Thomas Lee helped found a buyout firm, now one of the largest on Wall Street

The death of Thomas H. Lee sent shockwaves Friday through Wall Street, where he helped build one of its biggest companies decades ago.

Mr Lee, who started doing leveraged buyouts in the 1970s, before the term was coined and the tools to fund the deals were invented, died on Thursday, his colleagues and family said .

New York Police Department officials say first responders to an emergency call from Mr Lee’s assistant found the 78-year-old dead in a bathroom in his office at 767 Fifth Avenue with what officers believe was a self-inflicted gunshot wound to the head. A firearm found with Mr. Lee was registered to him, officials said.

No notes were found and police are continuing to investigate the incident.

After working in banking, Mr. Lee founded Thomas H. Lee Partners LP in Boston in 1974 and began buying companies in what were then called “bootstrap acquisitions” because they involved a small amount of equity supplemented by significant debt.

Michael Milken of investment bank Drexel Burnham Lambert had yet to introduce junk bonds and spark the explosive growth of LBOs. Mr. Lee therefore initially sought funding from banks and large pension funds. The idea was to borrow against the cash flow of the company he was trying to buy – the fundamental characteristic of buyout transactions.

The company’s acquisition and sale of Snapple Beverage Corp. in the early 1990s were legendary, producing a 30+ times gain in about two years.

Other deals led by Mr. Lee include purchases of Warner Music Group,

Boston book publisher Houghton Mifflin and the information systems unit of TRW Inc., where he more than tripled the company’s investment in just a few weeks in 1997.

He loved doing business, said Scott Sperling, who joined the company in 1994 and is now its co-chief executive.

Mr. Lee “was always the first to say, ‘Why not?’ said Mr. Sperling. “For many of us, as young partners, this has given us the freedom to push in areas where buyout activity has not historically been focused.”

These included technology companies such as credit data provider Experian PLC and laboratory equipment maker Fisher Scientific, now Thermo Fisher Scientific. Inc.

“Tom has always been enthusiastic about the most innovative offerings,” Mr. Sperling said.

Mr. Lee’s bets have sometimes backfired. His firm acquired a majority stake in commodities trader Refco Inc. in August 2004 for around $508 million and took the company public a year later for double the money, only to see it fall into bankruptcy shortly thereafter.

A foray into hedge funds through another company he started, Thomas H. Lee Capital Management LLC, produced mixed results. In 2008, two funds lost around 40%, reported the Wall Street Journal.

In 2006, Mr. Lee left Thomas H. Lee Partners to start a New York-based rival. His departure appeared to be acrimonious, the Journal reported. A range of investments including Refco have performed poorly, with some within the firm blaming it on Mr Lee’s tendency to make decisions based on instinct instead of rigorous financial analysis, people say close to the file.

While Thomas H. Lee Partners focused on raising big money and making big deals, Mr. Lee’s new company, Lee Equity Partners, would focus on what’s called growth capital, which involves generally the acquisition of minority stakes.

He was chairman of Lee Equity until his death. Mr. Lee died in the office of Thomas H. Lee Capital Management.

People who knew Mr. Lee described him as a Don Quixote, impulsive and larger than life. He was dedicated to his work and his family, and some were scratching their heads on Friday over what might have caused him to end his life.

Leon Black, co-founder of private equity giant Apollo Global Management Inc.,

said he met Mr Lee in the 1980s when he was his banker at Drexel.

“I had known Tom for over 40 years as a creative and original thinker in business, art and philanthropy,” he said. “I will miss his friendship, his warmth and his wonderful sense of humor.”

Investment banker Peter Solomon said he first crossed paths with Mr Lee in the 1970s when the investor bought a company that made fish sticks and was owned by one of Mr Lee’s distant relatives Solomon. The two developed a close relationship, spending time together at Martha’s Vineyard and East Hampton, NY, where the two had homes. Mr. Lee introduced Mr. Solomon’s daughter to her husband and celebrated their marriage.

Mr Lee ‘was very into people, so much so that he would live your life if you let him,’ Mr Solomon said. “If you played golf with Tom, he wanted you to hit the ball better. I said, “Tom, if I could do all these things, I would be on the PGA Tour.” I had to stop playing golf with him.

Mr. Lee was a benefactor of numerous charities and nonprofit institutions, including his alma mater, Harvard University, as well as museums and arts organizations, according to his family.

His $22 million gift to Harvard in 1996 was among the largest donations to the school by a living alumnus, his family said. “I was lucky enough to earn some money. I’m more than happy to give back some of it,” he said at the time.

John Danhakl, managing partner of private equity firm Leonard Green & Partners, recalls visiting the offices of Thomas H. Lee in 1987. Mr. Danhakl, then at Drexel, was trying to sell debt from Selmer, a manufacturer of musical instruments which is now part of Steinway Musical Instruments Inc., and brought a trumpet and saxophone to the meeting.

Mr. Lee was not at the meeting, but burst into the conference room when he saw the instruments, picking up the trumpet and playing awkwardly as he walked down the office hallway.

“He was truly one of the big personalities in an industry that had no shortage of big personalities,” Mr. Danhakl said.

Write to Ted Bunker at ted.bunker@wsj.com, Miriam Gottfried at Miriam.Gottfried@wsj.com and Ben Chapman at ben.chapman@wsj.com

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