As the largest city on the West Coast and the second-largest in the United States, Los Angeles serves as an important financial hub. The city is home to the multi-billion dollar entertainment industry. In addition to producing copious wealth, the presence of the industry generates a lot of startup activity around the city, as entrepreneurs concoct business ideas to fill needs in the entertainment business.
The city's location on the Pacific makes Los Angeles, along with Honolulu and San Francisco, a chief gateway to important financial markets in Asia, including Japan, Singapore, Malaysia and Hong Kong.
- While lesser known for being a financial hub, Los Angeles is home to some prominent private equity firms.
- Private equity involves investments such as venture capital or leveraged buyouts in privately-held businesses.
- Here, we profile LA's biggest private equity firms and their areas of specialty.
LA Private Equity
The combination of big money flowing through the city's economy and its fertile landscape for growing startups and small businesses makes Los Angeles a popular city for private equity. A private equity firm invests capital in private companies in exchange for an ownership stake. At that point, depending on whether the private equity firm becomes a minority owner or a majority owner, the firm can work with existing management with the goal of adjusting the company's business plan to become more profitable, or it can execute a full takeover of the company, effectively becoming its new management and restructuring the business from the top down.
Private equity tends to target two types of companies: established businesses that are struggling to remain profitable, and new businesses with innovative products and ideas. While Los Angeles does not feature huge firms like the Mitt Romney-founded Bain Capital, which holds over $70 billion in assets, its private equity scene is robust.
Oaktree Capital Group, LLC
Oaktree Capital Group LLC (NYSE: OAK) is by far the largest and most well-known private equity firm in Los Angeles. Its total assets, as of 2015, exceed $17 billion. Its target companies come from a diverse array of industries. Due to its Los Angeles location, one of the firm's primary focuses is on the entertainment and media industry. Oaktree's entertainment investments include Triton Media Group, Townsquare Media and Cumulus Media.
Other industries the firm targets include transportation, health care, oil and gas, and consumer services. Oaktree partnered with another firm in 2014 to acquire a majority stake in Fitness First, which is the largest health care chain in the world. The firm made a large investment in General Maritime, a company that runs an oil tanker line out of New York City. Oaktree also acquired two large aluminum companies in 2010: Aleris International and Almatis Group.
Leonard Green &; Partners
The second-largest private equity firm in Los Angeles, as measured by total assets, is Leonard Green &; Partners, which is headquartered on Santa Monica Boulevard. Its total assets, as of 2015, exceed $16 billion. The firm targets a lot of companies in the retail and consumer products sector. Some of its largest investments include Rite Aid in 1999, Big 5 Sporting Goods in 1992, two separate investments in Petco (2000 and 2006), and a 2003 investment in Sports Authority. Leonard Green &; Partners has also acquired ownership stakes in David's Bridal and Whole Foods Market.
The firm's preferred business model is executing leveraged buyouts of established public companies and making them private again. A leveraged buyout involves using borrowed money to make an investment in another company; the desired outcome, of course, is that the gain on the investment far outpaces the interest accumulated on the borrowed money.
Kayne Anderson MLP Investment Company
Kayne Anderson MLP Investment Company (NYSE: KYN) is the third-largest private equity firm in Los Angeles. Its total assets are significantly less than what the city's top two firms hold. The firm also makes much smaller capital investments in target companies. While Oaktree rarely makes an investment of less than $25 million, and its typical investment is between $100 million and $200 million, Kayne Anderson makes investments as small as $1 million, with its average investment size hovering near $25 million.
The firm specializes in the energy sector; specifically, Kayne Anderson targets the middle-market oil and gas companies. Kayne Anderson's investment portfolio lacks the sorts of big-name companies in which firms such as Oaktree invest, but it does include many high-growth regional companies, such as Addison Oil, Blacksand Energy and Ensign Oil &; Gas.
Pacific Coast Capital Partners
Pacific Coast Capital Partners (PCCP) has $6 billion in assets as of 2015, making it the fourth-largest private equity firm in Los Angeles. The firm's typical investment size is similar to that of Kayne Anderson, or around $25 million per target company. While Kayne Anderson occasionally makes investments as small as $1 million, PCCP rarely, if ever, goes under $5 million.
The firm's primary focus is on the real estate industry. PCCP made a $35 million investment in the Hyatt Phoenix and a $16 million investment in the Hilton San Jose. In addition to hotels and resorts, PCCP targets real estate development companies, including residential, commercial and industrial. The company made a $35 million investment in industrial development company Otay 311. The firm seeks out developers engaged in the revitalization of distressed or blighted areas. It made a $34 million investment in transitional Stanford Place.
Levine Leichtman Capital Partners
Levine Leichtman Capital Partners rounds out the top five with over $5 billion in assets as of 2015. The firm has fewer active investments than Kayne Anderson or PCCP, but its average investment size is larger. Like PCCP, the minimum investment amount for Levine Leichtman is $5 million. Levine Leichtman's average investment size, however, is double that of PCCP: $50 million versus $25 million.
The firm's target market and its investment portfolio are diverse. Target industries include retail, restaurant and entertainment, finance, manufacturing, aerospace, and health care. Some of Levine Leichtman's largest and most well-known investments include CiCi's Pizza, Beef 'O' Brady's, Quizno's, FASTSIGNS International and AmeriCredit Corporation.
A couple of the firm's more recent investments, as of 2015, include Lawn Doctor and Jonathan Engineered Solutions. Levine Leichtman pursues a growth equity investing strategy. The firm makes capital investments in mature companies that are looking to expand or restructure while they retain their own current management and corporate structure.