Minneapolis-based Norwest Equity Partners (NEP) is Minnesota’s largest private equity firm, with $4.6 billion in capital under management. That makes John Lindahl, NEP’s managing general partner, perhaps the state’s most influential investor.
“Our goal is to buy good, strong-performing businesses across a diverse group of industries, and then be a strong, aggressive board member by helping our CEOs develop strategies and grow their businesses,” Lindahl says. NEP currently has a controlling interest in 18 companies, whose revenues are primarily in the $50 million to $250 million range.
Lindahl’s origins were modest, but he had the firm support of his father. “My dad said he would fund the tuition, which shocked me,” Lindahl recalls. “Then he said he’d only do it on one condition, and that was that I wouldn’t go into the family tire-rehabbing business. He wanted better things for me.”
After earning a BS in finance and a BA in economics from the University of Minnesota, Lindahl joined Northwestern National Bank (later Norwest) in Minneapolis, starting with an 18-month commercial lending training program. Four months later, the program was discontinued and Lindahl was placed into the commercial lending division—thus earning on-the-job training.
During Lindahl’s 16 years in commercial lending, he learned valuable lessons in leverage lending while serving as Irwin Jacobs’s banker during the famed Twin Cities investor’s corporate-raider period in the ’70s and ’80s.
“Irwin showed me a different perspective on business and had an impact on the way I looked at opportunities and how to take risks,” Lindahl says. While working with Jacobs, he learned to look more at the cash flow that a borrower could generate, rather than focusing simply on the business’s assets and security. This approach could lead to a better way of valuing a business—something that Lindahl would put to work when he made his next career move.
When Norwest Venture Capital, the banking company’s growth fund, was looking to expand into later-stage and management buyout investment activity, it hired Lindahl in 1984 to head up the creation of a new entity, Norwest Equity Partners.
For the first 12 years of its existence, NEP and Norwest Venture Capital invested with commingled funds. When NEP formed a fund in 1989 with $200 million, it was the largest such fund ever raised in Minnesota. Subsequent funds rose to $300 million in 1994 and $350 million in 1997, before the expected repeal of the Glass-Steagall Act helped elevate the next NEP fund to $800 million in August 1999.
Lindahl calls the November 1999 repeal of Glass-Steagall, which had forbidden investment and commercial banking to be conducted by the same company, “a liberating event that allowed us to act like any other buyout fund in the world. We could finally be a control investor and invest in any type or size of business.”
Some of these funds—including NEP IX, a $1.2 billion fund that closed in September 2008—were supplemented by mezzanine funds (simply stated, capital loaned to companies somewhere between start-up and an initial public offering or sale). These funds were formed as separate investment vehicles. Lindahl and NEP have provided the money and managerial muscle behind many of the Midwest’s corporate success stories.
For instance, in 1996, NEP invested millions to help launch the Buca di Beppo chain after it had spun out of Minneapolis-based Parasole Restaurant Holdings. After completing three rounds of financing, the company went public in 1999. Eighteen months afterwards, NEP liquidated its position, nearly doubling its investment. Also in 1996, NEP became the first institutional partner of Eden Prairie–based fitness center developer and operator Life Time Fitness. “We were founder Bahram Akradi’s partner through all the growth, through the development of the strategy, through the building of 60 locations across the country, to rounding out the management team, to taking the company public, to growing the company to $1.8 billion in market capitalization,” Lindahl says.
In 2004, Life Time completed a $200 million initial public offering. NEP recouped its investment nine times over when it sold its remaining shares in Life Time in 2006.
A couple of acquisitions NEP made in 1999 were more typical of its approach to a successful exit—that is, selling a company rather than taking shares in an IPO. One was Paladin, an Iowa-based designer, manufacturer, and supplier of construction equipment attachments. Organic growth and seven acquisitions in 16 months resulted in a fivefold increase in revenues before NEP sold the company in 2006.
The other was Imperial Supplies, a Wisconsin distributor of aftermarket components for truck fleets and related businesses. Following two recapitalizations that provided distributions for shareholders and funding for growth initiatives, NEP sold the company after producing double-digit compound annual sales growth.
A more complicated investment took place in 1988, when NEP purchased St. Bonifacius–based Norwesco, a manufacturer of polyethylene tanks for agricultural applications. NEP took Norwesco from publicly held to private and shed two smaller divisions in order to focus on the larger above-ground storage tank market. NEP sold Norwesco in 1992 for 15 times its original investment—then bought it back in 1998 when it became available again.
In 2005, after adding five acquisitions and expanding the company’s geographic presence, NEP sold Norwesco a second time, nearly quadrupling its second-round, seven-year investment. Four years later, Norwest Mezzanine Partners, an NEP affiliate fund, invested $40.6 million of subordinated debt and common equity in Norwesco, welcoming it back into NEP’s portfolio for a third time.
NEP remained a unit within Norwest Venture Capital until 1997, when the two groups split into two autonomous firms, the latter consolidating in California and changing its name to Norwest Venture Partners. A year later, Norwest Corporation acquired San Francisco–based Wells Fargo, retaining the Wells Fargo name for the merged banking entity.
Wells Fargo is the sole limited partner in NEP’s funds; Lindahl and his team make up the general partner and are responsible for managing the NEP funds. “Having a sole limited partner means we do not have to spend time raising outside money and trying to communicate to 25 limited partners,” Lindahl notes.
Lindahl is acknowledged to be the driving force behind NEP, but he is quick to share credit with two key colleagues: John Whaley, the company’s managing administrative partner; and Tim DeVries, who was named co-managing general partner in 2003.
The poor economy has thwarted Lindahl’s ability to add much to NEP’s portfolio lately, but in December, NEP purchased Eden Prairie–based Amcom Software, a provider of unified communications for hospitals and hospitality companies. Expect an improving economy to keep Lindahl’s investment influence growing.