Insurance and Technology

BEHIND THE NEWS: Hilbert's next act: Jumping into private equity game

November 14, 2005

Stephen Hilbert suffered another legal defeat last week. But don't bet the founder and ex-CEO of Conseco Inc. is sitting around feeling sorry for himself.

In fact, this fall Hilbert, 59, is quietly launching a major new business, one that will get him back into the acquisition game, a field he savored during his two decades atop Conseco.

Details are sketchy, because Hilbert isn't talking. But here's what a little snooping turned up:

Attorneys in July filed papers with the Secretary of State's Office to form a company called MH Private Equity Fund LLC. The investment firm now has a bare-bones Web site, which lists a phone number and address.

A message for Hilbert left at that number did not yield a return call, but the address matches that of Haverstick Consulting, the Carmel-based firm where Hilbert serves as chairman.

Here are a few other details, culled from people familiar with elements of the plan: The fund already has tapped investment managers in New York, Chicago and other financial centers to raise big money, by one account hundreds of millions of dollars.

The business plan: Buy firms in specific industries and consolidate them. Consolidation will bring economies of scale and cost savings, the thinking goes, and also will create market-leading companies positioned to thrive in their sectors.

Sound familiar? It's a formula Hilbert used to great success in the insurance industry, one that fueled a rapid rise in Conseco stock in the company's early years. In the decade after Conseco went public in 1985, its shares appreciated 2,300 percent.

The final chapter had a nightmarish ending, of course. Conseco in 1998 strode into a new field, buying mobile-home-lender Green Tree Financial Corp. for $6 billion, a deal that helped send the company on a prolonged slide into bankruptcy.

Hilbert's still feeling the financial pain. Last week, the Indiana Court of Appeals affirmed a lower court ruling ordering him to pay Conseco more than $72 million-the interest on loans he took out in the 1990s to buy Conseco stock that ended up worthless. His attorneys, who raised a range of defenses to try to get him off the hook for the debt, plan to ask the Indiana Supreme Court to hear the case.

Of course, that cloud hangs over Hilbert no matter what he does. But from his dealmaking days, he still has contacts with bigmoney players around the country and on Wall Street.

Among those working with Hilbert on MH Equity is Hilbert's longtime friend Rollin Dick, 74, formerly Conseco's chief financial officer, and Ron Gerwig, another longtime associate, according to Steven Beck, president of the Indiana Venture Center, who has talked with Gerwig about the plan. Gerwig could not be reached for comment.

Gerwig teamed with Hilbert and Dick five years ago to become major Haverstick investors. He also worked with Hilbert and Dick on some of Conseco's deals. In the early 1990s, he served as president of Spaghetti All-Ready, a restaurant chain then backed by Conseco.

"Knowing that group, they were not going to be sitting on the sideline playing Tiddly Winks or playing golf too long," Beck said. "That is not the way they do things."

Also working for MH is James Adams, Conseco's former chief accounting officer, who sought bankruptcy court protection in July because of loans he took out to buy Conseco shares. At a meeting with creditors last month, he said he was making $20,000 a month working for MH.

Private equity firms like MH invest in or buy out public or private firms, typically combining equity capital with borrowed money. Such investing surged in popularity before the technology bubble burst in 2000 and in the past couple of years has enjoyed a resurgence, fueled in part by low interest rates.

"In 25 years, I've never seen it this active," said Marcus Chandler, a partner with the law firm Barnes & Thornburg and co-chairman of the firm's Business and Technology Group. "It's staggering, the dollars available in private equity."

That's not all good, say financial observers. Billions of dollars are chasing too few deals. That's driving up purchase prices, making it increasingly difficult for private equity firms to ring up impressive returns for their financial backers.

Can Hilbert overcome such obstacles? The former encyclopedia salesman has surprised naysayers before. If MH takes off, not only will he make a lot of money. He'll also burnish his legacy, healing scars from the Green Tree debacle.


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