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One-On-One: Jonathan Blue

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Ed Lane: What are Blue Equity’s primary business activities?

Jonathan Blue: Blue Equity is a holding company that uses private equity to make investments in operating businesses and real estate.

EL: What are some of the companies Blue Equity has acquired?

JB: In addition to the real property we have purchased and developed, one of the firm’s successes is Enlace – Spanish Yellow Pages, which is now the largest publisher of Spanish yellow pages in the nation and was sold to Telefonos de Mexico SA, or Telemex, in 2006.

Enlace made 17 acquisitions over the course of about 32 months and also launched additional markets on top of the acquisitions. Enlace, based in Louisville, grew from one directory to the largest in the United States. Blue Equity maintains a 20 percent interest in Enlace and continues to manage the business, which has quadrupled in size since it was sold two years ago.

Blue Entertainment Sports Television (BEST) is a rollup comprised of eight acquisitions in under two years. BEST does everything from own and manage sporting events to manage the careers of athletes and entertainers, top-tier athletes and entertainers. BEST also owns events, production rights for those events, and sells television rights for properties like the Boston Marathon, the U.S. Open, the French Open, volleyball and other events across the world.

First Omni Mortgage Lending is an Internet mortgage business that is doing well and was not involved in the sub-prime market. Omni was our first investment back in early 2000 and is located in downtown Louisville and Tulsa, Okla.

The Voice Tribute was bought about a year ago and is a 60-year-old community newspaper servicing Louisville, but it is distributed to about 42 states and several countries.

EL: What is the No. 1 problem when making acquisitions?

JB: That’s a very good question. The hardest part about acquisitions is making sure to not only identify the right company but to also select the right people. Almost all of our transactions include retention of the management team as a management or an equity participant. If we get that wrong, the transaction it is not going to work. We’ve not had success in every acquisition that we’ve done. We’re human, but we get acquisitions right more often than not.

EL: Prior to forming Blue Equity in late 2004, you were partners with your brother Todd (Blue, who is the CEO of Cobalt Ventures). What was the strategy for separating your business into two separately owned and managed companies?

JB: First, Todd and I worked together in the family business for several years; we had a great relationship. I wanted to expand into both real estate and private equity. I believe Cobalt’s focus is almost exclusively real estate. Blue Equity has basically got a platform that’s 50-50 – half real estate and half operating private investments. Todd and I have some property that is jointly owned, but basically we have two completely separate business entities.

EL: You have received a lot of acknowledgement as a young business professional. Why do you feel you have been so successful?

JB: I had very good teachers in my father and mother – both from values and work-ethic standpoints. For as long as I can remember, my parents worked, and today both of them still work in one way, shape or form. I also have a great role model in my wife, who is a very, very hard worker both in her professional career and in all the things she does.

I went the University of Pennsylvania and St. Francis High School in downtown Louisville. Some of the things I saw while in high school and the people I came in contact with at Penn molded me to do the things I do today. I follow the passion I have from both a professional and a not-for-profit standpoint.

EL: How did your previous employment assist you in managing your business and equity investments?
JB:
I worked as a management consultant in New York City. I was at the bottom of the totem pole the day I started, even though I had a great college background and was prepared for professional life in New York. My first assignment was on the turnaround team. Later on, I moved to strategy, and lastly I moved to operations and quality improvements. Not to be cute, but essentially my training, by fluke or by luck, prepared me both from an educational and a professional standpoint for what I do today.

EL: The Blue family business, which included Louisville Scrap Metal Material Co., was sold to Progress Energy in 1998 and more recently to Caterpillar.  Why did the family decide to sell its core business?

JB: It was the family’s business for a long time. The scrap-metal materials business is a lot of different businesses – real estate, commodities, environment, markets, international trade and employee relations. The business gave me a great background and diversified business experiences.

Selling obviously was motivated by the financial benefits. The scrap markets have quintupled since we sold the business. Looking back, someone could argue financially it wasn’t a good deal, but there are always two sides to every argument. I would say the economic motivation, the ability to do more internationally for Louisville, and for the opportunity for our family to grow and diversify its business were the main reasons for selling.

EL: What is your long-range vision for the growth of Blue Equity?

JB: Our firm is taking a very close look at health care. Obviously, Louisville is very intertwined with this industry, and there’s a lot of spin-off and many talented people in this market. I never want to discount the health care sector.

EL: For example, if an entrepreneur wanted to commercialize medical research conducted in Louisville, would you invest in that area?

JB: I don’t want to mislead you. Blue Equity doesn’t do scientific investments; not that these types of investments are not critical and important. Our company tries to very carefully stay with things that are easy to understand. Although science is very important,  it’s very high-risk venture. We prefer later-stage, more mature investing and try to be more conservative.

Obviously, we love media – the print and publishing sector – and still remain very bullish on that. Almost everything we do, other than real estate, has a media theme.

EL: In order to do the roll-ups of related businesses you have to negotiate contracts, enter into agreements and conduct due diligence. Do you use a variety of law firms and consulting companies? What is your strategy on managing professional services?

JB: Everything is in house. We have several lawyers and due-diligence people on our staff, so it’s almost zero percent outsourcing from the standpoint of doing acquisitions. This is one of the reasons Blue Equity has been able to do so many so fast.

EL: You are very involved in a number of areas in Louisville – you sit on the boards of Jewish Hospital & St. Mary’s Healthcare, the Cardiovascular Innovation Institute, Central Bank and Trust, the University of Louisville, Louisville Downtown Development Corporation and Greater Louisville Inc (GLI).  How do you manage your business interests as well as serve on these boards?

JB: I just try to do the best I can to be an inspiration for future leaders in Louisville.  It’s so important to give back to your community and to inspire other people – especially for the next generation. We need more leaders in this community and more young professionals to stay here.

EL: From your perspective as the new board chairman of GLI, what do you see as Metro Louisville’s major role in helping improve the state’s economic vitality?

JB: It has been said enough, but I’ll say it again, “Louisville and its surrounding areas are the economic engine for the state.” I think everybody knows that by now. We need to figure out a way not only to nourish the existing business base in Louisville but to also try to bring new enterprises here. We have to also recruit corporate headquarters. Again, it’s much easier said than done, but we need to aggressively be in front of people to get them to relocate here.

EL: How do you perceive that the Louisville and the Kentucky market are now performing in a sluggish U.S. economy?

JB: One good thing about Kentucky, it doesn’t experience the absolute economic peaks and valleys as much as other U.S. markets. Kentucky and Louisville have a lot of positives to offer. We just have to get the story out.

EL: Are you pleased with GLI’s performance since its formation in the mid-1990s?

JB: The branding has been good; restructuring has been great. GLI has a very talented team led by Joe Reagan, but the work is never done. Complacency will kill any organization and the rest of the state, so we have to constantly strive to go to the next level. I’m not saying GLI or Kentucky is complacent; I’m saying we don’t want to get complacent.

EL: Do you anticipate any new GLI initiatives during your term as chair?

JB: One of the things Louisville wants to do is make sure that the companies in this region have a direct bridge to Frankfort. We need to make sure that it’s a two-way bridge and there is constant communication between Greater Louisville and what happens in Frankfort, because we’re both vital to each other.

EL: Louisville recently re-branded; how is that marketing effort progressing?

JB: It’s not nearly over with yet. Eileen Pickett of GLI and her committee have been in charge of that effort. Re-branding is a very tough thing to do. There were a lot of out-of-the-box ideas, and she took a lot of risks with her committee (which I sat on) to get us to the next level. You are now starting to see some marketing materials.
A national magazine said that when people were asked, they did not have an image of Louisville. Some wise person told me along time ago, it’s better to have a negative image than have no image, because then nobody knows about you. That’s always stuck with me, and I would just say Louisville needs to put a brand out there with which people can identify. Louisville doesn’t have an image right now.

EL: How do you rate Jerry Abramson as Louisville’s mayor?

JB: I’ve known him for a long time, before he was mayor. I think when someone labels you “mayor for life” that speaks for itself. Jerry is a great leader. He definitely ‘gets it.’ He has a lot of challenges coming up – especially with the tax base. Even though it could be a lot worse, Louisville is having to make cuts in services due to the economy. It is going to take a lot of effort on Jerry’s part because reducing service is new to his administration.

At some point, Louisville may not be able to further reduce expenses and revenues may have to grow.

EL: Do you feel Mayor Abramson is effectively handling the downturn in the metro government’s revenues?

JB: The downturn was quick. This week he was in Las Vegas at the ICSC (International Council of Shopping Centers) Convention. And that’s what Louisville needs – a mayor who recruits retailers and new companies. The mayor has gone to New York several times to discuss bond ratings and to look at recruiting corporate headquarters.

EL: What is Louisville’s No. 1 challenge in continuing its growth and vitality as one of the best U.S. cities?

JB: The top challenge is maintaining and educating Louisville’s youth so they can become future leaders and entrepreneurs within this community. Almost everyone with whom I went to high school and who was as a top student didn’t stay in Louisville. That’s more than 50 percent of my class who left and took their talents to another community. They were educated in Louisville and now, for lack of a better description, they are now producing GDP for another state.

EL: The General Assembly and Gov. Steve Beshear received low ratings on state government’s legislative performance. Could you briefly comment on key issues facing Kentucky? Funding for education (P-12 and postsecondary)?

JB: Gov. Beshear was in a very difficult position due to a major turndown in the U.S. economy. The first thing the governor needs to do is try and build a legislative consensus for increasing taxes for education. That’s a very difficult thing to do.

EL: Casino gambling.

JB: If you check the license plates of cars over at Caesars in Indiana, many are from Kentucky. That speaks for itself. Not addressing religious implications or how casino gambling would be done structurally in Kentucky, I’m in favor of protecting the horse racing industry. I don’t want any gaming dollars lost to another state. If dollars get lost to another state, Kentucky is missing an opportunity.

EL: Bridges and roads

JB: Kentucky absolutely needs to build the Ohio River bridges and to fund them using tolls. Every other place I travel almost on the face of the earth aspires to and does that model. That’s progress. It’s not going to be free.

Kentucky needs to upgrade its infrastructure constantly. The Kentucky people want progress; we don’t want to take steps backward. One thing Louisville does – again I’ll go out on a limb and say this – is make decisions as a community, then rethinks those decisions. Louisville should make decisions and move forward on those decisions.

Sometimes making the wrong decision is better than never making a decision at all. The Louisville Arena was one example. For many, many years nothing happened and other communities passed Louisville by. Now the construction cost is 10 times what it was then, and all the other cities have benefited from a downtown focal point. I don’t think Louisville has missed the boat because (former Secretary of Commerce) Jim Host is doing a great job and hopefully he is very close, but the chances of the arena happening are still iffy.

EL: Balancing funding between the urban and rural areas?

JB: Louisville, Northern Kentucky and Lexington are the main economic engines for those regions and the state. I’m not smart enough to know exactly what the formulas are, but we need to move from an agrarian economy. If Kentucky doesn’t do that, its future will not be as bright as it could be.

EL: How important is education to Kentucky’s future economic prosperity?

JB: Education is the most important issue; everyone can say that is a political answer.  Let me tell you this: Kentucky missed the boat again on the cigarette tax. I wish it would have been handled the way it was suggested by the governor. Other states and cities in this country have used cigarette taxes for education. That’s how to fund tax revenue shortfalls.

EL: Do you have a closing comment?

JB: Kentucky has great leaders in this state from the business, political and not-for-profit sectors. We need to challenge ourselves to find out how to build a consensus among our leaders. That would be a good thing. I’d like to see that happen during the next four years.

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