GE's Trotter Heads for Equity Land

The vice-chairman is about to join buyout firm GenNx—with his former employer as a major investor

by Diane Brady

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Lloyd G. Trotter jokes that if he were to write a book, he would call it Living My Life Between Quarters. No more. After 37 years of pushing to make his numbers every three months at a big public company, Trotter, 62, will step down next month as vice-chairman and as chief executive of the $28 billion General Electric (GE) Industrial unit to join a small New York buyout firm called GenNx360 Capital Partners.

The fund is launching with more than $500 million to invest in companies focused on areas such as commercial security, industrial water treatment, infrastructure, and aerospace. Many are industries in which GE itself has made big bets. In fact, GE is a major investor in the venture. Trotter's other two general partners are Ronald E. Blaylock, the 47-year-old founder of investment banking firm Blaylock & Co., and Arthur H. Harper, 52, a GE veteran who headed up GE Equipment Services before leaving two years ago.

So far most of the 17 employees at GenNx are African American, and many are former high-ranking GE executives, such as former GE Infrastructure Sensing CEO James Shepard. Like Trotter, the highest ranking African-American executive in company history, they come to the job with extensive operations experience that will be put to use in the businesses they buy. "I'm excited to be doing something entrepreneurial with these guys," says Trotter.

Some might wonder why anyone would trade a top job at GE for the increasingly tumultuous world of private equity. Trotter says he was planning to help launch GenNx about a year and a half ago. What stopped him was the departure of GE Vice-Chairman David L. Calhoun for his own foray into private equity as chairman and CEO of VNU, now Nielsen. Trotter says he was then named vice-chairman and asked to stay on to manage GE's industrial businesses.At the time, Chairman Jeffrey R. Immelt also gave him permission to be an adviser to the fledgling fund.

Even with the market in turmoil, Trotter says, it's an ideal time to build a buyout fund that aims to acquire companies that can be expanded and improved. Adds Blaylock: "If we were a firm looking to buy something and do an initial public offering, that would be tough. But we know what we're attracted to, we're patient, and people are keen to sell noncore assets right now."

OPERATIONS PROS

In Harper's view, private equity is entering a third era. The first, he says, was about "the deal guys, where the buyers were more sophisticated than the sellers." Then it was about financial engineering through highly leveraged, cheap capital. "Now it's about bringing in operating folks who know how to run companies and make them productive on a global scale," he says.

Trotter joined GE in 1970 as a field service engineer with GE Lighting. He went on to lead a number of industrial commodity businesses, squeezing out so many efficiencies that his system of best practices (the "Trotter matrix") was adopted elsewhere in the company. He also was a key player in launching GE's African-American Forum in 1990, which he promoted through seminars, conferences, and mentoring programs.

Despite market jitters, investors are writing checks. Blaylock says that, along with GE, they include other large U.S. companies, college endowments, and corporate pension funds. The fund has made one investment so far, joining a consortium led by Oak Hill Capital Partners to buy Britain's Vertex Data Science for about $427 million last year. "At GE, you buy something to build it, to make it into a $6 billion or $10 billion entity," says Trotter. "Now, I want to grow something to the point where it has scale, making it important for someone else to take it to the next level."

Diane Brady is a senior writer for BusinessWeek in New York .