“Warren Hellman sets the

standard for integrity.”

Warren Hellman of Hellman & Friedman2001 Dealmaker of the Year

SPONSORED BY:

BY MARK CALVEYmcalvey@bizjournals.com

H ellman & Friedman maintains alow profile, belying its status asone of San Francisco’s largest pri-vate equity firms, one with its fin-

gers in an eclectic mix of investmentsfrom the Nasdaq Stock Market toFormula One racing.

Perhaps the only thing more eclecticthan the firm’s investment portfolio is co-founder Warren Hellman, who revels inhis self-deprecating humor and down-to-earth approach to business from his cor-ner office in San Francisco’s financial dis-trict.

Hellman and his colleagues credit thefirm’s success to a narrow focus on com-panies with solid franchises generating alot of free cash flow. All the better if thecompany’s in some type of transition,such as a change in ownership.

The firm’s success in spotting opportu-nities before others do, culminating inseveral high-profile deals in recentmonths, earns Hellman & Friedman theSan Francisco Business Times’ 2001Dealmaker of the Year Award.

Since its founding in 1984, Hellman &Friedman has invested in 40 companiesfrom its capital pool of nearly $5 billion.The firm is currently investing its fourthfund of $2.2 billion.

The firm has netted average annualreturns of 26 percent for its institutionalinvestors.

“Hellman & Friedman, and WarrenHellman in particular, is one of our bestpartners. In 2001, the firm was our No. 1partner in terms of financial return,” saidRick Hayes, who oversees the CaliforniaPublic Employees’ Retirement System’s$20 billion private equity investments.

Hellman and his team also have aknack for knowing when to sell, Hayessaid. For instance, the firm took theunusual step of cashing out of FormulaOne three months after investing in thecompany when a buyout offer came inthat was simply too compelling to ignore.Then it quickly sold the shares it pickedup in Formula One’s acquirer, beforethey took a tumble.

Piece of the pieHellman decided to return home to San

Francisco after spending the first part ofhis career at the top of New York’s finan-cial circles, where he was president ofLehman Brothers.

Hellman co-founded the private equityfirm with Tully Friedman, who has sinceleft. It made its mark engineering the $1.8billion buyout of Levi Strauss in 1985. Butfor the most part, the firm’s early activi-ties were overshadowed by competitors’high-profile moves, such as KohlbergKravis Roberts’ 1989 buyout of RJRNabisco for $31 billion.

Hellman & Friedman’s more recentdeals have garnered greater public atten-tion, such as the $225 million invested inArch Capital Group Ltd. in November,echoing a successful investment the firmmade in the reinsurance industry in 1992after Hurricane Andrew hit Florida.Insurers’ ability to raise prices was improv-ing this year. The events of Sept. 11 accel-

erated that trend.Major tragedies trigger capital flows

into the reinsurance sector becausedemand rises, and buyers of reinsuranceare more likely to sign on with new carri-ers, explained Jack Bunce, a managingdirector at Hellman & Friedman, whoserves on Arch Capital’s board.

Another high-profile deal last year wasthe $240 million the firm invested in theNasdaq Stock Market, which gave it a 10 percent stake in the electronic exchangethat plans to eventually go public.

“The challenge was trying to convincethe Nasdaq, sitting on $500 million, thatthey needed our $240 million,” saidMatthew Barger, senior managing direc-tor who oversees the firm’s daily opera-tions.

Hellman & Friedman is helping theNasdaq put the systems in place to oper-ate like a public company and meet theexpectations of Wall Street, said PatrickHealy, the partner overseeing the invest-ment.

The Nasdaq investment is a marqueedeal that fits the firm’s focus on solid fran-chises that others may have overlooked.

For instance, the firm left rivals scratch-ing their heads when it spent $157 millionto pick up one of the nation’s largest bill-board companies, purchasing PatrickMedia in August 1995.

The firm later sold the company,renamed Eller Communications, to ClearChannel Communications after most ofWall Street came to see the significantbarriers to expanding the billboard busi-ness given growing legislation againstnew billboards. (San Franciscans will bevoting this month on whether to curtailbillboard growth.) Hellman & Friedmanpocketed $540 million in cash and stockin the 1997 sale of Eller.

“They are among the best at what theydo,” said Michael Hoffmann, a partner atProbitas Partners, a San Francisco advis-er to institutional investors on privateequity investments. “Warren Hellman, inparticular, sets the standard for integrityin our business, and that extendsthroughout the firm.”

The rewards are large. Hellman earnedan estimated $30 million in 2000 alone,according to Forbes magazine, and hasamassed a net worth well up into the hun-dreds of millions.

Getting involvedWhile Hellman & Friedman’s team of

21 investment professionals are scouringthe country in search of investmentopportunities, Hellman himself is alsodeeply involved in San Francisco’s politi-cal and philanthropic circles.

For instance, Hellman is chairman ofthe San Francisco Foundation, and serveson the advisory board at UC Berkeley’sWalter A. Haas School of Business.

He also serves on the boards of LeviStrauss, the Nasdaq and WPP Group,which purchased the advertising firmYoung & Rubicam — another big winnerfor Hellman & Friedman.

“If you’re not involved, particularly inthis community, which can veer off in allkinds of strange directions, then what doyou have to complain about?” said

4 FinancialDeals2001 sanfrancisco.bizjournals.com SF BUSINESS TIMES | MARCH 1-7, 2002

Hellman handily rises to top in private equity

FIRM PARTNERS: Mitchell Cohen, Jack Bunce, Patrick Healy, Philip Hammarskjold.

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PLAYING WITH A FULL DECKOver the years, Hellman & Friedman has invested in winner after winner:

Arch Capital Group Ltd.: In November 2001, Hellman & Friedman invested $225 million in Arch Capital, a publicly traded reinsurance and insurance company.The financing was part of a larger $763 million financing that raised Arch’s totalcapital to more than $1 billion so the company could take advantage of a strongerreinsurance market following the Sept. 11 attacks.

Nasdaq Stock Market Inc.: In May 2001, Hellman & Friedman invested $240 million topurchase a 10 percent stake in the electronic stock market that is preparing to go public.

Upromise Inc.: In October 2000, Hellman & Friedman invested $37.5 million in theloyalty marketing program.

Formula One Holdings: In February 2000, Hellman & Friedman invested $312 million inthe parent company of Formula One Holdings. The operator of the motor-racingchampionship was acquired in May 2000 by EM.TV & Merchandising AG.

Digitas: In January 1999, Hellman & Friedman invested $100 million in Digitas, a directand interactive marketing firm. In March 2000, Digitas completed an initial public offering.Hellman & Friedman continues to hold more than half of Digitas.

Young & Rubicam Inc.: In December 1996, Hellman & Friedman invested $224 millionin the advertising firm. In May 1998, Y&R went public, and Hellman & Friedman sold itsstake in 1998 and 1999. The ad agency was later acquired by WPP Group.

PowerBar Inc.: In June 1996, Hellman & Friedman invested $19 million for a minoritystake in the energy-bar maker. Nestle purchased PowerBar in March 2000.

Advanstar: Beginning in May 1996, Hellman & Friedman invested $177 million in theoperator of trade shows and publisher of trade and business magazines. In October2000, the firm sold Advanstar to DLJ Merchant Banking Partners.

Eller Media Co. Inc.: In August 1995, Hellman & Friedman invested $157 million tobuy billboard company Patrick Media, later renamed Eller Media Co., in partnershipwith billboard industry veteran Karl Eller. In April 1997, the firm sold Eller Media toClear Channel Communications.

Voicestream Wireless Corp.: In June 1995, Hellman & Friedman invested an additional$45 million in Western Wireless to finance its expansion into personal communicationsservices. Western Wireless eventually spun off the operations as an independentcompany, Voicestream. Hellman & Friedman distributed its stake in Voicestream to limitedpartners. Voicestream was acquired by Deutsche Telekom in June 2001.

Franklin Resources Inc.: In August 1992, Hellman & Friedman led a group thatinvested $100 million in the San Mateo mutual fund company so that it couldacquire Templeton, Galbraith & Hansberger Ltd., to form today’s Franklin TempletonInvestments. In 1996, the firm sold its Franklin shares in the public market anddistributed additional shares to limited partners in 1997.

Western Wireless Corp.: In July 1991, Hellman & Friedman invested $62.5 millionin General Cellular, a financially troubled predecessor of Western Wireless.Western Wireless, which emerged from a 1994 merger with Pacific NorthwestCellular, went public in 1996, and the firm exited its investment by distributingshares to its limited partners in 1999.

Dealmaker of the Year

See HELLMAN, 17

SF BUSINESS TIMES | MARCH 1-7, 2002 sanfrancisco.bizjournals.com FinancialDeals2001 17

Hellman, whose family’s roots in the citygo back to the late 1800s.

The financier offered some restrainedpraise for the current city leaders, manyof whom came into office with a stronganti-business agenda.

“They’re doing much better than manyof us expected,” he said.

But Hellman says the city faces signifi-cant challenges. Among the most press-ing, he says, is having to pull in the reinson city spending following the bursting ofthe dot-com bubble. Other major issues,as Hellman sees it, are the poor quality ofSan Francisco’s school system and theunder-representation of its large Asian-American community in politics.

Laughter is the best medicineThose who know him best say that

Hellman places great value on humor.“Warren always appreciates a laugh to

help put things in perspective,” said ChipAdams, a managing director at SanFrancisco-based Rosewood Capital,which typically starts off its board meet-ings with a joke from Hellman.

Hellman doesn’t mind if the joke’s onhim, either.

Advising a reporter to prepare for aninterview with him, Hellman suggestedwatching a video — Steve Martin’s “TheJerk.”

Visitors to Hellman & Friedman’soffices note that the firm’s biggest win-ners, such as Voicestream, have confer-ence rooms named in their honor.

But Hellman & Friedman’s biggestlosers — such as the $127 million invest-ed in the now-defunct paging companyMobileMedia — have their own specialdesignation. Their names are assigned tobathroom stalls.

The financier likes to joke about his tat-toos, which include a horse on his leg andthe firm’s logo on his arm. But apparent-ly, there are no prospects of the firm’slogo becoming the next Harley Davidsonmotif. Hellman jokes that he’s the onlyone at the firm willing to get a tattoo of itslogo.

“Warren Hellman is incredibly success-ful and yet one of the humblest people Iknow,” CalPERS’ Hayes said. “He’s con-stantly laughing at himself, and howmany people do you know get a tattoo athis age?”

The 68-year-old remains physicallyactive, rising at 3:40 every morning tostart his run of 12 to 15 miles in the

Presidio by 4 a.m. He’s also a regular par-ticipant and supporter of Ride and Tie, anequestrian and running relay.

“It’s a tremendous release,” he said.“When you’re in business every day witha lot of problems that don’t get solved,the good thing about competition is that ithas a beginning, middle and an end.”

Despite all the problems facing SanFrancisco, he believes the city still offersmany of the same opportunities that wereextended to newcomers when his familyarrived.

“There’s still wonderful opportunities tobecome rich, famous and powerful — andthen lose it all in a year,” he said.

Mark Calvey covers banking and finance for theSan Francisco Business Times. �

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HELLMAN: Private equity firm with wide-ranging investments shows return of 30 percent on average

HELLMAN: The tattooed financier is well-known for his humor and humility.

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BARGER: In charge of daily operations.

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