Jeff Fox's Circumference Group Keeps Focus on Investments, Growth

Jeff Fox is no longer CEO of Convergys Corp., but the 32 months he spent running the publicly traded customer relationship management company in Cincinnati serve as an extreme example of what he is up to these days.

Fox, the former COO of Alltel Corp., identified Convergys, with which Alltel had done business, as a successful tech company whose growth had plateaued. He — or, more precisely, his Little Rock company, the Circumference Group — made a sizable investment in Convergys shares, and he finagled his way onto the board of directors in early 2009.

Convergys hired Circumference Group to consult on growth strategies and then hired Fox himself to execute those recommendations as CEO from February 2010 through October 2012.

Except for the part about becoming CEO — a lucrative assignment for Fox that was worth a few million dollars a year in total compensation — that’s exactly what the Circumference Group was organized to do: identify tech companies, both public and private, in a particular stage of development and invest in them, consult with them or both.

“We see this pattern happen, and it creates investment opportunities or sometimes consulting opportunities, and we’ve built a business around this,” Fox said in a recent interview.

The Circumference Group has set up a hedge fund — managed by CG President John Haley and registered with the Arkansas Securities Department — to invest in publicly traded companies and is just beginning to accept third-party investors. (The price tag for buying in to the hedge fund is not something the company is ready to make public, compliance officer Bud Cummins said.)

CG is also looking to buy equity stakes in established private technology firms, a function overseen by COO Holly Larkin. Like other value investors, CG expects to help the management of its investment companies maximize value. “Our reputation for knowing what this really means is growing,” Fox said.

Director of Consulting Chris Smith’s product, called the Core Value Assessment, is for sale to companies whether CG becomes an investor or not.

In all things, CG management preaches three words: Focus, simplify and execute.

So far, Circumference Group has 12 employees and has ownership positions in about 15 public companies and about five private companies, according to Fox. After spending the past three years wrapped up in the fortunes of Convergys, Fox says his goal now is “to grow our business.”

Core Value

A slide in Circumference Group’s introductory presentation makes it clear just which kinds of companies Fox and his management team are scoping out. They are companies past the startup stage of “high hopes” and even past the “feels good” stage of initial growth and financial success.

In other words, if you are looking for startup capital, don’t look to Circumference Group.

CG is looking exclusively for tech companies that have made the “uncomfortable transition” to maturity, which means they generate cash but all too frequently fall victim to “strategic drift” that takes the form of acquisitions outside of the business’ core of expertise just for the sake of revenue growth that will satisfy investors.

(If you think that sounds something like, say, Acxiom Corp. of Little Rock, please don’t mention that to Jeff Fox. “I can’t opine on Acxiom,” he says firmly.)

To Fox, it sounds almost stereotypical. “There are hundreds, thousands of companies in the same situation,” he said. And that gives CG a potential market that is plenty big enough to keep Fox’s team from straying outside its own area of expertise.

“We try to live the words we sell,” he said. “You can’t be good at everything.” In fact, he said, “The word ‘focus,’ if it wasn’t already used, it would be the name of our company.”

Case Study

It’s safe to say that Convergys was exactly the kind of company that Fox was looking for when he launched Circumference Group in January 2009, when his long tenure at Alltel ended with its sale to Verizon Wireless.

The sale of Alltel to private equity investors in 2007 had resulted in a payday of some $71 million for Fox personally, and he remained part of the management team until the Verizon deal closed. Then he, Smith and another Alltel executive, Frank O’Mara, formed Circumference Group.

(O’Mara departed shortly thereafter to run the divested Alltel assets known as Allied Wireless Communications Corp. of Little Rock for acquirer Atlantic Tele-Network Inc. of Beverly, Mass. The sale of Allied Wireless to AT&T Corp., announced in January, is expected to close in the last half of the year.)

Convergys was one of 12 companies in CG’s original portfolio, and Fox’s theory sounds like Investing 101: “We had invested in the business because we thought the company was worth more than the stock price.”

Convergys’ stock had peaked at nearly $55 a share back in 2000 but was languishing below $10 when Fox got involved. By the time he stepped away from the CEO position last fall, the share price was back up to the $15-$16 range.

But more striking than a run-up in the stock price — after all, most stocks have recovered since the trough of early 2009 — is the change in Convergys’ bottom line. The company, with revenue in the $2 billion range, lost $93 million in 2008 and $77.3 million in 2009. It even lost $53.2 million in 2010, when Fox was CEO for most of the year.

But in 2011, as Convergys began to execute Fox’s strategy of divesting non-core business lines, the company made back those losses and then some. Net income that year of nearly $335 million (including revenue from division sales) was followed by net income of $100.6 million in 2012.

“Strategically, we have completed the simplification of our company into a well-capitalized market leader in customer management,” Fox told investors and analysts in a conference call after third-quarter earnings were announced at the end of October.

Not One-Trick Ponies

Not all companies need the CG “focus, simplify, execute” model, Fox said.

“Don’t take from this that we think companies have to be one-trick ponies,” he said.

“Companies can be big enough to be in multiple lines of business,” he said, mentioning GE under former CEO Jack Welch and Wal-Mart Stores Inc. as companies that have successfully diversified their business lines. “But each of those businesses needs to be the best that it can be.”

Alltel was a company that long had distinct business lines — both wireline and wireless telephone and the information technology division that Fox left Stephens Inc. to run in 1996 — and it eventually divested the wireline and IT divisions before being acquired by Verizon.

“Companies can expand their footprint successfully,” Fox said. “But when they miss, it can make it hard for investors. And that creates opportunities for investment or for the consulting business.”

Even as he talks about the value the Circumference Group hopes to bring to its investment partners and its consulting client, Fox takes care not to oversell.

“The minute you start acting like you know something, the world is going to teach you a lesson,” he shrugs. “We are a good partner for folks with capital, and we are a good partner for people who are trying to operate.”

Circumference Group Management Team

Jeff Fox, Founder
BA, Duke University at Durham, N.C., 1984
Investment Banking, Stephens Inc. and Merrill Lynch, 1984-96
Group President, Alltel Information Systems, 1996-2003
Group President, Alltel Shared Services, 2003-07
Founder, Circumference Group, January 2009
Convergys Corp. of Cincinnati, CEO 2010-12; Executive Chairman, 2012-present

John Haley, President
B.A., Washington University at St. Louis, 1977
MBA, University of California-Berkeley, 1983
Business Development, Alltel Information Services, 1996-99
Managing Director-Asia, Fidelity Information Services, 2004-10
Circumference Group, September 2010-present

Chris Smith, Director of Consulting
B.A., University of Arkansas at Little Rock, 1981
Southwest Region President, Alltel Corp., 1997-2000
EVP of Network Services, Alltel, 2000-09
Founding Partner, Circumference Group, January 2009

Holly Larkin, Chief Operating Officer
B.A., Hendrix College at Conway, 1994
J.D., Vanderbilt University at Nashville, Tenn., 1997
SVP of Corporate Governance, Alltel Corp., 2006-07
Treasurer, Alltel Corp., 2007-09
Circumference Group, September 2010-present