Profile: CHAMP Private Equity's Joseph Skrzynski

Few PE professionals can claim to have started investing straight out of university; even fewer have been able to spend their early careers doing venture, growth and buyouts. In the early 1970s Joseph Skrzynski , founding partner of CHAMP Private Equity, was granted this freedom when he landed his first job managing private investments from a wealthy Australian industrialist's balance sheet.

"I had learnt an enormous amount from him as he was a very experienced business man," says Skrzynski, who landed the job following a chance introduction. "I didn't see myself as a corporate person, but I did see myself as doing something entrepreneurial. When I was told he needed someone to look after the investment side of his business I thought it was perfect."

Still a fresh-faced graduate from the University of Sydney, Skrzynski took part in his first buyout in 1973. It was the privatization of Ford Sherington, best known for the Globite suitcases popular among travellers and schoolchildren. Skrzynski remembers this as a time when the concept of private equity did not really exist in Australia - or anywhere else for that matter.

"Back then if you were an investment banker and you said to your client, who was trying to sell a division, ‘Why don't you look at a management buyout?' it would have been an insult - you would have been thrown out of the boardroom," he says. "Today you would be thrown out of the boardroom if you didn't have a buyout as one of your alternatives to a trade sale or float."

Bits and pieces

Sydney-based Ford Sherington was the ideal candidate for such a deal. The company had a strong brand name and legacy, but it was also undervalued and struggling to compete in an increasingly global market. It tried to fight the tide by introducing new businesses lines and targeting a younger demographic. Ford Sherington even had someone working exclusively on new product ideas, most notably developing car seats for babies.

"In those days balance sheets were cost-based rather than market value-based so it was totally undervalued," says Skrzynski. "We decided to sell up the property and discontinue the luggage business - which was falling over from imports - and then got behind the entrepreneur who was making the baby seats."

The deal was a buyout, an asset play and an entrepreneurial seed play. Not only did it deliver a healthy return from the difference in the purchase price of the company and the value of its assets, but the investment also embraced innovation. It typified the kinds of opportunities available in the early days.

"We did a bit of everything over those first years; it was terrific fun and there was very little competition," recalls Skrzynski. "That was also when I got to know my current partner Bill Ferris."

Skrzynski got to know Ferris - another alumnus of University of Sydney, but two years his senior - after he returned back to Australia following his MBA at Harvard. Ferris had also got an early start in investing, managing a fund on behalf of five wealthy families. The two gradually got to know each other through their deal activity in Australia's nascent PE and VC industry.

In 1987, the two set up a fund under the name Asian Mezzanine Partners (AMP). It was the first institutionally-funded private equity vehicle in Australia and their timing could not have been better. "The crash had come and the investors had taken a deep breath decided that with the capital markets closed to young companies, there was going to be a greater need for private equity," says Skrzynski. "So they backed us."

AMP raised A$30 million (then around $21 million) for its first fund from four local superannuation funds. Again Skrzynski found himself targeting opportunities across seed capital, growth stage investment and buyouts. "Back then, the big question was ‘Wow, A$30 million is a lot of money, are you going to be able to invest it?' We still get the same question every time we raise a new vehicle - our most recent fund was A$1.5 billion."

The strategy remained the same for AMP II - offering all three aspects of private equity - and by then the LP based had grown to eight, with a total commitment of A$50 million.

It was not until it was time to raise a third fund that the idea of private equity began to catch on. AMP decided to separate out its strategy into three vehicles. The company's seed stage activities would continue as the AMWIN fund, a joint venture with Walden International in Asia and the US, and the growth capital and buyout strategies would split into the two further vehicles.

For this purpose Skrzynski and Ferris decided to team up with New York-based mid-market GP Castle Harlan. Castle Harlan Australia Mezzanine Partners was a bit of a mouthful, so they settled on the name CHAMP. CHAMP Ventures became the growth stage investment arm, while the new CHAMP Private Equity handled buyouts.

Going overseas

The international tie-up suited AMP, which had already been looking beyond its borders. The firm's investments were in Australia, but it targeted companies with regional or even global strategies - as CHAMP still does today. Datacraft, which listed in Singapore in 1997 - was a classic example. It was an Australia-based company that had started offshore operations in Hong Kong and Singapore, but 80% of the business was in Australia and only 20% was in Asia.

"By the time we finished with the investment, 80% of the business was in Asia and 20% of the business was in Australia," says Skrzynski. "It had grown so quickly in the Asian market that it really gave us a feel for doing the ‘Australia plus' investment strategy."

At the same time, CHAMP was targeting a new crop of overseas investors for CHAMP Private Equity I. Skrzynski recalls that for most of the 1990s, the largest groups of investors were either based in North America or Europe, and they tended to prioritize domestic investments. Few were investing in Asia, but that would change.

By 2000, the CHAMP team had already spent around four years meeting overseas investors, and they were beginning to build a network. After 13 years in the business they also had that all-important track record.

"The first overseas investor we secured was HarbourVest Partners," says Skrzynski. "They had established a Hong Kong office and were active in the region. The fact we had a US partner, and there was someone they could call in New York as well as in Sydney, had also helped give our investors' confidence."

After securing their first oversea institutional investor, not only was CHAMP - which raised A$500 million for Fund I - able to chalk up another first for Australian private equity, but it also helped legitimize the jurisdiction in eyes of the LP community. Before long, other Australian funds had begun to follow suit.

Skrzynski recalls the turn of the millennium as a positive time for his firm in general. It was also the era of the dot-com boom and, like everyone else, CHAMP was caught up in the excitement.

"It was just at the end of the boom and a very impressive guy came to us and outlined what was essentially a search engine business plan," says Skrzynski. "He was articulate, and his ideas were well thought through. The only problem was when he said: ‘... And I need the money by next Thursday.' That broke one of our rules, but somehow he convinced us to back him."

The investment was LookSmart, a deal Skrzynski describes as a 100-to-one deal - they invested A$1 million and got back A$100 million. When LookSmart listed on NASDAQ in 2000 at a $1 billion valuation, it was the highest capitalization for a non-US company debuting on the bourse that year.

"We didn't know the dotcom crash was coming, but we knew 100-to-one was good, so we weren't greedy; the moment our shares came out of escrow we sold," says Skrzynski. "We exited over the complaints of some of our younger team members, who were caught up in the whole dotcom thing. But we got out, and three months later the market collapsed."

Nearly 15 years on, CHAMP has raised three funds - not including the two vehicles raised as AMP - with committed capital of nearly A$3 billion. Meanwhile, growth capital affiliate CHAMP Ventures is now investing out of its seventh fund, which has a corpus of A$450 million. After over 40 years in the business, and nearly 30 years running CHAMP, Skrzynski - with his colleague Ferris - is considering succession.

With the formation of CHAMP III Fund - the A$1.5 billion vehicle - in 2009, the two founders began transferring equity to the senior managers from the next generation. Earlier this year, John Haddock was appointed CEO. He will lead the company in the next fund cycle.

Skrzynski and Ferris intend to remain on the investment committee, but will eventually step back into a mentoring role as they transition out of the day-to-day running the firm's portfolio companies. "To see the landscape change so much - and to see how the infrastructure has built up around Australian private equity industry - I am as proud to have helped build that, as I am to have co-founded CHAMP," says Skrzynski.

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