Former Alltel executive Jeff Fox steered a publicly traded company in Massachusetts into a $3 billion sale in February, resulting in a personal paycheck that looks to be north of $40 million.
Now Fox, 58, has turned his full attention back to The Circumference Group, the investing business he founded in Little Rock in 2009 with proceeds from the sale of Alltel. In addition to a hedge fund that has grown to $150 million of Fox’s and clients’ money invested in publicly traded stock, Circumference is reinvigorating its private company investing.
“I’ve committed to put a substantial additional amount of capital into building out a team to do things to complement our hedge fund team,” Fox said in a recent interview at the firm’s Riverdale office. “Our hedge fund team is a fully performing business. … Circumference Group is a business that runs itself. I hadn’t been in this office until recently for a couple of years.”
Instead, he concentrated on being the chief executive officer of Endurance International Group Holdings Inc., based in the Boston suburb of Burlington. It was a job he took on in 2017 with an eye toward “expanding our Rolodex and investable universe.”
Fox had stepped away from Circumference once before. One of its earliest investments was in publicly traded Convergys Corp., a customer relationship management company headquartered in Cincinnati. That investment led to a seat on the board for Fox, which led Convergys to hire Circumference to consult on growth strategies, and ultimately to Fox serving as CEO for most of three years, from February 2010 through October 2012.
(He continued as chairman of the board until Convergys was acquired by Synnex Corp. of Fremont, California, in October 2018. At $25.50 a share, his personal holdings were worth more than $8 million.)
After that lucrative gig — his compensation as CEO totaled almost $5.2 million in 2012 — Fox “didn’t know if I was done working for public companies.” But he knew he wanted to engage with his two teenage children before they left home.
“I knew I wanted to go to Jr. Rodeo, [Mount] St. Mary’s basketball or St. Mary’s dance events and basketball for Catholic High School. So from 2013 to 2017, we were working on Circumference Group, but I was also being a dad.”
Enduring Endurance
Endurance International Group, a web services conglomerate, was what Fox euphemistically described as “a bit of a mess.” It was founded in 1997 by Hari Ravichandran, who grew the company through a series of acquisitions before taking it public in 2013.
In February 2016, EIG paid $1.1 billion for its most recognizable subsidiary, online marketer Constant Contact. Ravichandran was forced out as CEO 18 months later and ultimately paid a fine of $1.4 million levied by the U.S. Securities & Exchange Commission for misleading investors by claiming inflated numbers of subscribers. The CFO of Constant Contact was fined as well.
Even before the SEC crackdown, EIG’s losses were mounting — $300 million in red ink between 2013 and 2016. This was the company Fox inherited when he was recruited to EIG in August 2017, just as his younger child left for college.
He arrived too late to save EIG from another net loss — $107 million in 2017 — but his first full year as CEO delivered the first and only annual profit while the company was publicly traded: $4.5 million. EIG lost $12.3 million in 2019 and less than $1 million in 2020.
By then, a bidding war had resulted in an offer of $9.50 per share from affiliates of private equity investor Clearlake Capital Group of Santa Monica, California — a 79% premium on the stock’s price before Bloomberg reported that a sale was being considered. The proxy valued Fox’s stock, options and restricted stock at $36 million; a “golden parachute” was worth another $4 million in cash.
The deal closed on Feb. 10, and Clearlake immediately spun Constant Contact into a standalone company.
“I don’t want to brag [but] the investors were very happy. My board was very happy. And frankly, the buyer is going to do well with the business, too,” Fox said. “… Sometimes a company is better owned and managed privately.”
Core Value Tool
Fox started Circumference Group’s hedge fund with his own money from the Alltel sale ($71 million) and the investing savvy of John Haley, a veteran of Alltel Information Services and its successor, Fidelity Information Services. Fox said the hedge fund, invested entirely in public markets, remains his largest investment, and he pays the same management fees to Circumference Group as the other clients who have trusted the fund with their money.
Haley has semi-retired, and in 2016 Fox supplemented Haley’s expertise with that of John Lammers, formerly a portfolio manager with Moore Capital Management in New York. At Circumference, Lammers is applying a tool that Fox originally developed for evaluating private company investments called a “core value assessment.”
Lammers and Fox refer to the tool as a “framework” for understanding a business, regardless of its ownership structure, rather than a checklist for choosing stocks. “The core value assessment is something that is not rocket science, but it’s a very thorough methodology that I have been following in everything I’ve done,” Fox said. “I used it at Convergys, I used it at Endurance, we use it on everything we invest in.”
Stock-picking for Circumference Group is not like it was in Lammers’s previous work as a New York portfolio manager, where, he said, investments were “a little more short-term oriented, not nearly as deep, not nearly as operator-driven.”
“Being able to take the kind of approach we take in the [Circumference Group hedge] fund is just totally different than the way most Wall Street investors approach public market investing,” he said, citing the “advantage from using the tool set Haley and Jeff built and applying it in the context of how the public market works.”
When other hedge funds “get stuck” applying only an investor mindset, Fox’s experience as a serial public company executive and the core value assessment tool allow Circumference Group to think “like a bottom-up operator.”
“And we’re usually investing in stocks that are a little bit out of favor. So we’re usually taking the gamble that the crowd is generally wrong,” Lammers said. “Now, I wouldn’t call it a gamble, because the tools that I was referring to make it feel like you’re not taking a flier, or a contrarian flier, on something. What you’re in fact doing is following this journey that has led to this point in time in the public markets when other people are confused.”
Better Information
Still, Wall Street stock-picking was never the only kind of investing that Circumference set out to pursue, although Fox said his involvement with Endurance “really slowed down our investing of growth capital in private companies, which was always something I wanted to do — and we have done from time to time quite successfully.”
So he’s injecting more of his own money into Circumference, including hiring additional talent to use his core value assessment philosophy to find private companies ripe for investment. Fox wasn’t ready to say exactly who he was recruiting, but they will not necessarily work in Little Rock.
Circumference Group must apply the assessment to the same information that all other investors have from publicly traded companies, but Fox says the firm will have more and better information to work with when assessing private investments.
“You have less information on a public company than we ever would investing in a private deal,” he said, complimenting Haley and Lammers for success in the public markets despite limited data to assess. “In a private deal, we’re going to know the payroll for every person in the firm. There’s a level of depth of work that we as operators are going to do before we put our money or anybody else’s into a company.”
What size private companies is Fox looking to invest in?
Well, Circumference Group is not an angel investor — “We do not do just ideas. If you just have an idea, we’re not your guys.” But he’s interested in “any company that is a real company that we can evaluate.” The smallest check he’s likely to write is $250,000, and investing collaboratively with other funds is a possibility for large deals.
“We’re just going to work hard on every deal,” Fox said. “And if you are fortunate enough to have more winners than losers, and you don’t over-rotate to try to save a bad deal, we’re going to play a compound return over the long-term game for us and our partners. And my hope is 20, 30 years from now, we’ll really have built something that is significant.”
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