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    November 5, 2007  
 


IN-HOUSE TO
PRIVATE EQUITY


Big shout-out to new sponsor PN Hoffman. The Chase Point Condominiums in Chevy Chase are extraordinary—we've seen them ourselves. Only 10 remain. The project won the Delta Associates award for Best Mid-Atlantic Condominium Community, and a "Monument Award" just last week.

As a partner at Arnold & Porter, Sam Flax took American Capital Strategies public in 1997 and helped raise $150 million for it.  Since then, it’s had a whopping 29 follow-on offerings. Now it has a market cap of $8 billion, has invested $24 billion in 410 portfolio companies, and is the largest publicly-held private equity firm in the US.  In 2005, Sam joined them as EVP and GC.  Last month WMACCA named him and his colleagues as this region’s law department of the year.


We visited Sam and some of his 16-lawyer legal crew last week at their Bethesda Metro Center offices.  Here Sam holds the WMACCA award, filled with after-dinner mints made by an American Capital-owned company.  Sam has no shame about poaching talent from his old firm and other top shops.  For this snap, Sam corralled (from left) Josh Lefkowitz (formerly of Stroock);Joel Gulick (A&P); Ken Pollack (A&P); Kasey Reisman (Dechert); Sean Reid (Covington); Melissa Dulski (Akin Gump); and Compliance Manager Grace Llenado.  Even Sam’s secretary, Pam Powell, came from A&P.

American Capital is a “business development company,” a creature of a 1980 BDC statute that requires 70% of assets to be put in domestic, non-public or microcap companies.  For tax reasons, American Capital owns a majority stake in no more than half of its companies, which include household names Piper Aircraft and Aamco Transmissions.  (Non-controlled companies have included Gibson Guitar and Riddell, which makes football helmets.) 

Sam says his legal department is unique in that much of its time is spent on leveraged buyout and lending deals.  He also gets outside help on corporate work from A&P and O’Melveny in D.C.; Weil Gotschal in N.Y.; and Patton Boggs in Dallas.


Sam is a Silver Spring native (and a third-generation Washingtonian on his father’s side) who attended Blair High School. In 2002, while still at A&P, he started commuting straight to American Capital.  In 2004, CEO Malon Wilkus gave Sam a “fish or cut bait” speech; Sam finally cut his ties with A&P and became GC.

The legal department has been busy helping the firm give it a go across the pond as it raises a European investment fund and gets it listed on the London Stock Exchange.  An American Capital subsidiary acts as asset manager for the European fund, continuing its strategy of buying and lending to mid-market companies.  Sam says that KKR recently started a public European fund and copied American Capital’s structure, which sounds to us like the sincerest form of flattery.

The European fund was chartered in Guernsey, an island about 100 miles off the English coast.  Sam will be traveling there four times a year for board meetings.  The offices are in London, Paris, Frankfurt and Madrid, where American Capital has hired a total of 70 employees (only two of them Americans), including two lawyers.


A&P sure was good to this guy—Sam met his wife Meg when they started as associates on the same day.  Their children Caroline (14), Andrew (12), and Ellen (8) each attend Sidwell Friends.  The truck isn’t one of the kids’ toys—it comes from one of Sam’s early deals at American Capital, for a company that makes lift trucks for utilities. 

American Capital was started in the two-bedroom condo of Malon Wilkus, who had lived on an Ozarks commune and started businesses that made nut butter and sandals.  He founded American Capital with an interest in employee buyouts.  Sam got hooked up with Malon through his A&P mentor, Steve Hester, an ESOP guru who helped Malon with his early deals. Don't you love inspirational stories like this?

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