Talking Top Quartile with Jim Cooper of Thompson Street Capital Partners

The vintage 2006 Thompson Street Capital Partners II fund from Thompson Street Capital Partners rang up an investment multiple of 2.0x as of May 31, 2015, for the Oklahoma Police Pension & Retirement System. That’s ahead of the top-quartile threshold of 1.7x and the median of 1.4x for that vintage year, according to public pension fund performance data from 232 funds compiled by Buyouts. Separately, an LP that invested with the firm confirmed Fund II is a top-quartile fund. In its most recent fundraise, Thompson Street raised $640 million, ahead of its $500 million target, for TSCP IV, in four months. The fund closed in December. Jim Cooper, managing partner of the firm, spoke with Buyouts

What was fundraising like for Thompson II? The middle market probably didn’t have the cache that does now.

We were a fairly new firm at the time, so I’d call it somewhat difficult. We already had our first fund, but it hadn’t produced many results yet. We didn’t have enough of a track record, so we spent about a year on it. We were new, the team was new — there was a lot of that dynamic. We went out to raise $300 million and we hit the target. We used Monument Group as a placement agent. Later funds were easier to raise. And yes, the middle market was not as trendy. The big funds were doing very well at the time. Overall, the effort took initiative.

Could you run through the key deals from that fund?

The good news about the fund is we’ve had 12 investments, 11 have been successful [based on exits and marks] and one was break-even. We’ve fully realized nine out of the 12. Two are not exited but are doing well. In Fund II, we made our first, real healthcare service investments and they did well. About half of our funds are health services deals nowadays. We were able to open that door with Fund II. In 2007, we acquired DCL Medical Laboratories from the company founders. We sold it in 2010 to Laboratory Corporation of America Holdings. That was important. We also made quite a few good investments in value-added distribution and business services companies.

What deals drove performance for the fund?

BarcodesInc was one. They distribute barcoding equipment to smaller businesses like corner drug stores. They’re the best place to go to get that equipment. If zappers [barcode scanners] break at a store, BarcodesInc provides the backup products for all of that. It was a successful investment when we sold it to Cortec Group, a larger financial buyer.

We did a data center deal in 2013 called TierPoint by buying data centers in Spokane, Washington; Seattle, Dallas, Oklahoma City and Baltimore. Data centers are great with very little down side. The business model has expanded into cloud computing and managed services. In June of 2014, we recapitalized TierPoint with Redbird Capital Partners, Ontario Teachers’ Pension Plan and Jerry Kent, the CEO of Cequel III, as investors. Now we’re minority shareholders.

We also bought St Louis-based Universal Air Filter from Riverside Co. The company makes a very high-end air filter that goes into expensive computer equipment such as servers. It makes an engineered product with very high margins. We grew it and sold it to Filtration Group.

We still have three unrealized investments. One of those we hope will be exited by the end of 2016.

What impact did Fund II have on the development of the firm?

It evolved our investment strategy based on founders, with a very Midwest focus. Also our emphasis on a recurring revenue service model and asset light [not a lot of working capital and equipment, and a lot of cash flow] emerged. Those traits became very important to Thompson Street. Most of what we do today we developed as a strategy for Fund II. Bob Dunn, our managing director who heads acquisitions, came on board from TA Associates in Fund II. Also Neal Berman, who worked at Harbor Group for more than decade, joined us for Fund II. Both are still on board.

Does being in St. Louis make it easier to win deals in the Midwest?

We’re glad we’re in St. Louis. There’s a little less competition for deals in the Midwest because East Coasters don’t spend a lot of time here looking for deals. We do the bulk of our deals with founders. Founders care a lot who the buyer is. It’s important for them to feel comfortable with the buyer. We talk fly fishing, duck hunting, Big 10 football — those things matter to sellers. We also have a long track record of growing founder-led businesses. We’re far more successful winning deals in the Midwest than the East Coast. Culturally, we fit better here, where there are tens of thousands of founder-owned companies that are going to be sold.

Is there a Thompson Street nearby?

Our first investor was Capital Z, which was on Thompson Street in New York City’s Soho neighborhood. Capital Z had a mandate to invest in emerging managers. That’s where the name comes from.

Action item: Reach Jim Cooper at or 314-727-2112.

Photo of Jim Cooper courtesy of Thompson Street Capital