June 3, 2019
Interviewed by: David Snow

‘Pretty Perilous:’ Sun Capital Braces for a Recession

Marc Leder, Co-founder of the best-known private equity turnaround investor, shares his view on the current economic environment and investment implications.

Transcript

Don Lipari, RSM: Talk about the environment, the investment environment right now.

Marc Leder, Sun Capital: The environment is pretty perilous. Yes, the economy is growing here in the United States, but a bit slower than it had earlier last year. Europe is pretty mixed. Brexit is a major issue, particularly because we’re an active investor in the U.K. Trade wars are unpredictable and difficult to navigate. You had rising interest rates, not any longer, but you also have rising labor rates, minimum wage, which makes it difficult when you’re running restaurants and retail and other labor intensive businesses. It’s a pretty perilous environment. We’re also very late in the recovery, so we’re bearing that in mind in our investments. We’re not buying heavy turnarounds. That was one of the mistakes we made with Funds Four and Five.

Don Lipari: Right.

Marc Leder: You don’t want to load up on turnarounds before an economic downturn. We’re focused on recession-resistant businesses, countercyclical, strong industry or company growth, so you get some positive momentum heading into a downturn. Once the recession hits, and it will, there’s always another economic cycle.

Don Lipari: Sure.

Marc Leder: That’s when we do turnarounds. And that’s when we’ll buy cyclicals, generally late in a recession. We think recessions are great environments for us, because we’re buying operationally challenged companies, but also good companies that we help make great. We do a lot of corporate carve-outs, but a recession creates a much larger opportunity set for our types of deals. There’s just far fewer pristine deals for everyone else, and much more with hair on them, which is what we look for. And valuations come down. We like environments to invest that include a recession.