Falconhead Capital's DAVID MOROSS and the important things in life
By Amy Wu for The Deal
Financial markets may be storming, but Falconhead Capital LLC chairman and CEO David Moross retains a sunny outlook from his Park Avenue office.
Falconhead, a New York buyout shop launched in 1998, has more than $500 million under management in two funds that target control investments in lower-middle-market consumer companies, mostly in sports, leisure and media. The firm has stakes in companies including the Competitor Group Inc., which owns Triathlete magazine, Extreme Fitness Inc., a Toronto-based fitness chain, and NYDJ Apparel LLC, better known as Not Your Daughter's Jeans, a jeans maker for women 35 and over.
Falconhead is aiming to invest in outdoor businesses with "fishing, traditional skiing, outfitting, apparel or just bird watching," says Moross, 49, an avid runner. "If we look at the youth market alone, there's skateboarding, cycling and surfing, and the baby boom generation is richer, living longer, becoming increasingly active, and retiring earlier."
Despite the markets, "our investment strategy remains exactly the same," he says. "We have not felt much impact from this downturn." He notes that Falconhead has invested only 40% of its second fund, which closed at $290 million in June 2007. "Our fund has significant capital remaining, and we see wonderful buying opportunities. In the consumer industry there are price reductions coming, and that means significant buying opportunities," he says. "Most of our businesses have recession-resistant components in them. The runner is going to run regardless of a downturn. This is not about going skiing or sailing; this is about endurance performance. It costs you a pair of sneakers and running shorts."
Most of Falconhead's deals are proprietarily sourced. In January 2004, Falconhead invested $28 million in National Powersport Auctions, an auctioneer of repossessed "powersport" vehicles such as motorcycles. The firm exited in 2006, selling its stake to private equity firm Transportation Resources Partners LP, with an internal rate of return of 90%, say sources. "We had a 90% market share, a very high-margin business. It was a dominant market player in the consumer business, and it had extraordinary growth," Moross says.
Falconhead had a deal-packed year. In December, the firm created Competitor Group, a sports media and event platform company, and in March added Inside Communications, a publisher of cycling and triathlon magazines, and added it to Competitor. In September it took a control stake in NYDJ. Moross tapped Edwin Lewis, a former Tommy Hilfiger Corp. and Mossimo Inc. CEO, to serve as chairman and CEO.
Peter Englehart, a Falconhead operating partner and CEO of Competitor Group, says the firm has an edge because "it has this real laser focus on the consumer side of the related media spaces. The dedicated focus allows us to see a lot of proprietary deals."
Moross, a U.K. native, earned a B.A. in economics at the University of Texas in Austin. He worked as a mutual fund analyst before joining Whitehall Financial Group in 1986, where he did leisure-related deals. "My background in the buyout industry began in the early 1990s," he says. "I identified interesting opportunities to build TV channels with what I thought was digital; it was a whole new way of watching TV. What I saw in the sports arena was that sports had never really been classified as a pure entertainment form like movies and music. Athletes were becoming more and more like entertainers."
From 1995 to 1998, he ran his own investment consulting firm. Then he went on a business trip to China. "I went to a basketball game, and Yao Ming was playing. It was in this decrepit old stadium, but when I looked at the ratings of 380 million people watching that game, I thought, 'My thesis is absolutely playing out,' " he says. "Most people think of sports as the billionaire boys club. As we evolve and make some good returns, I thought, 'Let's expand it to encompass more consumer businesses.' "
In 1998 he launched Sports Capital Partners LLC with Chase Manhattan Corp. and International Management Group founder Mark McCormack. Its first fund focused on companies that are a hybrid of sports, media and entertainment, taking stakes in Tickets.com Inc., Small World Media Inc. and Sports.com Ltd. In 2002 they renamed the firm Falconhead. When McCormack died the next year, Moross acquired his stake.
Now Moross says the focus is on building. Competitor Group will be acquiring events and transforming titles such as Inside Triathlon into "an Internet media platform business" with streaming live events. "The longer plan is to create a global footprint in Asia and Europe and even acquire or start Internet platform businesses," he says. Leisure is a global pastime.