As the leveraged buyout industry fattens to record dimensions, Golder, Thoma, Cressey, Rauner Inc. is slimming down.

The Chicago leveraged buyout firm announced Wednesday that it would split itself into two investment groups and that each would raise its own equity funds. The two groups will begin to invest the new funds early in 1998.

Principals Carl Thoma and Bruce Rauner said the move would let them simplify management, maintain a hands-on approach to transactions, and take advantage of differences in leadership and management styles.

Mr. Thoma, who co-founded the firm in 1980, will form Thoma Equity Partners and raise a fund of $300 million to $400 million. Mr. Rauner, who joined the firm shortly after its founding, will form a firm to be called GTCR and raise $600 million to $800 million.

By keeping the infrastructure of the firm small, the partners said, they can maintain the entrepreneurial spirit, flexibility, and speed required to get deals done in today's highly competitive marketplace.

"I did not want to raise a megafund. The money is there, but that puts pressure on us to do larger transactions," Mr. Rauner said. "That's not fun for us, and that's not our background."

Golder, Thoma currently manages more than $1.2 billion through five funds. It acquires "platform" companies and expands them through acquisitions. It has made a little more than 50 investments, many in the business services, health care, and distribution sectors.

The firm's move to stay small comes as many buyout funds, overflowing with capital, have broken the $1 billion mark. Roughly $31.8 billion of buyout funds have been launched this year, compared with $15.2 billion launched in all of 1996, according to Buyouts, a newsletter published by Securities Data Publishing, an American Banker affiliate.

Observers of the buyout industry said today's market is beginning to resemble that of the go-go 1980s.

Senior lenders are very aggressive in terms of the multiples of cash flow on which they will lend, and the market for mezzanine and subordinated debt is red-hot. In addition, the stock market is strong, and merger and acquisition valuations are high.

One key difference, however, is that sponsors these days typically contribute 20% to 30% of the money needed to do their deals.

"The reality is, our industry is getting more efficient and more competitive every year," Mr. Rauner said. "We're going through a cyclical peak, but even if multiples fall off in the next recession, we're in a good industry."

Terry Fryett, head of the financial sponsors group at Bank of Nova Scotia, said the highly competitive market forces bankers "to walk that fine line between doing a deal that wins you a transaction with the sponsor, and one that is still a prudent deal for the lenders.

"More and more, you're being asked to take on additional risks to win transactions, and at some point you'll step over the edge if you don't watch yourself."

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