Johnson Enters Buyout Business

BET Founder Teams With Carlyle Group

Washington entrepreneur Robert L. Johnson said he expects to close soon on a $125 million private-equity buyout fund he started with the Carlyle Group aimed at acquiring small- to mid-size businesses.

A second phase to grow the same fund to about $300 million should close by the end of the year, said Johnson, founder and former chief executive of Black Entertainment Television.

Johnson is trying to create the country's largest black-owned asset-management firm. The corporate buyout business is overwhelmingly dominated by major Wall Street firms and white-owned private partnerships. RLJ Equity Partners, as the buyout fund is known, is close to acquiring a company that provides business services to the largest Fortune 500 companies.

"We are coming in and buying businesses, and we think we can grow it based on my and Carlyle's experience," Johnson said. "We are hunting for deals as we speak."

Typically, private-equity funds aim to raise money within a year and have a number of deals in the pipeline. It's taken Johnson almost two years since he made several high-profile hires. Eight months ago, he brought in Rufus Rivers, a former Carlyle manager with expertise in private-equity financing, to add depth and raise money.

"We had a transition and changed our management," Johnson said. "The fund has been scaled back to $300 million, and we think that's a manageable amount to raise and place. The key is not just raising money but placing it."

Johnson said that it takes 12 to 18 months to raise money for a fund and that the company is "pretty much in that same time frame."

Johnson is putting up $15 million to $25 million in the buyout fund. Carlyle owns 20 percent of the general partnership, which amounts to about $3 million to $5 million of equity. He is looking for businesses with $200 million to $300 million in revenue.

Private-equity funds make money by using large amounts of credit to purchase businesses. They try to reorganize those businesses, squeezing out inefficiencies and trimming fat, and then sell them at a huge profit. Carlyle has been very successful at the private-equity model, and Johnson wants to replicate that success.

"Carlyle could co-invest in deals that we find, and we can co-invest in some deals that Carlyle can find," Johnson said. "If we find a deal that's too big for our portfolio, we can walk it to Carlyle and see if they want it."

Carlyle said it is interested in tapping the media market.

"We wanted to create a new partnership where we would have access to deal flow in the media space that is Bob's bread-and-butter area," said Carlyle spokesman Chris Ullman.

Johnson said that he and David M. Rubenstein, Carlyle's co-founder and managing director, got the idea for a partnership through their association at the Johns Hopkins University in Baltimore, where they both sit on the board of trustees.

Johnson has been on a tear since he became a billionaire when he sold his interest in BET to Viacom in 2001. He bought the National Basketball Association's Charlotte Bobcats for $300 million, started a bank called Urban Trust that caters to minorities and has started private funds for real estate and buyouts. His real estate arm owns more than $3 billion worth of hotels and expects to close a $1.3 billion fund by the end of October.

He recently teamed with Thomas F. "Mack" McLarty, former chief of staff to President Bill Clinton, in an automobile dealership venture that would create several minority-owned dealerships centered in the southeastern United States. McLarty's family has decades of experience in automobile dealerships. Johnson and McLarty hope to grow a $400 million dealership business to more than $1 billion in revenue in the next three to five years.

"I have a model that is the best practices model for minority businesses to compete in the business economy," Johnson said in an interview. "The trait that runs through all my businesses is that I attract superior minority talent, give them access to capital and bring strategic partners like Carlyle . . . to contribute to the business plan. It's not driven by color, it's driven by talent, access to capital and the right strategic partner."