Trott Once Goldman Buffett-Whisperer Adds Kochs to Wealthy Ties

Aug 08, 2014 12:22 am ET

Aug. 8 (Bloomberg) -- Carol Bernick, executive chairman of Alberto-Culver Co., was facing the decision of a lifetime. She was going to sell the Melrose Park, Illinois–based shampoo maker her father had started in 1955 or she was going to plunge into foreign markets -- Japan and Brazil -- to keep up with competitors. To help make her choice, she called just one banker: Byron Trott, chief executive officer and chairman of BDT Capital Partners LLC in Chicago, Bloomberg Markets magazine will report in its September issue.

Bernick, 62, says she considered Trott a partner in preserving her family’s wealth; she’d worked with him for two- and-a-half decades as he advanced at Goldman Sachs Group Inc.

Bernick took Trott’s advice and agreed to sell Alberto- Culver to Rotterdam-based Unilever for $3.7 billion in 2010.

“Byron helps you think through what’s best for the long- term health of your family and your company without the pressure or glitz that sometimes comes from the East Coast,” Bernick says.

Rich Families

Five years after leaving Goldman, Trott, 55, is parlaying longtime links to the moneyed elite into an investment and advisory firm that specializes in helping rich families get richer.

BDT -- for Byron David Trott -- plays two roles for its well-heeled clients. It provides advice on whether to merge, expand or sell businesses, as it did for Alberto. And it raises money from them to invest in other mainly family-led companies, either directly or through BDT’s private-equity funds.

BDT managed $6.3 billion in client assets as of Dec. 31 and is raising $5.2 billion more, according to regulatory filings.

“Byron’s got a blue-chip list of people who trust him,” says John Canning, chairman of Madison Dearborn Partners LLC, the largest Midwestern private-equity firm. “He’s played a key role in Chicago. Since most large investment banks are headquartered elsewhere, he’s been able to establish a unique practice advising on extremely large transactions.”

Buffett Ties

Warren Buffett, the third-wealthiest person in the world, is the biggest name on Trott’s prestigious list. The legendary 83-year-old investor has built his Berkshire Hathaway Inc. into the world’s fifth-most-valuable company. For at least a dozen years, Trott has been at the center of some of Buffett’s leading deals.

The Buffett-Trott relationship blossomed while Trott was at Goldman. In 2002, Henry Paulson, then Goldman’s CEO, was reorganizing the bank’s outreach to rich clients and tapped Trott as emissary to Buffett.

The billionaire soon praised the banker for helping Berkshire buy kitchenware, grocery and children’s clothing companies.

“He understands Berkshire far better than any investment banker with whom we have talked and -- it hurts me to say this - - earns his fees,” Buffett wrote in his shareholder letter for 2003.

Trott helped enlist Buffett in 2008 in the effort to extract Goldman from a potentially fatal crisis. As markets cratered that autumn, Goldman wanted to shore up its balance sheet by selling as much as $10 billion in new shares. Trott advised superiors the fundraising would be a mistake without a name like Buffett.

“They gave me the latitude to negotiate any deal that I could,” Trott testified in the 2012 insider-trading trial of former Goldman director Rajat Gupta. Prosecutors subpoenaed Trott to describe the top-secret talks; he was never accused of wrongdoing.

Hard Bargain

Buffett drove a hard bargain -- $500 million in annual interest on an investment worth $5 billion. Gupta was convicted of leaking word of the deal and began a two-year jail sentence in June.

Trott has played a role in deals involving at least 10 of the 30 wealthiest people in the world -- including Charles and David Koch and heirs to the family fortunes of Mars Inc. and Wal-Mart Stores Inc. Their collective net worth was about $380 billion in early August, according to the Bloomberg Billionaires Index.

Joining Trott’s BDT club isn’t cheap. He asked for a $25 million minimum investment for BDT Capital Partners Fund I LP, one of his private-equity funds, a regulatory filing says. Investments may take 10 years to pay out, according to another filing, twice as long as some private-equity funds.

By the end of last year, 90 people had signed up for BDT Capital Partners Fund I.

Power Mentors

Trott does his best to keep himself and his high-level network out of the media. His firm doesn’t maintain a publicly accessible website. He rarely gives interviews and declined to respond to a list of questions for this story. Buffett, Paulson and the Kochs declined to comment.

Trott offers one clue to what drives him in a biographical sketch for the Horatio Alger Association of Distinguished Americans, which honored him for honesty and hard work in 2011.

“I loved bringing the investing and investment-banking disciplines together and soon realized the value added that I could provide,” he said.

Trott identified Buffett and Paulson, who served as U.S. Treasury secretary from 2006 to 2009, as cornerstones of his career.

“I was mentored by Hank Paulson and was also fortunate to have a number of clients as mentors, including Warren Buffett,” he said, according to the biography.

Wrigley Building

As Trott hones his solo act, he’s making a Chicago landmark the symbol of his effort to provide wealthy families with advice, capital -- and discretion. He’s refurbishing the Wrigley Building, a 27-story, 1920s Spanish baroque gem that he and Groupon Inc. co-founders Eric Lefkofsky and Brad Keywell bought in 2011. He may erect an office and retail complex nearby.

From his Chicago perch, Trott is amassing a presence in the beverage, retail and manufacturing industries. BDT last year took a stake in the business of fashion icon Tory Burch, whose luxury-lifestyle company, Tory Burch LLC, sells women’s clothing and accessories.

BDT and William Ford of private-equity firm General Atlantic LLC bought out half of her ex-husband Chris Burch’s stake, helping end the bickering that had followed the couple’s 2006 divorce. Trott and Lee Scott, a former Wal-Mart CEO, joined the board.

Riding Rales

One of BDT’s stakes in a publicly traded company provides a way to measure Trott’s success. BDT invested $680 million in Fulton, Maryland–based industrial pump and fan maker Colfax Corp. in 2011. The infusion helped Colfax buy welding-equipment maker Charter International Plc that year.

Since then, Colfax stock has more than doubled, reaching $61.15 on Aug. 7, while revenue soared to $4.2 billion last year, up sixfold from when Trott invested. BDT got $26.5 million in fees for advising on the acquisition, a regulatory filing shows.

With his investment in Colfax, Trott has again formed an alliance with billionaires -- in this case, brothers Steven and Mitchell Rales. They started the company in 1995 after making a name for themselves with medical equipment maker Danaher Corp. Since 1995, Danaher shares have soared 18-fold, reaching $73.96 on Aug. 7.

Peter Bates, a T. Rowe Price Group Inc. fund manager, expects the Raleses to duplicate this success at Colfax.

“People have become wealthy because of the Raleses,” says Bates, whose company raised its stake 47 percent to 7.8 million Colfax shares during 2014’s first quarter.

Coffee, Koch

Trott has prominent companions in his Colfax investment. Koch Industries Inc., a Wichita, Kansas–based company involved in oil refining, ethanol and paper, purchased 1.6 million shares in 2012. The company, with billionaire owners Charles and David Koch, also invests in Trott’s private-equity funds, regulatory filings show.

Trott is building on his Midwest network to expand overseas. In 2012, BDT provided both advice and capital when Austria’s Reimann family began snapping up coffee companies. Trott and Bart Becht, chairman of the Reimanns’ Luxembourg-based investment firm, both graduated in 1982 from the University of Chicago’s Booth School of Business.

Billionaires Unmasked

Trott collaborated with Buffett and Becht on one Reimann deal that never panned out. In 2012, Reimann-owned Coty Inc. bid $10.7 billion for Avon Products Inc. Trott advised them and pledged $5 billion, including $2.5 billion from Buffett, a person familiar with the situation says. Avon rejected the $24.75-a-share offer. As of Aug. 7, the company’s shares had dropped to $13.54. A spokesman for Becht declined to comment.

The Reimann family lives in such seclusion that members never appeared on major international rich lists before their Trott-advised takeover attempt. A series of deals followed. The Reimanns, along with BDT’s private-equity funds and others, agreed to spend $16 billion for Peet’s Coffee & Tea Inc., Caribou Coffee Co., D.E Master Blenders 1753 NV and Mondelez International Inc.’s coffee unit.

Today, four adopted children of Albert Reimann -- Renate, Wolfgang, Stefan and Matthias -- are together worth about $19 billion, according to data compiled by Bloomberg.

Their Amsterdam-based coffee company, to be called Jacobs Douwe Egberts when it formally launches next year, will have a 16.3 percent share of the global coffee market, second to Nestle SA’s 22.7 percent, Euromonitor International Ltd. says.

Family Summit

“Byron has been developing great relationships with some of the country’s wealthiest families both during our years at Goldman and in his current incarnation,” says Peter Weinberg, a partner at Perella Weinberg Partners LP who joined Trott two decades ago in chasing new banking business for Goldman.

At Goldman, Trott sharpened an insight about families that anchors his investment strategy, Weinberg says. Trott saw that wealthy clans like meeting each other for business as well as for philanthropy and just hanging out.

“It’s always interesting to me how many of the world’s wealthiest families don’t know each other,” Weinberg says. “They often share similar issues, similar challenges and similar opportunities.”

’Sophisticated Few’

Trott encouraged the rich to get acquainted through seminars at Goldman for CEOs from most big Midwestern companies, says Robert Hormats, vice chairman of Kissinger Associates Inc., who worked with Trott at Goldman. Alberto-Culver’s Bernick remembers making a presentation on branding at one gathering.

Trott has kept the idea going. BDT is scheduled to hold a Global Summit for the Closely Held later this year in Chicago.

Trott is riding trends that are concentrating more wealth in fewer hands. The richest 10 percent now earn half of U.S. income, the largest percentage since the government began collecting data in 1917, according to University of California at Berkeley economist Emmanuel Saez.

Chicago has emerged as the third-largest center for U.S. private-equity fundraising, behind New York and Boston, according to PitchBook Data Inc., a Seattle research firm. PE funds amassed $461 billion in fresh capital in 2013, up from $92 billion in 1997, according to Bain & Co. During the same time, companies traded on U.S. exchanges dropped to 5,008 from 8,823, and Wall Street focused more on the needs of elite investors, says David Weild, co-founder of IssuWorks Inc., a New York–based financial adviser.

“The market is evolving in ways that line the pockets of the sophisticated few,” Weild says.

Potential Conflicts

For Trott, keeping such investors happy is a complex affair. BDT regulatory filings show dozens of affiliated entities -- BDTP GP LLC, BDT I-A Plum Corp. and others -- providing few details on what they do. A filing on BDT business practices devotes 10 pages to potential conflicts of interest. Trott may offer the chance to invest alongside BDT to some clients and not others, it says.

The document also cautions that clients may be disappointed if Trott forgoes investing in companies where BDT also provides advice.

“The resolution of such conflicts will be made using [BDT’s] best judgment, but in its sole discretion,” the filing says.

Such money managers as Greenhill & Co. offer advice and not investment opportunities. “No Products to Sell/No Conflicts,” Greenhill’s website says.

Diesel Rebates

One Trott investment is mired in legal quicksand. BDT is one of eight owners of Knoxville, Tennessee–based truck stop operator Pilot Travel Centers LLC, according to the company’s 2014 annual report.

The Federal Bureau of Investigation raided Pilot in April 2013 as part of a criminal investigation into whether the company had defrauded customers out of diesel-fuel rebates, according to an FBI affidavit. Some Pilot employees bet that some of their customers weren’t monitoring their accounts and withheld a portion of their rebates, the document says.

Trott was a Pilot director when the investigation began in 2011, public records show. Trott hasn’t been charged with wrongdoing; he declined to comment on Pilot.

The case made headlines because Pilot has 22,000 employees and CEO Jimmy Haslam, 60, owns the National Football League’s Cleveland Browns. Haslam’s brother Bill, 55, who worked for Pilot for more than 20 years, is Tennessee’s governor. They declined through spokesmen to comment.

Federal Fine

Pilot agreed on July 14 to pay a $92 million federal fine and reimburse customers at least $56 million.

“We, as a company, look forward to putting this whole unfortunate episode behind us,” CEO Haslam said that day.

If Pilot continues cooperating, the company may avoid prosecution, U.S. Attorney William Killian of the Eastern District of Tennessee said. Individuals may still be indicted. Already, 10 employees have pleaded guilty to mail and wire fraud and are cooperating with authorities.

Trott ascended to his billionaire-populated world from Union, Missouri, a town of 5,000 near St. Louis.

“Because he came from a small town, he always felt a little like the underdog,” his wife, Tina, says in a Horatio Alger Association video.

Sweeping Floors

The film shows Trott sitting near two American flags. With perfectly groomed silver hair and a thoughtful smile, he recalls his mother’s clothing store.

“I would go up there on weekends and sweep the floor,” he says.

Trott recounts how his parents’ love for education led him to the University of Chicago in 1977. He graduated in five years with a bachelor’s degree in economics and a master’s degree in business administration.

He was first baseman and captain of the varsity baseball team that included Jon Winkelried, Goldman’s future co- president. He graduated with $50,000 in debt, according to his Horatio Alger group bio. In 2010, Trott helped the university offer 300 scholarships.

Trott’s first job was on Goldman’s security sales desk in New York in 1982. He moved on to St. Louis and Chicago, spending six years in wealth management.

Explaining Money

Mark Tercek, a former Goldman colleague who’s now CEO of environmental group The Nature Conservancy, remembers long hours -- including a Saturday night when Trott returned from an overseas flight and drove to the office.

“Byron’s smart, high energy, personable and a good deal person,” Tercek says. “He enjoys getting things done and building trust.”

Trott endeared himself to Midwestern elites partly by helping them explain money to their kids. Many do a lousy job, he said in “The Secrets of Happy Families,” a 2013 book by Bruce Feiler.

“That’s where I come in,” Trott said. “I’m here to give them the skills to keep their families together.”

Trott left full-time wealth management behind when he jumped to Goldman’s Midwest investment bank in 1989. He spent a year on the team helping Santa Fe Pacific Corp. fight a takeover by Union Pacific Corp., says Robert Kaplan, a former Goldman vice chairman and head of investment banking who’s now a Harvard Business School professor.

Chicago’s Pritzkers

Trott kept catering to the uber-rich, including the Pritzkers, whose names adorn philanthropic projects across Chicago. After patriarch Jay Pritzker died in 1999, his heirs split into factions. Trott focused on Jay’s son Thomas, chairman of Hyatt Hotels Corp., and his niece Penny, now secretary of the U.S. Commerce Department.

He advised the Pritzkers on selling a majority stake in industrial conglomerate Marmon Holdings Inc. to Buffett for $4.5 billion in a deal announced in 2007. He joined the Hyatt board after Goldman and Wal-Mart’s Walton family invested $1 billion into the company.

Trott became a Goldman partner in 1994. Five years later, he qualified for a $103 million bonus as part of the bank’s initial public offering, according to Steven G. Mandis’s book “What Happened to Goldman Sachs.” The windfall helped fund a 14,000-square-foot, Robert A.M. Stern–designed mansion on Lake Michigan, with a market value estimated by the Cook County Assessor’s Office at $9 million in 2014.

‘Rock Solid’

Even during the 2008 financial crisis, Trott cemented relationships to expand his coterie of fans. He advised the Bucksbaum family on steering General Growth Properties Inc., the second-largest mall owner, through the upheaval.

John Bucksbaum, whom outside directors forced out as CEO, credits Trott with securing a loan that helped the company brace for a bankruptcy from which it emerged 19 months later. Trott spent hours counseling family members.

“Byron was rock solid when a lot of my rock solidness had disappeared,” Bucksbaum says.

Trott’s mentor Paulson left Goldman to join the Treasury in 2006. Trott departed in April 2009 to form BDT.

One of BDT’s first deals was with the Pritzkers. In 2010, the family sold a 51 percent stake in credit-reporting company TransUnion LLC to Madison Dearborn. Three years later, Trott worked with John and Fred Krehbiel on selling electronic components maker Molex Inc. to Koch Industries for $7.2 billion. After Trott told the Krehbiels that Koch Industries was also a BDT investor, they hired Goldman as an additional, conflict-free adviser, a regulatory filing shows.

Beer Deliveries

BDT added to its drinks empire in November with a majority stake in Lakeshore Beverage, which distributes the equivalent of 23 million cases of Anheuser-Busch InBev NV beer a year in Illinois.

Trott led talks to merge family-held distributorships, including one owned by Yusef Jackson, son of civil rights leader Jesse Jackson.

In a nod to Trott and the family-dominated capitalism he champions, Lakeshore is painting its beer trucks with a logo of the Wrigley Building that Trott controls.

Four years after selling Alberto-Culver, Bernick says she enjoys prowling for investments with BDT clients -- a network that includes the names Buffett, Koch and Pritzker. She values performance above all but says she’s partial to family-owned companies.

“You find a commitment and a passion that, without question, is a plus,” Bernick says of such investments.

Bernick is also drawn to BDT by the man in charge. If the next generation -- her kids -- needs someone to safeguard their money, she says, her first choice would be Byron Trott.

--With assistance from Patricia Hurtado in Federal Court in Manhattan, Noah Buhayar in New York and Anita Kumar in Princeton.

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