) a Weatherhead graduate.
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Each year since 1983, the George S. Dively Entrepreneurship Event, sponsored by the Harvard Business School Club of Northeastern Ohio, has honored an individual or company in Northeastern Ohio. George Dively, an HBS graduate and entrepreneur who led Harris Corporation to remarkable growth, endowed this recognition event because he believed entrepreneurs represent the future of American business, and he wanted to make sure the Northeast Ohio business community celebrates innovators and their successes. Along with co-CEO, Béla Szigethy, who founded The Riverside Company in 1989, Stewart Kohl has co-led Riverside since 1993. The success of the private equity firm stems from its differentiated positioning, focused growth, and resonant values. Today, Riverside has 16 offices globally and 250 employees who have invested in over 550 acquisitions Reviews you’ll find of the company’s culture include comments like, “Outstanding culture, excellent opportunity to work on many deals and learn how to do things the right way. Terrific group of employees. The annual Leadership Summit for Portfolio company leadership teams and Riverside Leadership is an industry best practice.” Riverside is positioned in the top two percent of the market in terms of assets under management. Congratulations to Riverside for providing customized capital, highly experienced people, and profitable growth ideas to mid-sized (and smaller) businesses around the world1. And congratulations to Stewart Kohl for helping the firm be different, focused, and values-oriented! Operating out of Cleveland, he has helped Riverside grow to industry leadership for more than 25 years. For that, he is the 2018 Harvard Business School Club of Northeastern Ohio Dively Honoree.
Copyright 2018 Braun Ink. All rights reserved. Produced exclusively for Harvard Business School Club of Northeastern Ohio. Written by Becca Braun in Cleveland, with assistance from Danielle Eisenman, Cassandra Luca, and Laura Wilson in Cambridge, MA; illustrated by Vasja Koman in Slovenia and Melbourne, Australia; and designed by Ben Small in Cleveland, Ohio.