Dealmaker § Carlyle's Engine That Can

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Inside the Deal Shop : Carlyle's Engine That Can

Brooke Coburn uses a little bit of capital and a lot of his parent company’s international resources to help transform corporate orphans into Wall Street darlings.

By: Danielle Fugazy
September/October 2007 , Page 92

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Twenty years ago, five principals met in Manhattan’s Carlyle Hotel, cobbled together $5 million in seed money and launched an alternative-asset management firm that has grown into a global behemoth, amassing 54 funds with more than $71 billion under management and operating out of offices in 19 countries across North and South America, Europe, Asia, Australia and Africa.

While the Carlyle Group has become synonymous with big-brand-name private-equity buyouts through headline-grabbing megadeals such as those for Hertz and Dunkin’ Brands, Brooke Coburn sits tucked away in the firm’s glass-walled Washington, D.C., offices, quietly doing the kind of deals reminiscent of Carlyle two decades ago. Coburn, 37, runs Carlyle Venture and Growth Capital Partners, the firm’s little-known $3.5 billion venture-capital group.

“I like operating beneath the radar and helping companies grow,” he says. “This is a story that’s missed within Carlyle. We have the deep industry insights and ability to help companies, which is a much more important part of the story.”

Coburn, who heads the group alongside another partner, Robert E. Grady, 50, leads the division’s small-cap growth buyout practice, focusing on investments in the telecom, media, tech and business-services sectors. Carlyle Venture invests anywhere from $5 million in an early-stage venture to $50 million in a growth buyout, and looks to take control positions in roughly half its investments. Most of the companies Coburn’s group studies are corporate orphans or family-owned businesses that will benefit from international expansion and have critical mass in the market. Take, for example, WCI, a submarine telecom network operator that Carlyle bought out of Chapter 11 for $50 million four years ago. Within two years, the firm turned the company around, cleaning up its debt and hooking it up with a long-term purchasing agreement from a key customer, Alaska Communications Systems. Carlyle, which still owns the company, has already earned 1.5 times its initial investment.

Although Carlyle Venture makes smaller investments than Carlyle’s other funds, it takes advantage of its parent company’s big resources. “It’s great to be able to help our portfolio companies make contacts all over the world and cross over into other geographies,” Coburn says. “We have people in lots of places.” Consider, for example, the time Coburn’s team introduced Authentec, a portfolio company that manufactures finger sensors for mobile phones and laptops, to Carlyle’s Japanese team, who subsequently introduced Authentec to Willcom, a Japanese wireless-data provider. “Authentec was able to win a significant contract from Willcom,” Coburn says. “It’s great when we can help companies connect the dots. It’s a win-win.”

Carlyle’s enormous reach has made it the best partner for the management team of the Wall Street Institute, according to Timothy Daniels, that company’s chairman and CEO. Founded more than 30 years ago in Italy, WSI operates and franchises English-language instruction, a $50 billion global market projected to grow in the coming decades as English increases its dominance as global business’s lingua franca. WSI operates through a network of owned and franchised centers, targeting a market of young professionals in 24 countries.

Although WSI was profitable, its parent company, Laureate Education (formerly Sylvan Learning), had classified it as a discontinued business and in 2004 deemed it a non-core asset that should be shed.

Coburn had received an early heads-up from a friend, an investment banker who knew Laureate would be looking for a buyer with a strong international network. More than 46 potential buyers, including Bain Capital and Warburg Pincus, showed up at the table. Even though Carlyle Venture’s bid wasn’t the highest, the firm was selected to buy WSI for $50 million in February 2005. “I was an advocate of doing something with Carlyle,” Daniels says. “They have a great international presence and a strong track record. Their offer was fair, and I felt comfortable that they would optimize the value of the asset.”

So far, Carlyle has lived up to Daniels’s expectations. WSI’s year-to-date financial performance has surpassed budgetary expectations, with corporate sales stronger than ever. The business had roughly $65 million in revenue when Carlyle bought it, and more than doubled revenue in the last two years. Besides improving its business operations under Carlyle’s umbrella, WSI has also made key acquisitions, including picking up the market leader in high-end ESL training in China, which will be the cornerstone of WSI’s continued investment in the region. Opening foreign doors is a competitive advantage Carlyle, which still has a stake in the investment, possesses over the vast majority of VCs.

“There was a lot of untapped potential with this company,” Coburn says. “People want to learn English to get better jobs. We’ve spent 18 months building a team. The company has a new president, COO, CFO, CTO and VP of sales and marketing. The management team today is truly world-class.”

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