ClearLight Looks to Open War Chest
By RAJIV VYAS
Despite skepticism about the recovery, high private company valuations and tight credit markets, Michael Kaye, managing partner at Newport Beach-based ClearLight Partners LLC, said he plans to open his checkbook this year.
The private-equity firm partner said he is looking to do a handful of select deals,targeting $60 million for new and follow-on investments this year.
“We would like to do couple of good, strong buyout deals,” Kaye said. “I don’t think we will see a big turnaround in the economy. But I will be happy if things remain flat or if there is some recovery.”
Kaye, whose firm counts $275 million on hand, was cautious last year. He made only one new deal in 2001 and one follow-on investment, for a total of $12 million. One of the deals was a $6 million investment in Data Direct Networks Inc., a Chatsworth storage network device company.
So far this year, ClearLight has invested $2 million in three follow-on rounds. In 2000, the firm invested more than $15 million in four companies.
ClearLight’s portfolio includes Norwalk, Conn.-based AimNet Solutions Inc., a network services provider, and Watertown, Mass.-based software maker Communispace Corp.
The firm’s only Orange County investment is in Irvine-based Westec InterActive Inc., a security company that’s part of Japan’s Secom Ltd.
Secom also is ClearLight’s financial backer. In early 2000, Kaye raised $300 million from the Tokyo-based security and services company. Before starting ClearLight, Kaye served as chief executive of Secom’s Westec Security Group Inc. in Newport Beach.
With just one limited partner, ClearLight can take its time looking for investments, Kaye said.
ClearLight, with $25 million invested so far, has more money than any other private equity fund in OC. And ClearLight doesn’t have any troubled portfolio companies, according to Kaye.
“We feel very fortunate timing-wise with a lot of dry powder,” said Kaye, a fluent Japanese speaker. “Many other funds have a lot of portfolio companies that are struggling. It was a conscious decision to be cautious.”
Kaye’s situation is unlike that of most OC private and venture funds. Local firms have been scrambling to raise money, while Kaye is sitting on cash he says is sufficient for the next three to four years.
ClearLight’s fund is focused on growth capital and leveraged buyouts targeting small and midsize companies. The firm’s focus is Southern California, though deals could be spread across the country.
While ClearLight is likely to invest more than twice as much this year as it has in the past two years, Kaye still is cautious.
“It will take longer for the U.S. economy to work out its problems than people are currently anticipating,” he said.
What lures Kaye and his partners is the prospect of finding good investments in a tough market.
Kaye, who is divorced with two children, Philip and Aurora, is a New Jersey native who moved to San Pedro when he was 5. He went to school in the ethnically diverse port city.
“I am proud to have graduated from San Pedro’s high school,” Kaye said, “where out of 800 students only 30 went to college.”
Kaye went on to Stanford University for a bachelor’s in history and then to Harvard University for a law degree. He went onto the University of Tokyo in the mid-1980s to study Japanese law.
In 1984, Kaye started his own business in Tokyo, along with his uncle who lived in Hong Kong. He married while in Japan.
A couple of months later, Makoto Iida, founder and chief executive of Secom, offered Kaye the job running Westec, a Secom acquisition on the brink of losing money. Kaye had met Iida while working as a lawyer.
Kaye mulled over the offer. In a few months, he shut down his Tokyo trading company and joined Secom.
“My uncle was upset with me and didn’t come to my wedding a few months later,” Kaye said. “But we reconciled years later.”
Kaye, who lives in Corona del Mar, came to OC in 1985 after working at Secom’s Tokyo headquarters for a few months. Within a year, Kaye changed Westec from a security services provider to an investment holding company.
“I was very young and there was a lot of resentment initially from senior managers because someone younger than them was running the show,” Kaye said. “But we turned around and changed the management. We did that in the first year.”
Some of the deals Westec made were in the security industry, while others were in healthcare services.
The company grew from $50 million in yearly revenue to $400 million by 1998. It counted 4,000 workers across the country.
In 1994, Westec sold off its healthcare investments and again focused on security. Four years later, Westec sold off its security business to Edison International for $300 million.
In 1998 and most of 1999, Kaye said he spent time thinking about what to do next. In late 1999, Kaye called up Iida and sold him on doing more acquisitions and investments, like Westec had.
“We realized that in the past decade, we had bought companies and helped them grow,” Kaye said. “We had considered ourselves as strategic players. We had to come out of the closet and declare ourselves as financial players.”
Initially, ClearLight started with a staff of three people. Today, it has four other partners,Robert Healy, Patrick Haiz, Jay Shepherd and Robert Polentz,and eight others working for the firm. Kaye said he plans to hire one more person by the end of the year.
