Buyout firm triples money in Refco IPO
Lee's $507m investment made just one year ago
Thomas H. Lee Partners, one of Boston's most successful private equity firms, had a good day on Wall Street yesterday.
A futures brokerage Lee acquired just a year ago, Refco Inc., had an initial public offering yesterday. Shares of Refco rose $5.48 to close at $27.48 for the day. Lee bought its shares for $8 last August. The buyout firm sold some of its holdings in the public offering, but retained a substantial stake in Refco.
The bottom line: The $507 million Lee originally invested was worth more than three times that much yesterday.
''We are pleased," said Scott Schoen, Lee's co-president.
Howard Anderson, a Boston venture capitalist and a sometime investor in buyouts, was less restrained: ''That qualifies as a wonderful investment," he said. ''You don't need too many like that to make your fund look good."
Private equity firms raise money from investors and use the cash to buy controlling stakes in established businesses. Typically, they own companies for three to five years, then sell them or take them public. The goal is to make the acquired firm more valuable through a blend of cost-cutting, growth, and acquisitions.
After New York, Boston has the greatest concentration of buyout firms in the country.
The private equity business has been enjoying good times of late. Buyout firms have been raising ever larger funds -- Lee's most recent fund started with $6.1 billion -- and they have been investing the proceeds in very large companies.
This year, another Boston private equity firm, Bain Capital, bought a stake in Toys ''R" Us and made an unsuccessful bid to buy the entire National Hockey League. Bain and Lee have also discussed teaming up to make a bid to buy Dunkin' Donuts, people involved in the matter said.
Thomas Lee founded his company in 1974. It manages about $12 billion and holds investments in record company Warner Music Group, mattress maker Simmons Co., and publisher Houghton Mifflin Co., among others.
Lee earned a place in buyout history with his deal for Snapple, the beverage company. Lee bought Snapple in 1992 for $135 million. Two years later he sold it to Quaker Oats for $1.7 billion.
Forbes Magazine lists Lee's net worth at $1.2 billion.
''We have a long history of investing in financial services," said Schoen, in an interview about the Refco deal.
Until yesterday, Refco described itself as the world's biggest privately held futures broker. Futures are agreements to buy or sell assets at a given date and price. Refco trades contracts in financial products such as stocks, bonds, and currencies as well as commodities such as steel and oil. The run-up in energy prices over the past year has sparked a boom in energy-related trading.
Refco has also grown through acquisitions. In June, the company paid $208 million to buy Cargill Investors Services' brokerage business.
Refco is headquartered in New York but has offices around the world.
Schoen said Refco's customers include institutional investors, hedge funds, and individuals. Refco's sales have grown at a good clip the past two years and the company is profitable. Refco earned $176 million on sales of $1.2 billion in its most recent fiscal year.
Lee currently owns about 40 percent of Refco. Schoen said his firm had no timetable for how long it would hold on to its investment. Refco's management, including chief executive Phillip Bennett, also owns a major stake in the business.
Charles Stein can be reached at stein@globe.com. 