March 3, 2017
Interviewed by: Privcap
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A Career Built on Emotional Intelligence

Stewart Kohl describes his evolution from a pony-tailed Oberlin undergraduate to the Co-CEO of a dominant private equity firm. Kohl credits his emotional intelligence for his success at working with the founders of lower middle-market businesses. He also discusses his first LBO, a flop, and his involvement in a successful biking event that is helping to find a cure for cancer.

Stewart Kohl describes his evolution from a pony-tailed Oberlin undergraduate to the Co-CEO of a dominant private equity firm. Kohl credits his emotional intelligence for his success at working with the founders of lower middle-market businesses. He also discusses his first LBO, a flop, and his involvement in a successful biking event that is helping to find a cure for cancer.

A Career Built on Emotional Intelligence
With Stewart Kohl of The Riverside Company

Don Lipari, RSM US LLP:
Today, we’re joined by Stewart Kohl, Co-CEO of the Riverside Company. Welcome, Stewart.

Stewart Kohl, The Riverside Company:
Thank you, Don.

Lipari: The Riverside Company has over $5 billion assets under management, has completed over 400 deals, has over 200 members of its team and is on four continents. When you were growing up in Leonia, New Jersey, did you imagine that this was where you’d be?

Kohl: Not in my wildest imagination, Don. Of course, private equity didn’t even really exist at that time, but I had no vision or imagination that this is where it might lead.

Lipari: Let’s take a walk through the mid to latter part of your life, if that’s okay with you. You go to Oberlin College in the ‘70s and that’s where you first encounter Béla [Szigethy], your co-CEO and the founder of Riverside. At the time, you were leading the co-op program in Oberlin and Béla is quoted as stating, “On stage was this guy with a long ponytail and overalls and he was masterful. He was funny. I was so impressed, I never forgot him.” Do you think it was the overalls or the ponytail?

Kohl: I was not the only person at Oberlin to be wearing overalls and sporting ponytail.

Lipari: Béla was also quoted as [saying], “Stewart is downright brilliant with rare ability to truly empathize with people and quickly identify their hopes, dreams and fears.” Before I ask you the question, I want to read one of your own quotes. You said, “Any success I’ve had might be more due to people skills rather than financial and analytic skills.” Provide me your perspective of how important a high EQ is when convincing entrepreneurs to sell their company or to allow you to invest in their companies, specifically in the middle market or lower middle market.

Kohl: I think high EQ is critical to what we do in private equity in general, but particularly at the smaller end of the middle market, as we call it. In our world, it’s rarely purely a financial transaction. I’m sure you see this in your practice as well. These companies are the creation of these entrepreneurs. They’re a part of their family.

Lipari: You describe the buyout process as, “Like if we met and dated and I said ‘You’re special, I think we should get married, have a home and a family, but in five years, I’m going to sell you.’” Talk about what’s behind that statement. Do you get emotionally tied up with the entrepreneurs that Riverside decides to invest in? And is there a bit of regret at the point when you need to harvest those companies?

Kohl: We do, Don. We forge very close relationships based on trust and communication. We become close, not in the sense of friends to go drink beer with, although that certainly happens, but close in the sense of having forged the mutuality. And the connection, having properly structured the transaction and grown the business together—there’s a level of closeness, rapport and shared accomplishment that’s remarkable.

It’s always done, though, with the understanding that because our investors, who are our bosses, call the tune—they have typically a five-year perspective, plus or minus, and our funds have a 10-year life, plus or minus—we have to have a beginning, a middle and an end. So, this beautiful marriage (I’ve often found the dating analogy works well) does have to come to an end, although the relationships continue, in many cases. There’s a lot we can do to continue to help each other.

Three times in the last two years, Riverside has had the opportunity to reinvest in companies that we had previously owned. And, in each case, it came because the CEO and the management team of that company approached Riverside and said, “Our current owner—it’s been a great partnership” (in each case, they grew and made money together) “But we know that five-year relationship is coming to an end. Would Riverside be interested in investing in us again?” In those three cases, we said “Yes” and the relationship continues. I find those particularly rewarding.

Lipari: After Oberlin, you go to Michigan for a bit, then to D.C., then to Cleveland to join Citibank’s buyout group at that Cleveland office. What led you to the leverage buyout space?

Kohl: It’s 1986 or ’87 and I’m reading about these things called “leverage buyouts” in The Wall Street Journal. It was a period of time when there was a wave of go-privates. A lot of firms that were being particularly conglomerates were being bought and taken private.

I thought this was very exciting. Mind you, I had never taken a finance course or an accounting course, I didn’t have my MBA and (I’m not exaggerating) I could not spell “EBITDA.” But, for whatever reason, Citibank hired me, bless them, and trained me in the private equity business. And that was the beginning of my career.

It truly was such good fortune or luck that I got hired and it just came because, reading about these deals, I thought they would be very exciting, very fun and very rewarding to be a part of.

Lipari: You joined Citibank in Cleveland and you’ve got access to some Citibank capital and you do your first leverage buyout—a furniture company—which didn’t turn out so great.

Kohl: No, it didn’t. The Hitchcock Chair Company in Connecticut: a great name, a legendary company, but not a successful transaction. Yes, the folks at Citicorp—bless them for hiring me and for not firing me. They could have and perhaps should have.

Lipari: Were you questioning your decision to go into LBOs at that time?

Kohl: A bit, certainly. To this day, I can’t smell sawdust without getting a bit nauseous and Riverside has not invested in any furniture companies since that time.

Lipari: Let’s bring it back and talk more about you, Stewart. You are a deeply passionate person. You have a very, very high degree of energy and I’m sure you have a list full of things you’re very passionate about. Talk a bit about your top two or three passions in your life.

Kohl: Well, the grandchildren. That’s an easy one. Riverside and our work, our people, the companies we invest in—it’s extraordinarily rewarding and therefore I’m passionate about it. But life can’t be all about work. I’m an avid cyclist for recreation and, like so many of us, my life has been touched by cancer—not me personally, but in the sense of too many loved ones have had cancer or died from cancer.

I have actually had the opportunity, in partnership with the Cleveland Clinic, where I serve on the board of trustees, to create an event called VeloSano. It’s a bicycle ride to raise money for cancer research. We’re… starting now our fourth year. We’ve had three years so far and, in those three years, we’ve raised well over $8 million for cancer research.

We’re not building buildings, although that’s important, and we’re not endowing chairs, which is important. All the money is going for research right now—cutting-edge, lifesaving research being done by the doctors and scientists at the clinic and elsewhere in Cleveland who have ideas, almost like a venture capital approach, for how they might find a piece of the puzzle that will ultimately lead to cures for cancer. And, by the way, we’re closer than many of us realize for finding those cures.

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