JLL Builds Buyout Team, Founder Returns to P.E. –

Joseph Littlejohn & Levy on Jan. 20 added a fourth partner-Tony Grillo from The Blackstone Group-the same week co-founder Peter Joseph returned from a one-year sabbatical to join Palladium Equity Partners, a buyout firm former JLL professionals formed in 1997.

JLL is rebuilding itself now with only one of its named partners-Paul Levy-remaining with the group. Mr. Levy, while interested in building the firm, did not invite named partner Peter Joseph back after he returned from a one-year sabbatical in Israel (BUYOUTS Feb. 10, 1997, p. 1).

“We don’t need him, and he didn’t ask us,” Mr. Levy said. He added he was surprised about Mr. Joseph’s return. “He spent most of his time on charitable work and politics, so I didn’t think he would come back to private equity,” he said.

For his part, Mr. Joseph said he was not particularly interested in rejoining his old firm.

“I’ve been in touch with Paul but conversations never went in that direction,” he said. He explained that he joined Palladium because it appealed to his entrepreneurial instincts. “I have always enjoyed private equity, and Palladium represents a terrific opportunity to join a younger group that represents a natural evolution of the way I focused on the business.”

Mr. Joseph said he believed JLL’s L.P.s would be comfortable with his decision to join Palladium because he made it clear in 1997 that there was a strong possibility he would not return to JLL. He also said he helped JLL find two new partners in 1997 in David Ying (BUYOUTS May 26, 1997, p. 4) and Jeffrey Lighthcap (BUYOUTS June 9, 1997, p. 4).

Moving from LBO Firm to Institution

At JLL, new partner Mr. Grillo believes he can help the group transform itself into more of an institutional firm. “At its present size of 17 to 18 people, it’s still too modest to get a grand reputation [outside of its named partners], and I think we can build it so more people recognize the firm,” he said.

Mr. Grillo spent eight years at Blackstone and helped it build a reputation with its real estate and buyout divisions, and its restructuring and merger and advisory groups.

In the last 18 months, Mr. Grillo started making direct investments for Blackstone when he became a partner in its merchant banking group. He had been co-head of Blackstone’s restructuring and reorganization group and an officer in its merger and acquisitions group.

JLL is in the process of making its first buyout since raising the $1 billion Joseph Littlejohn & Levy Fund III, L.P. in early 1998, Mr. Grillo said. The group will soon close a $450 million buyout of Hershey Food Corp.’s pasta business.

Before JLL launched Fund III, Mr. Joseph was not the only partner to leave the firm. Partners Marcos Rodriguez and Robert Lanigan also resigned to form Palladium (BUYOUTS March 10, 1997, p. 4).

The spin-out group this month boosted its team from four to six partners by adding both Mr. Joseph and Pierson “Sandy” Grieve. Mr. Grieve was former chairman and chief executive officer of Ecolab, which sells cleaning and sanitizing products.

Palladium raised a $265 million pledge fund last year and has a strategy similar to JLL’s. It targets underperforming companies in the auto components, plastic injection molders, metal bending, and stamping industries, as well as media.

Mr. Rodriguez said the firm is not yet ready to raise a larger fund.

“We would all be very happy to invest $100 million to $150 million a year focusing on our niche of underperforming companies,” he said.

Blackstone Bruised by Defections

Mr. Grillo was not the only partner to leave Blackstone this month. Glenn Hutchins, a partner in Blackstone’s principal operations, left to start his own fund that will invest in buyouts of technology operating companies.

A source said the fund likely would be run in partnership with venture capital firm Kleiner Perkins Caufield & Byers and will seek a target of about $1 billion. Mr. Hutchins could not be reached for comment.

A Blackstone L.P. said he heard rumors in 1997 when it was raising the $3.78 billion Blackstone Capital Partners III, L.P. that several partners might be leaving the firm, so he was not surprised about the recent defections. He added that he thought the firm could withstand the losses if no other partners followed Mr. Grillo’s and Mr. Hutchins’ lead.

Partners at Blackstone did not return calls seeking comment.