The Next Robert F. Smith? The Other Black-Owned Private Equity Firm Making Boss Financial Moves

When you ask Willie Woods, the president of ICV Partners L.L.C., a black-owned, New York-based private equity firm, the traits that separate his equity firm from competitors, he offers its six-year investment in Entertainment Cruises as an example.

A Smart Investment in ‘Floating Restaurants’

In 2006, the firm invested in a small dinner cruise company, then named Premier Yachts, which grossed $35 million and operated in Boston, Chicago, and Washington, D.C. The owner had outgrown its angel investor and sought to expand its line of premium cruise offerings. In examining the business, the natural assumption would be that the costs of maintenance and fuel could make the venture a money pit. Led by Lloyd Metz, a veteran Wall Street deal-maker and one of the firm’s managing directors, the team engaged in further analysis, discovering that these “floating restaurants” sailed short distances in smooth freshwater—not choppy saltwater—with little wear and tear on the vessels and relatively low burn rate of fuel, which represented less than 3% of total costs. The expense structure and operations offered great flexibility since trips could be made to accommodate parties ranging from 10 to 100.

So ICV got to work by first cashing out the angel investor and then merging Premier with its largest competitor, Spirit Cruises, and later acquiring Baltimore Harbor Cruises, which expanded the company’s reach to New York, Philadelphia, Baltimore, and Norfolk, Virginia.

Over the next few years, it combined the organizations, realigned costs, and upgraded management in key departments. Moreover, ICV’s guidance improved top-line and bottom-line results. For example, the company adopted practices such as demand pricing, which has been effectively used by hotels and airlines to significantly increase fees during holidays and special occasions. Sales and profits grew—even when the country was in the throes of the greatest economic downturn in a generation.

Reflects Woods: “This investment checked all the boxes. The deal situation was right. The red flags around one of our investment practices got diligence. We saw a lot of opportunities to make the company better with revenue management. We saw an acquisition that we could add to and that was very synergistic.”

How ICV Grew in Stealth Mode

By 2012, ICV had significantly improved operations and introduced new experiences. In expanding the company’s reach from three to seven cities and increasing the number of vessels from four to 24, Entertainment Cruises became the nation’s largest operator serving 15 million passengers annually and nearly tripling revenues to $90 million. The company was eventually sold to the Pritzker family, which owned, among other properties, the Hyatt Hotels chain.

As that example illustrates, ICV has grown in stealth mode over the past two decades by becoming a consistently successful value creation machine among be 100s financial services companies. Before ICV will put up a single dollar in a company—its cash equity investment represents roughly 45% to 55% of the value of a given transaction—the targeted acquisition must offer a low-drama, collaborative scenario.

With $1.4 billion in capital under management, Team ICV has narrowed investments to sectors the principals know best and now commits to four verticals: consumer goods and service, healthcare, business services, and food and beverages. Over the years, Woods & Co. have invested more than $727 million in 23 companies, including military and commercial bakery products manufacturer Sterling Foods, specialty casino-based store chain Marshall Retail Group, and Cargo Airport Services L.L.C. Current holdings include a commercial cleaning services franchisor Coverall and SirsiDynix, a global provider of technology solutions to libraries, which it acquired from Vista Equity Partners (No. 1 for Private Equity Firms on Black Enterprise’s ‘BE 100s’ list of the nation’s largest black businesses, with $46 billion in capital under management).

Under Woods’ leadership, the firm also achieved its largest fundraising ever by securing $585 million from “existing limited partners,” exceeding its target goal and realizing a roughly 50% boost in capital commitments compared to its previous fund. True to form, the leadership of ICV Partners L.L.C. remains focused on the next acquisition target.

Woods has not let such achievements serve as a distraction. To maintain its superior performance in the increasingly competitive buyout space, ICV steadfastly adheres to its core values known as the ‘4Hs’: Honest, Humble, Hungry, and Hardworking. For those reasons—and more—ICV Partners has been selected as our 2019 BE Financial Services Company of the Year.

Learning Deal Dynamics

A native of the Detroit suburb of Pontiac, Wood’s professional development evolved during the go-go ’80s, an era marked by stock market fervor, hostile takeovers, and junk bond-financed deals that transformed corporate outsiders into masters of the universe.

“I knew I wanted to do something in business, which is why I majored in accounting,” says Woods, who attended Morehouse College as an undergraduate and during summers would work in the payroll department of General Motors, which was a source of pride for his family members on the assembly lines.

[RELATED: MOREHOUSE RECEIVES $1.5 MILLION FROM BLACK BILLIONAIRE ROBERT F. SMITH]

But Woods had other plans. He was drawn to finance. Upon graduation, he went back to the Detroit metro area to the banking institutions instead of one of the Big Three auto manufacturers. But the ambitious banker had a burning desire to work on Wall Street. “I felt like I was sitting on the sidelines. So I was reading in The Wall Street Journal about [iconic leveraged buyout financier] Michael Milken and all these investment bankers and what they were doing. And I’m sitting here at this bank in Detroit trying to figure out, ‘Well how do I get there because that seems to be where the real action is,’” says Woods, who attended Harvard Business School as the route to get there.

In 1993, he was recruited by legendary white-shoe investment bank Lehman Brothers. In fact, the aspiring investment banker received the job offer after he and two other African American interns stood their ground before a member of Lehman’s senior management team, debating that Wall Street was, indeed, “not a meritocracy and that African Americans continued to be shut out of opportunities.” After winning the argument, the Lehman manager stated that the firm was committed to diversifying its ranks with African American talent and brought him aboard.

Working in the firm’s Industrial and Consumer and Real Estate groups during his tenure there, Woods gained his front-row seat and participated in some of The Street’s most celebrated and complex transactions, including the $840 million initial public offering of real estate investment trust Simon Property Group, the largest deal of its kind at the time, and General Motors’ EDS unit’s $600 million acquisition of consulting firm A.T. Kearney.

Due to the range of transactions in which he was involved, Woods learned the financial and operational dynamics of mergers and acquisitions “working with CEOs, CFOs, and those at the highest level on the inside. It’s a collaborative effort.”

Sad to see Lehman as one of the casualties of the financial crisis that occurred a decade ago, he adds, “At Lehman, I learned about private equity. We were out there doing these leveraged buyout deals, bond deals, and M&A work. We were working with financial sponsors who leaned on us because they were very thinly staffed. It was just a great experience.”

Woods found that he enjoyed the entrepreneurial aspect of private equity, which married innovative financing with value creation. He gained more indispensable experience engaging in high-profile transactions and restructuring companies when he left Lehman to develop “a startup inside of a bank”—the Basic Industries Group at Bankers Trust, which became one of the most profitable at the institution that would be acquired by Deutsche Bank for $10 billion in 1998.

Investing the ICV Way

As Woods considered making a transition to entrepreneurship in the private equity arena, “I got the strangest call from my Harvard B-school professor and mentor, Michael Porter.” One of the world’s leading authorities on competition and business strategy, Porter had been Woods’ sponsor during his second year for a business school field study to identify a range of impactful businesses that could be developed within the inner city as part of the Rebuild Los Angeles initiative in the aftermath of the 1992 riots.

The research conducted by Woods and his classmates served to test and localize Porter’s hypothesis from his influential 1989 classic, “The Competitive Advantage of Nations,” that asserts “clusters”—an ecosystem of industries, suppliers, and institutions, can drive how companies and governments evaluate economies, business locations, and public policy.

The project spurred Porter to launch The Initiative for a Competitive Inner City (ICIC), a nonprofit that seeks to promote economic prosperity in urban America through private sector investment. As such, Porter viewed the development of an ICIC fund as being critical in providing local entities much-needed capital to operate and grow. To implement his plan, he reached out to Woods.

To gain support for the ICIC fund, Woods and Porter brought Michael Fisch, managing director and CEO of New York-based private equity giant American Securities L.L.C., into the dialogue. American Securities is backed by the Rosenwald family whose fortune was behind the Sears department store chain and a fund that supported education for millions of African American children during the early 20th century. Fisch concluded that the fund needed to be larger in size and scope as well as owned and operated by African Americans.

In fact, at one point, Porter sought to have a prominent figure like Colin Powell serve as its face and voice. Eventually, Fisch would come back to Woods, citing the need for an investment professional engaged with management of the fund. Still harboring entrepreneurial aspirations, Woods came aboard after Fisch agreed to his terms of gaining a majority ownership stake and serving as the company’s leader. (Tarrus Richardson, CEO of IMB Development Corp., No. 42 on the BE 100s Top 100 list, with $94 million in revenue, was another ICV co-founder.)

Woods has always been struck by the serendipitous nature of the company’s founding: “If I never went to Harvard Business School or had Michael as my professor, ICV would never have been launched.”

In order to ensure ICV’s viability, Woods had to change the company’s investment philosophy. “Here was this interesting challenge. Michael Porter wanted to prove out the inner-city theory. Mike Fisch and the Rosenwalds were wealth preservationists that didn’t want to lose money. There was a little mismatch,” Woods recalls. “As we were putting the strategy together and starting to look at deals, it just conflicted with what we were trying to do. We had a new firm that was trying to figure who we are and what we wanted to be when it grew up and our partner was an established firm with an established criteria that had been successful. So we were looking at each other. I said that we should adopt [American Security’s] strategy and just tweak it.”

Tapping foundations and public pension funds, among other sources, ICV raised $130 million for the first fund, and then $313 million and $400 million for the second and third funds, respectively, in subsequent years.

A Model for Value Creation

Instead of financing risky early-stage investments, ICV identified proven market leaders that produced high margins relative to their niche and operated within stable, high-demand sectors. Other criteria included annual revenues between $25 million and $300 million and EBITDA (earnings before interest, taxes, depreciation and amortization) between $10 million and $40 million (margins of 10% or greater).

Within its midtown Manhattan quarters, the team assembles every Monday morning to review potential deals. Each prospect has an internal sponsor who shares its characteristics as he or she advocates its fit within the ICV portfolio. Says Metz of the session: “What we’re trying to get better at the process—day to day, week to week, year to year—as part of our culture. You want to focus on the facts around a situation. You want to be rigorous in your analysis and search for the facts around the business, and its customers, and the opportunity.”

Beyond the disciplined investment approach, ICV’s culture and people represent vital ingredients to the company’s secret sauce. A number of employees have been with the company for well over a decade and Woods has known and worked with them prior to their coming aboard. Metz, a Wall Street veteran who developed his deal-making chops at powerhouses such as Warburg Pincus and Morgan Stanley, worked with Woods on transactions during his Bankers Trust days. Metz has been at ICV for more than 17 years. Atlanta-based Managing Director Ira Moreland has known Woods since their college days at Morehouse and has been with the firm for a decade after amassing years of M&A and investment banking experience.

The company’s third managing director, Zeena Rao, was ICV’s fourth investment professional when it was a five-person shop, structuring deals during her first month. She’s has stayed, in large part, due to the firm’s commitment to adding value to small companies, which is deeply personal to her since she grew up in a family business.

But the demanding, yet collegial tone Rao maintains, has been set by its steward. “He’s been a great balance and consistent leader. We’ve worked together for a very long time. He’s a very good match for what our firm is tasked to do for our investors,” she says. “He’s smart about taking and managing risks and does an excellent job of building relationships.”

Although ICV did not exclusively finance minority firms as originally intended, Woods points with pride to their efforts to diversify the pipeline with African American talent. In fact, former ICV employees that have gone on to Harvard Business School and Wharton can be found at leading financial institutions as well as venture firms like nascent Harlem Capital.

As its culture dictates, ICV stands ready to pursue deals but will not engage in chest thumping or discard their discipline. Asserts Metz: “I think we feel we have a lot to prove. We have not arrived. We’re trying to get better at our craft. We’re trying to get better at finding returns for our investors. We’re trying to get better at making our portfolio companies more successful. We ain’t done yet.”