Glencoe’s Michigan Opportunities

Jason Duzan, managing director at Glencoe Capital, on how the firm formed a unique public-private partnership with the state of Michigan during the recession.

What led your lower-middle-market firm to establish the Michigan Opportunities Fund?

Duzan: In 2008, the governor of Michigan tasked the State of Michigan Retirement Systems to find new sources of capital to boost local companies and revitalize the marred economy. Glencoe Capital raised its hand to get involved.

The firm was looking to raise its fourth fund that same year, and Michigan’s retirement system was a lead co-investor in our first fund. Glencoe blended its lower-middle-market private equity investment strategy with an economic policy-linked investment mandate to create a state-focused strategy. The $153 million Michigan

Opportunities Fund focused on lower-middle-market companies that would either conduct a material portion of business operations in Michigan or demonstrate a viable plan for expansion into the state.

What are the pros and cons of managing a state-focused fund?

Duzan: Since its start in 1993, Glencoe Capital acquired lower-middle-market companies across the country; so before, we had the whole country to fish from. We were industry-focused, then became geographically-focused. It was a smaller pond during a challenging economy. The economic crisis presented numerous challenges: Not many owners were selling to buyout firms, financing was scarce, and valuations were tough to calculate. There was zero equilibrium for dealmaking. So we tweaked our model.

The focus shifted to the growth-equity side and good, solid Michigan companies that needed capital to buy out their competitors. This was 2009 in Michigan, when a ton of horror stories on the bankruptcies of the two major automakers were making national news. But on the ground, we found a lot of good entrepreneurial, lower-middle-market businesses.

We found major advantages as a hometown team. Michigan is full of very supportive local people, so we have been very well received. As a result, we’ve been able to get first and second votes on opportunities that wouldn’t have reached us as quickly if our firm came from another city. Hopefully, we’ve been good stewards of the state. ■