An Interview with Co-Founders and Managing Partners of Bunker Hill Capital

We recently spoke with Mark DeBlois and Rufus Clark, two of the Co-Founders and Managing Partners of Bunker Hill Capital, a private equity firm investing in entrepreneur and founder-owned lower middle market companies in North America. Bunker Hill has offices in Boston, MA and San Diego, CA.

The four partners at Bunker Hill have worked together for over 20 years as private equity investors with lower middle market companies. As lead investors, they actively work with portfolio companies leveraging their extensive board-level and strategic planning experience.

When I caught up with them on the journey of Bunker Hill Capital, it was refreshing to hear how, in a world consumed with change, nothing can quite replace years of dedicated experience, a focus on relationships, and a time-tested investment ethos.

Tell us about the founding of Bunker Hill Capital.

We were senior members of the buyout team at BancBoston Capital, one of the largest bank-affiliated investment companies in the US, and it became increasingly apparent that going it alone would allow us to control our own destiny. Having a private equity mindset is different from how a commercial bank approaches investing, and we wanted to manage the business without these inherent limitations. Also, being able to change our investment strategy and how we invested was just as important.

An example is our ability to work closely with a variety of value-added partners including operating professionals and strategy consultants. Our relationships with them are a cornerstone of how we invest, proactively create value, and build relationships across the marketplace. As part of establishing Bunker Hill Capital, we were able to develop relationships with a wide range of strategic partners that was not possible when part of a large institution.

So, we spun out to start our own firm, Bunker Hill Capital, just under two decades ago.

Since then, how has the market changed?

The transaction dynamics have changed with the growth in the alternative asset class. The amount of capital flowing into the asset class has increased dramatically as has the number of PE funds, pushing up multiples over time.

Our core market, the lower middle market, includes companies with revenues between $5 million and $100 million—of which there are approximately 360,000 in the United States today. Compare that to the next level up, where there are about 22,000 companies with revenue between $100 million and $500 million, so our opportunity pool is 16 times larger.

In our market, we can source deals either as one-off deals directly from owner-entrepreneurs as sellers, through intermediaries such as accountants and attorneys, or through limited auctions, where an investment bank brings together people they know who can close deals and who have years of experience in the lower middle market, such as ourselves.

So, it’s actually the market dynamics in this end of the lower middle market that have not changed as dramatically that allow us to continue to reap the benefits.

An area where we have seen change is increasing prices in each market segment. However, as much as they have all gone up, the relative delta between the lower and upper middle markets has remained constant. For example, hypothetically as the first PE owner we may pay between 6.5x and 7x on EBITDA for the companies we invest in (compared to 2003, which was 5-6x). We then sell these companies to strategic buyers or the next market level up—large PE funds that pay between 8x to 10x on EBITDA multiples. So when we sell our companies to these strategic buyers, we capitalize on this multiple arbitrage.

What differentiates Bunker Hill Capital? 

Bunker Hill Capital is well-known in the lower middle market, having been in this market segment for over 20 years, which is very unusual.

We are unique in that we have the luxury of staying in the smaller end of the market. People tend to think bigger is better. We think we can have more impact strategically on these smaller companies over a shorter period of time, compared with the larger deals that are more like steamships: huge and take a lot longer to turn.

Our key criteria for buying companies is to be the first PE owner buying from founders and owner-entrepreneurs who either want to remain in the business or have identified their management team. This is 70 to 80 percent of our deals.

This is important because these founders are looking to crystalize the value of their sweat equity, and take some of their chips off the table for a variety of reasons. Finding a partner who will risk their own money to do this and take the company to the next level is key. The founder can then continue to enjoy the benefit of their minority capital stake, thereby continuing to increase their wealth by getting a “second bite of the apple.”

We do extensive strategy and infrastructure work at the companies we buy to allow them to scale. The larger funds, in the next level up, buy from folks like us as they can’t grow just organically; they need to grow through acquisition to get the kind of returns and exit multiples to satisfy their investors. Therefore, by definition, they must combine organic growth with acquisitions. And that’s where we come in.

How is Bunker Hill approaching the investment process to generate differentiated returns?

Early on from Fund I we refined our due diligence process, such as building relationships with our network of strategic partners. A lot of these refinements we did during Fund I, so the due diligence process we have now follows the same repeatable model. This has resulted in a time-tested methodology.

We believe the 20+ year evolution of our methodical investment process is world-class. Being a fiduciary to our limited partners, we are very hands-on in the businesses we invest in. We collaborate closely with our management teams and give them the tools they’ve never had before to better serve the business.

Post-close, we go through a 90- to 120-day strategic planning process to implement the findings from our detailed pre-sale due diligence and formalize the strategy into what we call a “Full Potential Roadmap.” This is coupled with a “Key Initiative Tracker,” which breaks down the Roadmap into an implementable plan, and is then tracked and monitored weekly and/or monthly with clear accountability and performance-based outcomes.

Finally, this plan is driven by the growth initiatives we are going after and how we want to scale the business’ revenue. But perhaps more rewarding is that after going through the process, most of the CEOs thank us for these invaluable tools that help them empower their own people, hold them accountable, and transform their business.

How is working with a Founder-Owned business unique?

Owner-entrepreneurs and founders can run the spectrum on experience and/or business sophistication, so identifying where along this spectrum the founder is and recognizing this is part of our due diligence process.

We place enormous emphasis on these founder relationships and if the chemistry is not quite right, we may decide not to proceed for the benefit of all parties. This is where the buck stops, especially if the owner is critical to the business.

Working with a wide variety of owners and CEOs is like working with any new person. We don’t delegate this relationship down to junior staff, as it is very personal at the managing partner level. You have to quickly figure out their strengths, growth opportunities, skills, and communication style, and we have to work with all of this while going through complex transactions – working through strategy, implementation, and everything else that goes along with the transaction.

Sometimes the owner is the CEO, and sometimes that’s not the case. The strongest CEOs are proactive and are on top of the Key Initiative Tracker. Some of the best CEOs we have worked with are self-aware enough to know where their highest value is in their role with the new company, including using the Key Initiative Tracker to mentor and track their direct reports, and then leading the charge on implementing these growth initiatives throughout the organization.

Can you talk about the role of ESG in Private Equity?:

ESG is a hot topic now. Most PE firms were doing a portion of this before it really got labeled. We were always doing environmental and social due diligence with potential investments.

Historically, we have intentionally looked at where the company could be more environmentally friendly and socially aware. Examples include increasing the recycling of waste materials, cutting down on energy consumption, and recruiting the most qualified candidates for roles.

Within our Key Initiative Tracker, we formalized this by putting in a group of ESG initiatives and being more explicit about it with our companies.

For example, we are being more proactive when we are sourcing overseas with a supplier code of conduct that includes detailed standards that our suppliers have to abide by.

On the social side, we have a strong bench of DEI candidates throughout our companies. DEI is built into our recruiting approach when hiring the most qualified person for the job.

For someone entering Private Equity in today’s landscape, what advice would you offer to them?

Find partners you can trust and work with. There are lots of ups and downs. You work hard and go through a lot— it can be very rewarding, but you need to have trusted partners over a long period of time.

You don’t know what you don’t know, and like everything else there is an evolution. There is no replacement for experience. It is complex enough doing what we do, and over the past couple of decades we have been able to cultivate relationships and refine our process along with the types of companies we invest in.

Also, don’t be afraid to surround yourself with smart people, not only inside the GP but also with your outside advisors. The relationships we have with our world-class executive network have been mutually beneficial. For example, our CEOs that are still assisting in our deals 20 years later is only something you can build over time. You can’t flip a switch and say, “I want that Day One.” It comes with being in the trenches together over a long period of time.


Interested in hearing what other PE experts have said in our interview series? Check them out here.

An Interview with Aterian Investment Partners Co-Founder & Partner, Michael Fieldstone

Michael Fieldstone is a Co-Founder and Partner at Aterian and has worked in private equity investing for more than twenty years. Prior to founding Aterian in 2009, he was a principal at both Sun Capital Partners and Apollo Management, and part of the Mergers & Acquisitions Investment banking group at Salomon Smith Barney. With regard to taking the entrepreneurial plunge with Aterian, he says: “We set out to build a firm that appreciates all the stakeholders of a company. To be collaborative in working with management teams. To create a transparent atmosphere in which we are dedicated to solving problems. Success to us is taking companies to new heights, and in doing so, creating value for employees, customers, vendors, the environment, underlying communities, and our investors.”

While his sentiments seem lofty, Fieldstone and his Co-Founders, Brandon Bethea and Christopher Thomas have seen numerous successes over the last decade-plus, and have ridden the waves of economic uncertainty with grit and fortitude. The result: growing already great family-founder companies in ways they didn’t think possible.

During our inaugural BluWave 2022 Top PE Innovator Awards, we recognized Aterian specifically for their innovative practices across proactive due diligence, transformative value creation, progressive PE firm operations, and ESG. Michael recently sat down with me to share some of his experiences and strategies for both creating value and supporting middle market companies during rapid growth.

Sean Mooney: How do you make sense of growth versus value investing in today’s marketplace?

Michael Fieldstone: This is a perplexing question for many investors. The multiples in private equity have changed so much over the past two decades. For example, at the turn of the 21st century, the average multiple was 7x; today, it is an average of 12x. This appreciation applies to both large LBOs as well as those in the middle market which we participate in. Additionally, the range of multiples can be extreme – as one can buy into an out of favor or cyclical industry such as oil and gas for less than 5x or invest in a high growth software or social media company for 20x+.  The last time growth investing was so robust was in the late 1990s, and this phenomenon was driven by venture capital firms and tech companies themselves. Moreover, large non-tech companies had to follow suit and develop or acquire an internet or digital strategy to keep up.  Many large companies such as GE, as we know, had a difficult time adopting startup practices organically. Other large companies such as Polaroid or Kodak became walking dinosaurs.

This time around, PE firms are also participating in high-growth – almost venture-like investing –as both an offensive and a defensive strategy. With technological disruption impacting most sectors (i.e. e-commerce, fintech, alternative energy, streaming/media distribution, cybersecurity, Medtech – and the list goes on), and with cheap and abundant capital, why not invest large amounts alongside mega trends even if at higher valuations? The alternative is to invest against mega trends – for example, into a large, non-omnichannel retail chain – which is like building a plane while it’s flying.

SM: On what side of that investor equation do you see Aterian?

MF: It may sound diplomatic, but our approach to market is a combination of value and growth investing. We typically invest in companies that are “mature” – certainly they already have sales and have typically been in existence for many decades. Then we look to accelerate their growth through investments both organically and through add-ons. We enhance their existing infrastructure and customer relationships in ways the management teams desire but may not have had the capital or organizational expertise to do so under previous ownership. We look to drive innovation, including through new products or services, with greater conveniences or capabilities to become more vital to customers. A great example is Aterian’s backing of a company called The Pace Companies, a leading commercial plumbing contractor in NYC. Three years ago, we partnered with its founder, Andru Coren, to help him achieve his vision of being the leader in all the subcontractor trade groups in NYC and surrounding areas, including HVAC, mechanical, electrical, and fire protection. While driving this strategy, we also identified the greater regulatory need to assist developers and building owners on reducing their carbon footprint through energy-efficient buildings. Flash forward to today, through the formation of holding company Eaglestone with shared services, we have executed on Andru’s vision by acquiring over a half dozen companies and becoming a leading infrastructure company in NYC and surrounding areas where we provide a full suite of services including plumbing, HVAC, fire protection, solar, and EV charging stations, all in the context of improved energy efficiency building standards.

SM: What are the key areas Aterian focuses on in its valuation creation plan, and what in that plan is the hardest to achieve?

MF: There are no corners to cut – at the root of any plan is extensive third-party customer and industry research to figure out where the company fits into its marketplace, its strengths and weaknesses, and how to improve its competitive advantages in partnership with management. Oftentimes, our due diligence prior to acquiring a company confirms management’s strategic plan and it is all about getting there faster with the appropriate resources, whether hard dollars or human capital. Additionally, often uncovered in our due diligence phase, we learn about untapped market opportunities, and after confirming their strategic viability, we develop a plan to penetrate such markets organically or through acquisitions.

Organizational development – retaining and recruiting top talent is typically the biggest challenge to achieving any plan. The breadth of the team required to grow a company, all while keeping an eye on existing strategy execution is most critical as well as our greatest challenge. Sometimes we bring in independent board members (who have been in similar positions) as another set of eyes to assure the organization is ready to embark on growth and transformation.

SM: How do you ensure seamless acquisitions/investments so that founders feel supported? What are some of the strategies/tactics you use? 

MF: It took years for us to learn this, but the most important thing with founders is to listen to what they are looking for, both professionally and personally. Additionally, it is important to align expectations upfront. Some founders want to continue to run and grow their companies, while others want help on an immediate succession plan. We have successfully worked with founders in both situations.

Another critical component of ensuring a seamless process is open and robust communication. PE-owned companies are much different than family-founder businesses. Most founders have heard horror stories about partnering with a private equity fund, along the lines of PE saying, “it’s our way or the highway.” They are afraid they won’t have any influence over the company culture and direction, and this poses a big risk for founders who want to stay in the business. Our goal is always to keep the culture intact as much as possible during the transition, and we do our best to communicate to founders that we want to invest in their teams as well as their valuation plan. These founders want transparency and candor, they don’t want “razzle dazzle.”

We also offer founders the opportunity to speak with other family- or founder-owned companies we’ve partnered with. This open book approach helps ease some of their fears, when they can hear directly from references who have found success working with Aterian already.

SM: What does Aterian specifically do to win founder- or family-owned business trust “early and often”?

MF: The most important thing we can do to build trust is to say what we do and do what we say.  We also need to discuss business goals and objectives in a small group at least a couple times a year. Actions speak heavily as well – supporting companies analytically or by providing other resources they may not have both help build the bridge that we are actually on the same team.

SM: What are Aterian’s internal company values, and how do those get operationalized (or actualized) across your investment portfolio?

MF: We have three core values, and from these fall every action with regard to both our internal and external operations. The first is transparency. With our management teams, our lenders, our investors, everyone. It is our belief that while good news should travel fast, bad news even faster. Without transparency building trust is nearly impossible; and, without trust, you can’t properly evaluate or make decisions.

The next core value is the concept of being collaborative, and hands-on. We expect this from our management teams, and we certainly aren’t sitting back as passive board members. Having said that, it’s important to strike a balance – when to tackle something head on and when to let go.

Lastly, we value long-term thinking. We typically hold onto companies for four to six years but make decisions as though we will own them forever. Warren Buffett has this great quip about the types of companies he wants to buy; he says they should be equivalent to a great piece of art that you would be proud to hang in a museum. In a sense, that’s how we see it. We are willing to put in the time, energy, and resources to make a company art museum worthy.


Interested in hearing what other PE experts have said in our interview series? Check them out here.

An Interview with Senior Partner at New Heritage Capital, Charlie Gifford

Charlie Gifford co-founded private equity firm New Heritage Capital in 2006, and has been investing in founder-owned, lower middle-market businesses for 22 years. He leads the firm’s origination practice, focusing his efforts on generating new investment opportunities and developing and maintaining intermediary relationships. In addition to his passion for the New England Patriots, Gifford is a strong believer in the concept of capital-and-thought partnerships for the companies in which his firm invests. The result: incentives for both founders and investors pointing in the same direction.

I caught up with him to get his take on everything from identifying the right-fit investments and what makes a great partner, to why expertise matters and the opportunities ahead for PE in 2022.

Sean Mooney: You co-founded New Heritage Capital in 2006, what was the genesis of founding the firm?

Charlie Gifford: I met my two current partners in 1999 while working for our predecessor firm. As that firm grew and began to move upmarket, the three of us were still interested in partnering with founder-owned businesses that had yet to access the institutional capital markets. Furthermore, we wanted to continue the model from our predecessor firm—one that incentivized all-star founders to stay on board for three to five years to help us grow the business. We wanted to be a capital partner and a thought partner to these founders. So, we essentially do an equity recap where the owner’s met their liquidity objectives, but we also allow the business owner to remain in control. Of course, the ultimate goal is to achieve superior returns for our investors, and we inherently believe the best way to do that is to identify bullish founders—owners who are interested in maintaining control post-close, and who are motivated by what we call “long term greed,” not just “short term greed.”

SM: You have a unique approach to investing called The Private IPO®—can you talk a bit about that, and how it’s differentiated from other forms of investment?

CG: I always like to point out that in the public markets you wouldn’t want to invest in a company where all the board members and executives are selling their shares. But in private equity, this is the standard model. A company gets acquired and as soon as a day later all the key executives can be laid off. This is counterintuitive to how great companies are built. We think it’s better when the founder is voting with their wallet and not their feet. In this way, we attract a self-selected cohort of maniacal owners who want to stay on board, want to remain in control, and are dedicated to growing their business.

In our Private IPO® solution, we provide significant up front liquidity for founders but also let them keep more control and earn a big piece of the upside. The founders we partner with come for the control piece, but they stay for the equity structure on the backend. If the business meets its growth targets, then they get a huge equity stake on the backend. As their partner, we help them to develop a growth strategy that allows them to double, triple, and even more in size, maximizing that backend equity value for everyone.

SM: What do you look for in a good investment, or partner? In other words, how do you identify founder-owned businesses that are the right fit for both New Heritage and the founder-owner?

CG: Interestingly, one of the very common traits we see in our partners is the individual that has worked at a large strategic competitor in their industry. They have grown a little skeptical about the prospects of growth: perhaps the company has taken their eye off the ball, isn’t innovating, or doesn’t treat the employees well. These founders have identified a clear market opportunity, so when they spin out of their current company they immediately begin to take market share by offering a better service or product. This new company is more nimble and meets the needs of their customer base more effectively.

SM: How do outside experts and advisors play a role in your business?

CG: If we look at the concept of market efficiency (where we are now versus 1999) there used to be no such thing as market networks. PE funds were left trying to figure out every detail out and conduct diligence on their own. The market is extremely competitive right now, particularly in terms of full-time talent; but the ability to call on BluWave for specialized project needs or interim executive talent means you have a better shot at not getting beat to the punch. In general, we are all attracted to growth, strong management, and industry tailwinds; but without the ability to get smart fast, it’s near impossible to be competitive.

SM: The pandemic certainly changed business as usual. What is the biggest lesson you’ve learned from the past two years? How has it affected your future outlook?

CG: One of the benefits of being a 15 person firm, many of whom have worked together for over a decade, is that there is a real comfort level in being candid, and a true sense of “all for one and one for all.” Everyone at the table has a voice. Our approach is collaborative and collegial. So, when the pandemic hit, we worked remotely for six months; but people wanted to come back to the office as soon as it was safe to do so. We inherently believe that this is an apprenticeship business and you learn by watching and doing. As for the future outlook, we think it’s bright.  Our companies managed through COVID very well and the resiliency of the private markets has been incredible. We see strong earnings and strong deal flow in 2022.

SM: What are some major PE themes you’ve seen in 2021 that you think will have implications for next year (and possibly beyond)?

CG: For starters, PE will likely continue to pay up for good companies, and will be forced to close quicker with fewer contingencies. But I am just waiting for the music to stop, because things cannot go up and to the right forever. Having said that, it does say a lot about our country that our economy is still robust given all of these economic challenges created by the pandemic.

One common refrain we will continue to hear is the difficulty to attract workers and rising cost of labor.  Due to this “missing middle”, prospecting and rainmaking has suffered somewhat, because everyone is working tirelessly on the necessary tasks to close deals in advance of year end.

SM: Now for the most important question: How do you really feel about Tom Brady leaving the Patriots?  

CG: When you’re talking about the GOAT it’s hard not to wish him well, given the fact he always did what was in the team’s best interest by accepting a below-market contract. What he’s accomplished is truly remarkable. That said, I’m a Pats fan first and a Brady fan second, and now Belichick seems to be having the team playing it’s best football of the season around the holidays after a rough start– a true telltale sign of a Belichick coached team.  It looks as though America’s worst nightmare is back…without Brady this time.

The Experts Weigh In: Reflecting on Themes from 2021

One of the advantages of providing specialized solutions for more than 500 PE funds and business leaders is that we gain a 360-degree view about what is impacting portfolio companies and the private equity industry as a whole. From our hundreds of interactions with fund managers, interim executives, business leaders, and experts from across industries we learn about trends, themes, and opportunities that affect all aspects of PE. As we look ahead to 2022, we reflect on some interesting insights that we gained from our network, as well as our founder and CEO, in 2021 that point to themes to watch for in the year ahead.

Theme 1: Focus on people as core strategy

While it may seem counterintuitive in such a technology- and-data-obsessed culture, what we’ve seen the past year (with no sign of slowing down) is a commitment to focusing on talent and culture as a core part of business strategy. With an anemic and highly “flexible” job market, companies are thinking of innovative ways to attract and retain top talent in order to compete, including giving the CHRO a seat at the table.

The expert’s take: “I believe human capital is one of the most valuable assets of any successful company. End of story. We have put in place a strategy to have our portfolio companies hire a Chief HR Officer—a role that drives strategic thinking, fundamental change through processes, and design efficiencies. This person’s role is to think strategically about the business, then marry that strategic thinking with decision-making around human capital. He or she understands long-term objectives and implements a hiring strategy to meet these objectives. It was a game-changer for our companies and enabled us to swiftly drive change and make money for the shareholders.” — Matthew Garff, Managing Director at Sun Capital 

Theme 2: Public policy and its key role for PE

Recently, Congress and the current Administration have put forth measures that could affect the private equity industry and have a negative impact, particularly on women investors. The industry employs over 11 million Americans and supports thousands of small businesses; a fact that sometimes gets lost when legislators are just focused on the balance sheets of the funds.

The expert’s take: “Washington is trying to move very quickly: it’s like being in a baseball game but not knowing what inning you’re in. Oftentimes the intention of these proposals isn’t nefarious or ill-intended; rather, haste makes waste and politicians are drinking massive amounts of information from a firehose. One minute they are talking to someone like me, with a private equity agenda. The next minute, it’s someone from higher education, renewable energy, or critical infrastructure. Our job [as industry insiders and lobbyists] is to inform them about the realities and potential negative consequences in a non-incendiary way so they will actually listen; subsequently, we hope they make decisions based on the data-rich information we have provided.” — Pam Hendrickson, Vice Chair at The Riverside Company 

Theme 3: Specialized talent offers a competitive advantage

One theme that started to stand out in 2021, and will likely continue to be true for years to come, was top-level executives leaving companies in search of more flexible, specialized projects that put them in the driver’s seat. What does this mean for the PE industry? A shift in focus to interim, specialized talent who can quickly and accurately provide results during the process of due diligence, recruiting, and beyond.

The expert’s take: “The private equity industry used to be about optimizing companies to get attractive returns. Today, it’s very competitive with hundreds of sponsors participating in every auction, often paying perfect prices for imperfect companies. To stand out, PE firms need to see something that’s not in the investment bank’s book. General insights from generalist advisers don’t cut it anymore. We’re equipping our clients with specialized resources that identify unique information that gives them a fundamentally different perspective in a competitive process.” — Sean Mooney, founder/CEO of BluWave

Theme 4: Prioritization of remote work

After years of testing the idea of working from home, the last two years have catapulted the acceptance of remote work—and working from anywhere—to the top of the “normal” list. In fact, companies report that a substantial number of new employees are prioritizing the ability to work remotely even ahead of a robust benefits package.

The expert’s take: “Candidates who were fortunate enough to be employed during the pandemic but unfortunate enough to deal with the constant disruption and stress are now coming up for air and looking around for new adventures. In tandem with this ‘fancy shiny object’ job search, most candidates learned that much of their knowledge and skills could be effectively managed remotely. That’s a game-changer. Once people figured out they could live in Park City, Utah while working for a company based in New York City, many of them made substantial lifestyle changes to strike that elusive work-life balance. It almost gave people permission to shed old norms and start fresh. They went from thinking, ‘I’m going to be stuck in an office for the rest of my life,” to “holy cow, I can work on the ski slopes!’ — William Tincup, President & Editor at Large for Recruiting Daily

Theme 5: Scarcity and its future implications

One thing is certain—from supply chain to the workforce, scarcity seems to be a theme du jour, if not douze mois une année. But how troublesome is it as we move into 2022, and what can we hope for in terms of how the economy will adjust?

The expert’s take: “Usually shortages are a sign of price controls, and usually when people say ‘we don’t have enough workers’ it means that the price they have to pay is too high to get the workers. Historically, there have only been shortages when raising prices is forbidden. This happened with gas controls in the 1950s. The puzzle with today’s shortages is why don’t suppliers just raise prices? My presumption is that they are afraid of being judged as gougers either by their customers or by the government. Eventually, prices will increase, instead of the other option: not having products. It’s already starting to happen. This will help eliminate the pressure on the supply chain.” — Russ Roberts, host of EconTalk and Hoover Institute Research Fellow 

Theme 6: The rise of impact investing with a focus on ESG

Almost every investor you talk to these days, whether for a public or private company, has one thing top of mind: how are our portfolio companies performing against ESG standards, including the initiatives around diversity, equity, and inclusion (DE&I). While ESG has been an important reporting tactic for years, only in the last two has it reached the tipping point. Many firms have already seen a positive impact by investing in diverse workforce development, and it seems that it is definitely possible to have success with a triple bottom line investment thesis.

The expert’s take: “We recently made an investment in a waste management company and our investment thesis was to formalize all policies and procedures, then top grade the management team. After implementing our suggested changes, the company attracted a more diverse workforce, which in turn embraced the ‘professionalization’ of the company. This included the way the company related to and communicated with its diverse customer base. As a result, the company improved its margins, increased customer retention, and was better positioned to win larger contracts from commercial customers.” — Colleen Gurda, Founder of Riveter Capital

Theme 7: Family wealth expands into new industries through collaboration

Family wealth, most often managed by family offices with a staff of ten or fewer employees, is reaching beyond the usual suspects of real estate and legacy business toward direct investments in emerging markets. What was once thought to be “old money” is now shapeshifting with younger generations of family members at the helm, many of whom are interested in collaborating with other family offices to expand their reach.

The expert’s take: “Direct investing has been the core strategy for families for decades. What we’ve seen is an increase in collaboration between family offices that happened less regularly before. For the most part, private equity has been taking the lead on lower market buyouts; and families see the upside and potential of that. Pooling resources allows families to reduce risk [in industries they aren’t as familiar with] and take advantage of companies that land between $3M and $20M EBITDA, who are looking to sell. Families are also looking at platform plays such as buying up HVAC companies and other firms within an industry. We are also hearing a lot of talk now about ESG, and also “business drivers” both of which contribute to innovation.” — Glen Johnson, President of Membership at Family Office Exchange 

Theme 8: As consolidation continues, culture is a top priority

While company culture is certainly an important part of any organization’s success, during and after an acquisition the focus on maintaining a “healthy culture” is paramount—and is often the difference between a smooth or rocky outcome. Add-ons and consolidations will continue to be at record highs in 2022, and acquirers are best served to create a solid strategy to ensure culture remains at the top of the priority list.

The expert’s take: “Here’s what we’ve learned with nearly 75 acquisitions under our belt, some of which worked and some didn’t. First and foremost, it has to be a business fit. A lot of people will buy companies when there isn’t a reason for the companies to be together. It’s just about size and irrelevant to the core business; you see this a lot with tech companies. But it’s not only about the business fit; there also has to be a cultural fit.” — Troy Templeton, Managing Partner at Trivest Capital

An Expert Interview with Family Office Exchange’s Glen W. Johnson

Before assuming the position of President of Membership for the Family Office Exchange (FOX) three years ago, Glen W. Johnson spent a decade as one of its members. As the preeminent organization for “collaborative, peer-driven” family offices and trusted wealth-related advisors, Johnson has helped steer FOX through a pandemic, up the hill of its membership growth, and through the shifting tides of direct investments.

BluWave recently joined the FOX community as a partner to their direct investment council. I sat down with Mr. Johnson to learn more about how the organization is evolving to meet the needs of its existing and new members (many of which are the result of recent liquidity events), what trends they are seeing in the family office space, and how the current purpose-driven generation approaches family wealth—and what this means for the decades to come.

Sean Mooney: For our readers, can you give me a brief overview of FOX, your focus, and how you create value for family offices?

Glen W. Johnson:  FOX is a global organization based in Chicago, Illinois, and for the last 32 years, we have been a key membership-driven support network for ultra-high net worth families, family offices, and advisors with members in over 24 countries. Simply put, we identify trends in core issues that our members face, help them see around corners so they can plan for three to five years ahead, and help them simplify complexity.

We accomplish this in three various ways: First, we share best practices and offer expertise for families in transition. This can be in areas of governance, technology, or family education—in terms of shifting resources and responsibilities across generations. Second, we provide research across multiple areas that impact family offices and advisors. We do this by gathering data from both members and non-members, then synthesizing that information into digestible, actionable information to support decision-making. Third, we’ve curated a community that matches families and offices with their closest peers, and others who can share knowledge (and help provide expertise and guidance) on everything from succession planning to direct investments.

It’s this collective intelligence that brings our members back year after year and provides a tremendous amount of value, particularly at times (like now) when things are shape-shifting under our feet. Collaboration is more important than ever, and FOX is essentially rooted in that principle.

SM: According to one of your recent surveys, family office creation is on the rise and FOX has been growing rapidly as a result. In your opinion/experience, what accounts for this growth?

GWJ: There are roughly 6,000 family offices based in the United States alone. Half our recent members are newly formed family offices. Some of these were formerly embedded family offices within a family-owned business, and now they are creating stand-alone family offices outside the business as a result of a business sale or in order to run more effectively and separate the activities in a more streamlined way.

Based on what we are seeing, here are a few factors we believe are contributing to this growth:

  • Recent major liquidity events of family-owned businesses.
  • As a family moves beyond business identity they look for ways to have a new identity and coordinate their efforts and group activities.
  • Offices themselves have changed and include virtual options: 65% of offices we work with have less than seven staff members within their office, and many of them have outsourced a variety of activities because they have limited scope internally. Some are virtual altogether with full outsourcing so there are many ways to provide family office services to a family that may not have existed a decade ago.

SM: What are some of the trends you’re seeing in the family office space? 

GWJ: In 2021 (and these will likely persist into 2022) we’ve observed three core trends impacting family offices. While not surprising, talent tops the list: finding, hiring, retaining, and engaging employees. Over the last 18 months, how and where people work has changed. In the family office industry, most employees are expected to be in the office four to five days a week; but now they want more flexible work environments. A perfect example of this is how difficult it is for family offices to find accountants—they are in high demand and so unless family offices are willing to shift their thinking, it’s going to continue to be difficult to hire in this area.

The next trend we are seeing is in terms of transitions within the family themselves—either from founders to the next generation; or the second generation to the third generation often involving extended family members (cousins, in-laws, etc.) outside the nuclear family unit. For those who are transitioning, they are squarely focused on planning and educating so that the changes are streamlined. Beyond this, we are also seeing transitions in family office executive leadership. Many of the advisors have been with the families for decades, and they are close to retirement and looking to turn over the keys.

The last key trend is the rapid adoption of technology that began in 2020—mostly due to the pandemic. Essentially, family offices moved from decades-old legacy systems to new tech-enabled systems in under two years. One major upside: this integration of technology into daily life, from family meetings to advisory meetings, is allowing the next generation to participate more easily. However, the sheer complexity of family assets still means someone has to do the work in order for the technology to be effective. The enhanced focus on cybersecurity is also apparent, as family offices need secure portals for communication and reporting on key data.

SM: Can you tell us a little bit about what you’re seeing on the direct investing side?

GWJ:  Direct investments continue to be on the minds of families; they did take somewhat of a pause at the beginning of the pandemic given the focus on the crisis, and valuations continue to be quite high; so, families have to find the right strategic deal for any direct investment to make sense.

But direct investing has been the core strategy for families for decades. What we’ve seen is an increase in collaboration between family offices that happened less regularly before. For the most part, private equity has been taking the lead on lower market buyouts; and families see the upside and potential of that. Pooling resources allows families to reduce risk [in industries they aren’t as familiar with] and take advantage of companies that land between $3M and $20M EBITDA, who are looking to sell. Families are also looking at platform plays such as buying up HVAC companies and other firms within an industry.

We are also hearing a lot of talk now about ESG and “business drivers” which both contribute to innovation. The lightbulb has gone off, and company leaders and investors are realizing they don’t have to sacrifice return for ESG.

SM: How do trusted advisors and experts play a key role in terms of your family office members? Why is this part of the network (makes up roughly 25-30%) so important to family offices?

GWJ:  Since our inception 32 years ago, advisors have played an integral role in legal, accounting, and investment strategy for our family offices. The confluence of best-in-class executive consultants, industry experts, and the needs of family offices is paramount to the success of our organization; and it’s really what makes the membership experience a win-win for everyone involved.

This synergy is important because we continue to see a large shift in outsourcing, and talent is a key driver of this. Family offices face continual challenges in finding staff, so they are outsourcing key functions (mentioned above). Some of the needs are episodic and sporadic, like estate planning attorneys, for example. Our advisor community is extremely robust, and many of the family offices are working with and coordinating the activities of 15 to 30 advisors at a time—and this will likely continue. In fact, we’ve seen a 40% increase in offices that are outsourcing their services.

To put a fine point on it: the average family office portfolio has between 6 and 10 direct investments, and this creates a lot of complexity in sourcing and due diligence.  Trusted third-party advisors help our families more confidently navigate these complexities.

SM: What is the biggest myth about family offices and/or family wealth management?

GWJ: Shows like “Succession” (and other TV portrayals of wealth), ultimately showcase a lack of strong values and a myopic focus on in-fighting and “who gets what.” For the most part, this is a total misperception but is, unfortunately, more entertaining than the reality.

After working with family offices for 30-plus years, the truth is that they play a vital role in job creation, building stronger communities, and impacting social change through philanthropy and nonprofit donations. Money can certainly magnify the underlying issues faced by any family, but at the end of the day, all families want their children and grandchildren to be productive, happy, and spend time with each other. The other myth of the family office goes something like this: 50 to 100 individuals running around the family members, fetching their coffee, walking their dogs, calling them a car. That certainly makes for better television than reality: an attorney or accountant sitting at their desk drawing up paperwork or filling out tax forms, or staff and others educating the next generation on the complexities of wealth.

In fairness, our members tend to be collaborators—they want to learn from peers and share knowledge, so it’s somewhat self-selecting in a sense. As a result, we get to see the best side of families and their family offices.

SM: Last but not least, a game of “would you rather.” So, based on what you know, would you rather run a family office or a family business?

GWJ:  This is a hard one, as each of these has a totally different impact. At this point in my career, I would likely rather be running a family office. Mostly because the idea of working deeply with a family across generations—keeping them successful through that work—would be more rewarding than growing a business. I spent my earlier years as an attorney and often witnessed situations where families were fighting, mostly because they didn’t know how to communicate and weren’t educated on various aspects of multi-generational wealth.

Through this, I came to believe that wealth is secondary to a family staying together across generations—the most important variables are their shared values and visionary alignment, and this is often just a matter of creating an open environment for communication and collaboration so certain individuals don’t feel left out of the process. Gratefully, the current purpose-driven generation understands the importance of inclusion, and I think we will continue to see family offices innovating, making socially impactful investments, and providing a healthy path forward for future generations.

An Expert Interview with EconTalk Host and Hoover Institution Research Fellow Russ Roberts

Russ Roberts is not your typical economist. As the longtime host of the podcast EconTalk, the John and Jean De Nault Research Fellow at Stanford University’s Hoover Institution, and a collection of economics-related books to his name, it would be easy to throw him into a traditional category. But, as the current President of Shalem University in Jerusalem recently told me: “My perspective on economics is constantly evolving as I learn more about what it is to be a human.”

Roberts also holds the title as a three-time teacher of the year and has taught at George Mason University, Washington University in St. Louis (where he was the founding director of what is now the Center for Experiential Learning), the University of Rochester, Stanford University, and the University of California, Los Angeles. He earned his Ph.D. from the University of Chicago and his undergraduate degree in economics from the University of North Carolina at Chapel Hill.

It is from this vantage point that I recently spoke with Roberts from his office in Israel about everything from his success as a podcast host and author, to his thoughts on the private equity industry, the construct of scarcity, and why expertise is necessary—but often challenging to vet. 

Sean Mooney: How would you describe your brand of economics, and how has it evolved over the last decade? 

Russ Roberts: I trained at the University of Chicago but became increasingly interested in the Austrian School—a heterodox school of economic thought. But I always found the most interesting questions were not about economics; rather they were more in the realm of philosophy, history, and social trends.

When I launched my podcast (EconTalk) I interviewed traditional economists on standard issues of economics– the trade deficit with China, bitcoin versus traditional currency, and the causes of the financial crisis. But over the years (and I started doing EconTalk in 2006), I got interested in other questions: Why are so many people in despair? What does it mean to be American? Why is there no longer a consensus about our national narrative as Americans? Why are tribalism and populism on the rise?

Economics is not the central tool kit for figuring out those questions. Many economists are often blind to non-economic factors: they look only at things that can be measured. But it can’t end there. The questions I ask are also questions of identity, role of community, and how to live with differences of opinion: the things that I believe are increasingly important.

SM: Why do you think that EconTalk has been so successful for so long? What’s your secret?

RR: Success is definitely hard to measure with something like a podcast. I’ve definitely learned a lot, and I get nice emails from listeners who are grateful. So, that certainly feels like success. On a personal level, as a 15-year long host, I have become a better listener and less of an “interrupter.” This is a wonderful life skill. And that means I give my guests, even those I disagree with, more of a chance to make their case and for me to engage with their viewpoint respectfully and civilly. I’m interested in conversations, not debate. This is a very powerful difference: conversation is about a shared exploration by two people, not just who’s right. When I created more room for my guests by doing more listening, I think EconTalk became a much better program. Lastly, I have learned to say “I don’t know.” It allows someone the opportunity to educate me—to let them be the expert.

SM: From your perspective, what is the biggest misconception about capitalism?

RR: Along the lines of what I alluded to above, the misconception people often have that wealth is a zero-sum gain—wealth must be taken from someone else. With just a little thought, you can realize that wealth is not a zero-sum game. Look at the standard of living today versus one hundred years ago: did we take the wealth from, Mars? Almost everyone got wealthier over time. Through technology, innovation, and processes, the standard of living has gotten better without making everyone worse off. Not at someone else’s expense.

Of course, there are always exceptions and bad players. The free market allows us to de-personalize the goods or services we are buying, and ultimately rewards the best X who is doing Y. We don’t have to like Jeff Bezos’ personal decisions, but we can still appreciate what he’s built and how it enhances our lives. One of the great gifts of a market economy is that you don’t have to peer into someone’s soul.

SM: We are living in a time of scarcity—in terms of the supply chain, the workforce, etc. How did we get here? When do you think this will shift and why?

RR: The concept of scarcity is an enormous challenge to economics and my way of thinking. I wrote The Price of Everything and It’s a Wonderful Loaf about the role that prices play in terms of order. Here is the quick take: Usually shortages are a sign of price controls, and usually when people say “we don’t have enough workers” it means that the price they have to pay is too high to get the workers. Historically, there have only been shortages when raising prices is forbidden. This happened with gas controls in the 1950s.

The puzzle with today’s shortages is why don’t suppliers just raise prices? My presumption is that they are afraid of being judged as gougers either by their customers or by the government. Eventually, prices will increase, instead of the other option: not having products. It’s already starting to happen. This will help eliminate the pressure on the supply chain.

SM: You are continually in conversation with experts in their field (for EconTalk): why do you think expertise is important?

RR: For the average citizen, expertise is in disarray right now. There is a lot of confusion about how to know whether someone is truly an expert—is it because they write books, host a podcast, make a lot of money, are on TV? It’s challenging to figure out the real versus the pseudo-expert, but we don’t want to fall prey to this postmodern phenomenon where people think everyone is a liar.

For a business, the challenge has always been the tension between making a decision that is defensible versus making a decision that is correct. If you’re an executive at a growing company, and you hire a first-rate consulting firm to help solve your problem, you can always make the defensible argument. But, if it turns out they can’t answer the question or find a solution, then what do you do? That being said, I think the challenge for business leaders is to feel confident taking a chance with a smaller, specialized, partner (without the big brand name) that is likely better equipped to tackle your problem. 

SM: What is your definition of innovation? Where do we need more of it?

RR: Getting more from less, and achieving more with the same amount of resources. More simply put: we can make a process incrementally better, but what is even more desirable is making it better with the assistance of technology. A common example is the slide rule. Of course, we could make it incrementally better; but a calculator does a much better job with a fraction of the cost and much more accurately.

As a side note: I don’t think most people understand the pressure businesses are under to innovate, and why most founders don’t sleep well at night: they never know where competition is coming from. This is the essence of capitalism and what ultimately fuels growth and advancement.

In terms of the second part of the question, I think we need more innovation in the rules of the game: governance, how democracy works, etc. Antitrust law created for brick and mortar businesses is not helpful for thinking about big tech. In other words, we need innovative thinking about life as it exists in the digital realm, and how to evolve old systems in order to account for all of the changing dynamics.

SM: What is one piece of advice or knowledge you would share with those in leadership positions?

RR: Privilege your principles. If you want to make ethical decisions as a leader, and you’re worried about the existence of your business, it’s very tempting to do things that are not consistent with your principles. It’s always better to take an ego hit than violate your principles.

SM: Can you tell us anything about your next book?

RR: It’s called Wild Problems: A Guide To Making Decisions That Define Us. Generally speaking, I focus on the decisions we can’t necessarily measure or do a proper “cost-benefit analysis” about. Essentially, the book is an exploration of our sense of self, and how dignity and pride often outweigh the day-to-day effects of decisions we make. Today, we have so many choices and this leads to a lot of anxiety and stress. We want an app or data to help us make the best decisions, but that’s not the way everything works. If it was, life would be much more predictable, perhaps…but certainly less fun or interesting.

An Interview Pam Hendrickson from The Riverside Company

Pam Hendrickson is Vice Chair at the Riverside Company and a trailblazer in the world of finance and private equity. Growing up in Manhattan she was surrounded by the world of business. However, as a kid, opportunities in business also felt far away, as finance at the time was a landscape that was largely dominated by men. If you know Pam, she’s not someone who shies away from pursuing her dreams. She learned through determination, collaboration, and optimism that anything was possible.  Pam studied hard, worked evened harder, and, after graduating from Duke, followed by a degree from Northwestern’s Kellogg School of Management, entered the world of finance in New York City. She joined JP Morgan Chase, ultimately rising to Managing Director during a highly accomplished career spanning over two decades with the firm.

As her career progressed, Pam was ready for the next challenge and wanted to more directly help companies build and grow.  In 2006, she joined The Riverside Company as their COO. Once again, Pam thrived in one of the most intellectually stimulating and most challenging industries to succeed.  Today, Pam serves as The Riverside Company’s Vice Chairman, where she supervises some fund strategies and monitors and manages policy, political, and legislative risk for Riverside and its portfolio companies. All along the way, Pam has paved a path for subsequent generations of diverse professionals in finance and private equity, enabling opportunities for others to succeed and thrive as she has.

She was kind enough to carve out some time for us recently, and the interview was revealing in so many ways: from her inside-look into Washington (and perhaps why politicians aren’t all bad) to her approach to diversity. In an industry that’s squarely focused on monetary returns, her insights are priceless. Our collective hats should tip to this powerhouse who uses her voice for those who are often kept out of the conversation.

Sean Mooney: As the current Vice Chair of AIC, what are a few of the core initiatives you are taking on in terms of lobbying efforts for the PE industry?

Pam Hendrickson: My focus is on helping make sure that members of Congress and the Administration understand private equity’s positive role in local communities across the country.  Our industry employs over 11 million Americans, supports thousands of small businesses, and delivers strong pension returns for retirees. Fortunately, more people on the Hill now appreciate private equity and the tremendous value we add to the American economy.

I’m also working to explain the real-world consequences of some recent proposals in Congress that would change the tax treatment of carried interest capital gains. I’m especially interested in explaining how these proposals would harm the entrepreneurial ecosystem for women investors and entrepreneurs. The Ways and Means legislation would penalize investment firms by creating a potential tax penalty for adding new partners to existing investments. This would disproportionately expose women to nearly impossible barriers as they work to climb the corporate ladder at a time when firms are trying to advance diversity within their own leadership ranks.

Washington is trying to move very quickly: it’s like being in a baseball game but not knowing what inning you’re in. Oftentimes the intention of these proposals isn’t nefarious or ill-intended; rather, haste makes waste and politicians are drinking massive amounts of information from a firehose. One minute they are talking to someone like me, with a private equity agenda. The next minute, it’s someone from higher education, renewable energy, or critical infrastructure. Our job [as industry insiders and lobbyists] is to inform them about the realities and potential negative consequences in a non-incendiary way so they will actually listen; subsequently, we hope they make decisions based on the data-rich information we have provided. 

SM: How would you define the Riverside culture, and how does this impact your investment strategy?

PH: At Riverside, our mantra is very simple, rooted in the golden rule: treat others the way you would want to be treated. This way of approaching investments, problem-solving, conversation, basically everything, puts the onus back on the fund managers to ensure we are making decisions that we would also make for ourselves.

Here’s an example of how this cultural value is operationalized vis-a-vis our portfolio companies: Some years ago, we made an investment in an educational company founded by a former teacher who saw a gap in the curriculum for kids, especially those on the autism spectrum. She created an entirely new language based on symbols not on letters—and this system has gained traction and been widely adopted in special education circles.

After the acquisition, her daughter took over the CEO position; she had never been a CEO, but she was familiar with the company, having helped get it through its initial growth phase. Instead of treating her like someone who needed “schooling” from us, we approached it from more of a consultative standpoint. This is how I prefer to be treated when tackling something new. No one likes to be patronized. Instead, our role was being more of a sounding board— she was especially happy to have her private equity partners during the early days of the pandemic because they could provide both advice and capital. Today, that company continues to thrive, and she has exceeded our expectations. 

SM: Why does diversity at the highest levels of a company matter?

PH: My personal view is that diversity has more to do with various ways of thinking, experiences, and skills, rather than what someone looks like. How someone thinks about solving a problem has less to do with their gender or race, and more to do with their cultural attitudes and the background they bring to the table: education, where they grew up, how they managed challenges. A second-generation immigrant from Cuba who grew up in a single-parent household is going to have a different perspective than someone like me who grew up on Park Avenue in New York. This is a wonderful and necessary form of diversity—particularly if we have a shared interest in reaching a goal or outcome. What we miss with homogenous “group think” is likely why we’ve had recessions, wars, and insert any form of negative societal output. It’s just better business to have high-powered seats filled with versatile approaches to problem-solving.

How does this play out in the boardroom? We recently had an investment committee looking at a deal that sat squarely in the female products market segment. More than half of the people sitting at the table had never heard of this product and they didn’t understand what it did or why anyone would want it. So, they deferred to those of us in the room who understood the potential value of this product based on our experience—not simply on the numbers being presented on the slide deck.

SM: How has private equity changed over the last twenty years? If you were to sum it up in less than 10 words, what would you say?

PH: Funds used to make money on the buy. Not now.

The expanded version is: there used to be a time when multiples were low, and you could buy low and sell higher to generate great returns. Now companies are expensive to buy, so they have to grow quickly, and you can’t save your way to prosperity. This notion that PE “flips and strips” is just so far from the truth. Our whole objective is to get growth because we can’t increase value without top-line revenue going up and to the right.

SM: What is your hope for the future of PE? Where would you like to see it change, move, and transform?

PH: In general, one astonishing thing about PE is how little it has moved to technology. People in this industry still rely on Excel for tracking, measuring, and reporting. At Riverside, we have moved to upgraded technology because we are a volume shop, and we can’t afford to throw people at everything. But funds need to embrace technology. You’d think there would be more technology solutions that integrate, but they don’t.

For example: while there are some good systems for CRM, these don’t connect to a portfolio company’s reporting system that also needs to connect to how you report to LPs. It’s all fragmented and disjointed. All sorts of systems do financial reporting, but then the systems that show how you create value within the portfolio companies are entirely missing. As an industry, we need to move from manual processes to streamlined technology solutions. There’s an idea for an aspiring entrepreneur!

On a brighter note: I am delighted by the increased number of diverse owners of private equity funds. These investors will ensure access to capital to a broader and more diverse base of founders, thus attracting new, innovative companies into the mix.

SM: What keeps you going during the difficult moments when negativity abounds, circumstances look bleak, the world seems to be imploding. What’s your “secret?”

PH: I’m pretty lucky because I have a “high happiness” set point. When bad stuff happens, I just move on. I realize this isn’t the case for many, so I am very grateful to have been built like this—it likely is part of the reason I’ve been able to take so many risks and last in the investment world as long as I have. I remember in 7th grade the headmistress at my school saying something like: “You just happily bounce along. You need to have more angst about things, Pamela.” I remember thinking that was the most ridiculous thing I’d ever heard. I bounced off, and, from what I can tell, I was right to ignore her advice.

An Interview with Sun Capital Partners’ Managing Director, Matthew Garff

Within the first few minutes of my conversation with Matthew Garff, two things became crystal clear: He fundamentally believes in what’s possible and he approaches potential problems with radical honesty. This is a personal as well as professional attitude and has served him well throughout the course of his three decades career.

While the last two years have often felt like a mission impossible, Garff and the team at Sun Capital Partners (perhaps the name of the firm says it all?) remained a bright light for their portfolio companies, traversing uncharted territory and ultimately coming out ahead—mostly due to their investment strategy of focusing energy and resources on industries they know well, and a commitment to the people side of their founder and/or family-owned businesses. In his words: “Human capital is the most valuable asset in most companies, and people enable what’s possible. They are what ultimately make it successful.”

From working with founder-owned companies and prioritizing the Chief HR role to assessing acquisition targets through operational due diligence, in this interview, Garff reveals insights into how he thinks about the future of private equity and why that narrative needs a reboot. I couldn’t have said it better myself! Spoiler alert: although he spent several years of his career acquiring golf courses, his son is the real expert on the sport now.

Sean Mooney: Why is the due diligence process so vital to the acquisition or add-on process when assessing a company’s potential?

Matthew Garff: When we acquire a business, the company often needs help understanding what’s possible—far beyond what has already been accomplished. Generally speaking, with founder or family-owned businesses, they have had their heads down for a long time, grinding it out; so, when they engage with us our first objective is to try to uncover (or help management reach) the “possible.” The due diligence process allows us to understand where the business could be performing three to five years from now.

A good example is our portfolio company National Tree. It was a second-generation, family-owned business and a market leader in selling seasonal home decor through online marketplaces like Amazon and Wayfair. They had over a decade of experience working with these online marketplaces built a market leadership position in their niche products, which we learned through diligence would continue to grow. We also recognized their capabilities in sourcing and dropshipping products. With these core strengths, we saw an opportunity to leverage these skills and expand into tertiary markets, which National Tree is now doing.

As a result of our findings, and our roadmap for achieving what’s possible, in the last two years the company has experienced tremendous progress—they have added executive team members, instituted new operational systems and disciplines, and opened the door to add-on opportunities that will expand product categories and accelerate growth.

A nod to BluWave here: you helped us with FP&A resources that worked with us for several months after closing. This was an integral part of what we are now seeing in terms of National Tree’s expansion and continued market leadership.

SM: How is the process different when working with a founder- or family-owned business?

MG: I’d say the major difference is ensuring that there is a smooth transition from a cultural perspective. Typically, these founders and family owners are very attached to the business and even though they want to evolve and grow—which is why they partner with Sun Capital—they are seeing a lot of change happen to what they built, and that can be difficult. We collaborate with them on the “Shared Vision Plan” to ensure we are aligned in every way on the strategic direction and that they are on board with the changes.

SM: What are some of the obstacles the industry is facing?

MG: The industry is really healthy and the capital and know-how from PE is very constructive.  However, too often I hear the pervading narrative that “PE is a destructive force in business through leveraging businesses.” The biggest obstacle we currently face is a negative perception of the industry, touted by those who have a public voice but choose to focus on the failed companies which were owned by private equity. The truth is, many private equity investments provide wealth creation for families, fuel innovation, and enable the economic growth engine.

I always say that these detractors offer a view of PE that’s akin to someone from another country visiting Los Angeles for the first time on the one day of the year when it actually rains. Then, they go back to their friends and say: “Ha! I knew it. Los Angeles isn’t sunny, it rains every day!”

SM: What are some of the factors driving the momentum in the industry?

MG: In general, buyers are now more specialized by industry, and this makes them more informed. At our firm, we adopted the “focused industry” approach many years ago, and as a result, we are more refined in our thinking and decisions. This is good for sellers because they can find an investor-partner who understands the nuances of their particular business and industry.

I’ll use National Tree again, to give a clear-cut example of how this specialized approach benefits both parties. Currently, I spend most of my time in consumer and digital commerce. When National Tree had a rough patch with Wayfair, I picked up the phone and called my relationship at Wayfair. Within days, the problem was solved. In short: specialization supports the momentum we are now seeing industry-wide.

SM: How do you think about human capital when it comes to acquiring and managing portfolio companies?

MG: I believe human capital is one of the most valuable assets of any successful company. End of story. Several years ago, we wanted to increase the attention our portfolio companies were giving to human capital. As a solution, we put in place a strategy to have our portfolio companies hire a Chief HR Officer—a role that drives strategic thinking, fundamental change through processes, and design efficiencies. This person’s role is to think strategically about the business, then marry that strategic thinking with decision-making around human capital. He or she understands long-term objectives and implements a hiring strategy to meet these objectives. It was a game-changer for our companies and enabled us to swiftly drive change and make money for the shareholders.

If we are considering a company for acquisition, one of the key components of “HR diligence” is seeing if they have this role filled. If they do, it signals they are proactive versus reactive. Unfortunately, most companies are extremely reactive, but we’ve come to understand that having a Chief HR Officer is a core part of the business strategy. It’s not always easy to fill this role, because HR is too often put in a reactive role. But the HR function needs to be elevated to someone who can ask questions like: “Is there a hiring strategy and plan for who we hire six months to a year from now.”

SM: Many companies are going through hiring and recruiting challenges. How is Sun Capital helping support your portcos to this end, and what are some of the suggested solutions?

MG: We have long understood that strong cultures lead to strong performance. As a regular practice, we conduct surveys at our companies and measure the results. This is the only way to improve on it. When we are looking at companies to buy, or even when we visit our portfolio companies, culture is a key focus because it can make the difference in terms of hiring and retaining top talent; and having the most capable, skilled employees leads to better performance.

As an example, I was visiting a prospective company a few weeks ago, and as we walked the warehouse the employees were eagerly coming up to our tour guide, a company executive. They were saying hello, high-fiving, and seeking his attention. It became immediately clear that the company had a strong culture, and when we did some more digging we found that turnover was low and profitability high. This strong, healthy culture we witnessed first-hand also translated to strong performance.

While recruiting is certainly more of a heavy lift right now, I always remind our portfolio company leaders that employees need to understand the vision, and they need to know everyone—including managers and executives—are rowing in the same direction. When an employee feels like “our mission statement is ‘X’ but no one seems to follow it” this undermines culture, and can have negative consequences (not to mention high costs).

As a slight aside, the founders and Co-CEOs of Sun Capital have developed our company culture around the concept of radical honesty. In short, having honest conversations and being encouraged to voice our opinions is a core part of our DNA. This means everyone, from every level of our organization, is given the opportunity to be heard.

SM: Are there any industries that are being overlooked by PE firms right now? If so, why do you think that is?

MG: Successful investors often exhibit the quality of being open-minded and avoiding the temptation of the crowd, because the crowd is not always correct. For example, at present “brick and mortar” businesses are viewed as unfavorable, and in some cases, this is deserved. But many retailers that have strong underlying businesses will stand the test of time.

We recently acquired a mattress retailer called Mancini’s Sleepworld. For the last few years, the conventional thinking has been that online mattress retailers like Casper would push traditional retailers out of business. As it turns out, the opposite has been true; Casper now has physical stores, because customers actually want to “try before they buy.” By the way, Mancini’s is doing great and we expect this trend to continue.

Sun Capital has been a successful early adopter in other industries that may seem out of favor. Fortunately, this has allowed us to exit at higher multiples than we entered in areas like HVAC, produce, and contract manufacturing. While we do spend ample time deliberating the merits of a business based on industry trends, we try to stay open-minded based on a variety of other factors and be aware of what we see happening at a personal, local, and community level.

SM: Given all your past investment focus on golf courses do you have a favorite?

MG: If I’m being radically honest (I knew that would come back to bite me), I’m not a good golfer, and I really don’t get on the course much anymore. However, my 16-year-old son is an avid golfer, so when he asks me to join I generally take him up on the offer—it’s often the only time I get to spend with him. We recently spent a day at Rancho Park in Westwood (Los Angeles, CA), and apparently, it has the most traffic of any golf course in America. I was obviously thrilled with so many onlookers, given my current trend of 120+ strokes.

An Expert Interview with RecruitingDaily’s William Tincup

Arlington, Texas-based William Tincup is currently the President and Editor-at-Large of RecruitingDaily, one of the leading content publishers and conference organizers in the HR and “People” space. He stands firmly at the intersection of HR and technology and wears multiple hats as a seasoned writer, speaker, advisor, and consultant to hundreds of companies. His latest creative endeavor is hosting Recruiting Daily’s “Use Case” podcast, where he interviews executives from across various industries including our CEO, Sean Mooney and gets them talking about everything from launching companies and managing employees to their greatest successes and most profound failures.  

To keep himself otherwise occupied and “feeling useful” (his words), Tincup serves on the Board of Advisors for companies like CloversMojoRankDiverselySkillsetGeescoreSturdyAIWork4, and SmartRecruiters. He’s an active advisor and mentor with The Workplace Accelerator (Southeast Asia) ATK LABS (Israel) and Talent Tech Labs (New York City). In 2020, while the rest of us were trying to adjust to Zoom fatigue and mask mandates, he was actively advising three acquired companies: Altru, sold to iCIMS Q4 2020; Talentegy, sold to Jobvite Q3 2020; and Hyphen, sold to Betterworks Q1 2020. Let’s not forget he was also a board member of Talentegy, a company sold to Jobvite Q3 2020.  

Suppose that doesn’t send your head spinning and also wondering what this Texan is eating for breakfast. In that case, rest-assured Tincup is less concerned with tooting his own horn and more focused on helping HR and talent acquisition (TA) professionals navigate uncharted waters—particularly in the wake of the pandemic and shifting cultural tides. His knowledge of everything from what candidates want from jobs to the importance of interim executives is worth listening to, if not ripping out several pages from his book.  

Kyle Johnson: Tell me about your journey to RecruitingDaily.

William Tincup: I fell in love with HR while in business school, specializing in marketing. My first entrepreneurial endeavor was a web development agency; I later co-founded a full-service advertising agency. While at the ad agency (then called Starr Tincup, now The Starr Conspiracy), we specialized in helping vendors and service providers market to HR & TA specialists. Essentially, we learned what worked and didn’t work when marketing to these practitioners. While doing so, I was the partner in charge of everything HR & TA for the agency. The deeper I got into it, the more I fell in love with the profession. In 2010, I was lucky enough to sell my equity to my business partner, and then I shifted my focus to HR & TA full time.  

I started by consulting vendors and practitioners in change management and user adoption of HR & TA software. I did that for a few years and loved it—I worked equally for both vendors and practitioners, solving real problems. Then, I decided to dig deeper into primary market research to learn more about implementations, user adoption, and vendor selection. After learning so much from the folks in the trenches and further expanding my knowledge base, I joined the team at RecruitingDaily to build the events and training business. In my current role, I get to talk with vendors and practitioners every single day. It’s incredible because I continually gain insights into where they see the world similarly and differently. 

KJ: What is the number one thing you see people searching for right now regarding types of jobs and work?

WT: In short, “something new.” More specifically, candidates who were fortunate enough to be employed during the pandemic but unfortunate enough to deal with the constant disruption and stress are now coming up for air and looking around for new adventures. In tandem with this “fancy shiny object” job search, most candidates learned that much of their knowledge and skills could be effectively managed remotely. That’s a game-changer. Once people figured out they could live in Park City, Utah while working for a company based in New York City, many of them made substantial lifestyle changes to strike that elusive life balance. It almost gave people permission to shed old norms and start fresh. They went from thinking, “I’m going to be stuck in an office for the rest of my life,” to “holy cow, I can work on the ski slopes!” 

Data certainly supports this new mindset: candidates are searching Indeed, Hired, ZipRecruiter, and company career pages using the words “remote” and “remote work.” They aren’t wasting time applying to jobs that don’t support their new ideal career. My take on this is simple: organizations that support remote work and its flexibility will win over those who choose not to. Talented people are going to work the way they want to work.  

KJ: Talk a bit about Critical versus Important talent and the implications of both in getting the right talent in place?

WT: HR & TA has historically looked at talent through the lens of 80/20, meaning 80% of the value of any given organization is derived from 20% of the workforce. That would be essentially the “critical” talent. Important would be everyone else. When I interact with investors, they tend to use the lens of 90/10, which is an even harsher way to think of critical talent versus important (or necessary) talent. Again, this is a historical view of talent. This has been the way we’ve viewed succession planning, training for high potentials, executive search, and more.  

I think we’ve got to update our worldview when it comes to talent; not only do we need to focus more on skills, but skills needed at that particular time. Just as manufacturers look at “just in time” production, we need to think about talent from that perspective. What skills do we need right now, this moment, this hour, and this week, for this project? It becomes less of a game of what you’ve done in the past and how relevant your skills are right now. Genuinely talented people will always push themselves to acquire new and most relevant skills. So, some of the same people will be on the list as if nothing changed from the history lesson above, but other folks that didn’t have a certain pedigree, skill color, gender, etc. but DO HAVE the critical skills needed will find themselves on the list. Having scarce and vital skills is now how you separate yourself from everyone else.    

KJ: From your vantage point, what keeps HR up at night?

WT: It comes down to three things: (1) what is/isn’t “hybrid” and how do they do work, (2) how do they effectively attract talent, and (3) how do they effectively retain talent? Let’s unpack each of those: 

#1—No HR leader knows how the hybrid workforce will look in the future. It’s all guesswork at this point. COVID forced us to rethink the workplace. We were already tracking towards remote work; the pandemic expedited the process. With other variants likely to come, no one knows when a safe return to the office will happen or if it will happen. This leads me to the next exciting aspect of hybrid work: the emerging concept of “everyone returns to the office” versus “I want to work remotely forever,” which are purposely opposites, but that’s what HR is dealing with right now and in the near future. How do they effectively navigate “radical flexibility” with all talent? Talent will ultimately decide where and how they work in an outcomes-based environment (read: knowledge working jobs). 

#2—Talent attraction, acquisition, and recruiting have become more challenging as the talent is now empowered to ask tougher questions. The table stakes have changed. Let’s say you have a great culture. Well, that’s fantastic; but how did your firm respond during COVID? Did you furlough or lay off anyone? If so, have they been hired back? If not, why and what kind of package did you give them to get through the pandemic? That is a primary candidate question thread. Then comes the more complex stuff with questions about DIBEE (diversity, inclusion, belonging, equity, equality), social justice, remote work, and transparency, to list a few. So, the job of a great recruiter got harder. Don’t cry for Argentina; the best TA pros are highly compensated and in short supply. That just made things interesting. Hiring a TA leader pre-COVID was not impossible—indeed, not as hard as placing a data scientist or software engineer, but it’s getting real close to impossible at this point. Candidates’ needs have changed, as I’ve already noted. Recruiters’ needs have also changed. Companies that recognize this will work hard to retain the best recruiters. 

#3—With retention, there are NO RULES. Do whatever you must to keep talented people. Whatever it takes. Turnover isn’t a curse word. Trees die in any given forest every single day. What you and your team should be focused on is “regrettable turnover.” Regrettable, meaning talent you wanted to keep but were unable to keep for whatever reason. How do you stop the bleeding of regrettable turnover? A few helpful hints: communicate that you value them, recognize the value they bring to the organization, find out what’s important to them and do your best to fulfill it, compensate them above market, conduct monthly stay interviews, and offer them continuous training. You get it. Do whatever it takes to learn what drives them, and then do whatever it takes to keep them engaged. No one wants to talk about it, but this is singularly the most essential thing HR does for a firm. Retention of top talent is the job. Get great at it quickly! 

KJ: Why do you think interim talent and experts are such a vital component of the workforce right now?

WT: A few things to consider here, (1) expertise is earned, (2) it turns out B12 is a good idea. Let’s explore… 

Throughout one’s career, we gather all kinds of experiences. Good, bad, historical successes and failures, and we should tap folks that have been there and done that. It doesn’t mean that we’ll do it exactly the way they have, but it could help us avoid simple mistakes. For instance, an HR leader that’s been a part of 20 union contract negotiations would be great to have at the table as we navigate a new deal with our union workers. That person can give us insight into things we don’t know and learn fast enough to impact the new contract. So, experts are vital. Early in my career, I was advised by a highly successful oilman in Dallas. I asked him over coffee, “what was the key to your success?” He responded, “simple, I let experts be experts.” Simple advice, but you’d be amazed at how many executives hire experts and summarily disregard their advice. Kidding not kidding. 

That might not be immediately recognizable in terms of the B12 reference, but interim talent is like a shot of B12. If you’ve ever had a shot of this stuff, you almost immediately feel better. Interim talent is a lot like that—new eyes on old problems. A new set of eyes can see things that might even be obvious, but the previous folks didn’t reconcile for whatever reason. Interim talent also doesn’t necessarily have to play by the same rules nor play politics. They’ve been hired to an interim capacity to fix things. If you’re a Pulp Fiction fan, Mr. Wolf is an excellent example of interim leadership. All the other guys could have probably figured out what to do, but Mr. Wolf had been there and done that. He had a plan and communicated effectively. Problem fixed. Interim talent is an excellent way to invigorate or reinvigorate a team and organization like a shot of B12.

KJ: What question should I have asked you but didn’t?

WT: Well, you asked great questions, but I think I’d be remiss if I didn’t mention the recent decision by the SEC to include workforce data in publicly traded companies’ earnings calls. It’s new but has been in the works for over a decade. It will be weird at first, but I see it as an excellent opportunity for HR & TA leaders. If our house isn’t in order, now is a great time to get it in order. It’s pretty simple when the SEC says something is noteworthy, Wall Street listens. What happens on Wall Street eventually makes it to Main Street. So, if you’re not studying the new regulations, you might want to burn some hours learning what is required to be reported. I mention this not to scare anyone; think about the tremendous opportunity that’s been granted to those responsible for talent.  

An Interview with Great Range Capital’s Ryan Sprott

Ryan Sprott and Paul Maxwell aren’t your typical brothers-in-law. Instead of solely cavorting during family vacations, holiday meals, and the occasional couples trips, they went all in and founded a company together. After working in New York’s private equity industry for nearly two decades, the two entrepreneurs moved their families back to Kansas City to launch Great Range Capital in 2010. Their mission: to serve the neglected but vital demographic of Heartland family- and founder-owned companies. In 2011, they signed their first deal. 

“We have a unique combination of institutional-grade experience and Midwest values—basics we learned from our parents, teachers, and coaches,” says Sprott. “We see our investments as long-term partnerships with people who share these values, are community-oriented, and whose businesses are integral job-creators in the cities and regions where they operate.” 

In other words, Great Range Capital is fueling the classic American Dream writ large. I sat down with Sprott to get his take on the Midwestern difference, the challenges of due diligence, and what excites him most about investing in oft-overlooked Heartland companies. 

Sean Mooney: What is your investment thesis and main area of focus in terms of investment types?

Ryan Sprott: We are mainly focused on buying family companies, typically 3M to 15M in EBITDA, that have never been through an acquisition. We usually look for companies and sellers that value intangibles like a deep desire to embrace culture or family legacy, do right by the small town, and maintain the loyal customer base. In other words, Great Range can bring institutional PE and operating experience, but we’re always looking at the people behind the companies—the ones who make those companies exceptional—not just the market opportunity.  

In terms of investment types, we cast a wide net. But due to our geographic location, we are well-positioned to pursue deals in manufacturing, transportation, business and industrial services, food and beverage, and essential consumer goods. 

SM: What is the most challenging aspect of the due diligence process when vetting a potential purchase?

RS: Validating the people is always the hardest part because it’s difficult to really understand someone’s motivation, capabilities, and modus operandi through limited interaction or merely through references. It’s often hard to know if someone has high integrity until you really get to know them and spend significant time with them and their teams. And there are certainly challenges to predicting if or how someone will change once they have money in their pocket. Gratefully, for the deals we do in the lower to middle market, we have more time to get to know the founders prior to investing.  

Additionally, because we aren’t looking at deals where a wealth of industry analyses exist, understanding the market dynamics, opportunities, and threats, poses another challenge. This is when we call BluWave. You help us find experts who can do a deep dive and develop a plan to execute afterward. Whenever we hit a roadblock and can’t figure out a solution, BluWave is often our first line of defense—not only for diligence, but also for IT, implementation plans, finding great industry executives, and connecting with specific industry resources.   

SM: Is there one overriding success story (in terms of one of your investments) since the inception of Great Range Capital? If so, what did that look like?

RS: True to our Midwest focus, our biggest “win” to date is the aptly named HeartLand, a commercial landscaping company that did its first acquisition in Kansas City. Like most of our success stories, having great people is the key. HeartLand continues to be led by great executives who are passionate about the industry, have a vision for the business, and are committed to doing things the right way.   

Through the course of our ownership, we did a total of nine acquisitions and partnered with outstanding leaders who were laser-focused on culture and exemplary customer service. We invested heavily in business development early on. This led to high organic growth and enabled HeartLand to create tremendous value very quickly. People are central to the success of any services-based business, so in prioritizing that aspect and building on HeartLand’s solid reputation, the returns were outsized.  

SM: What are some of the key characteristics of Midwest companies versus other parts of the country?

RS: While the business models themselves don’t vary from the coasts, per se, the core characteristics of the businesses can be different. Broadly speaking, the Midwest values of loyalty, transparency, and hard work ring true. There isn’t a lot of “fluff.” Company owners have a tendency to focus intensely on their people—both internally (employees) and externally (customers). We notice that most of these founders are looking to find the win-win, rather than win-lose. They want their families and communities to benefit from their success. A majority of the time the companies we invest in are integral job creators in their cities and towns, so it feels more like a “rising tide lifts all ships” scenario than “winner takes all.” 

SM: You’ve said that private equity is a core part of fueling the American entrepreneurial dream. What do you mean by that?

RS: Many of GRC’s portfolio companies were bootstrapped through sheer grit and their knowledge of a very specific industry, product, or service. Sometimes as companies get larger they stop taking the risks that fueled their growth, their leaders get consumed by the relentless daily demands of running a company, or they get comfortable with the income being “good enough.” But when private equity investors come into the picture and provide capital and strategic support, the leaders can once again focus on taking risks and innovating—partly due to the liquidity provided to the owners who may have had most of their wealth tied up in the business.  As a PE fund, we’re investing in new territories, new people, and new channels. All of these investments ideally lead to higher growth, more jobs, and more equity for everyone.   

SM: In your opinion, what makes a great leader?

RS: I’m a big fan of leadership by example—treating people fairly, communicating openly, and being willing to do the hard work and roll up your sleeves. That’s probably table stakes for a high-growth company. But someone who can set a clear vision for where a company should go and then execute on it while getting everyone to buy in—that’s the sign of an excellent leader.   

SM: Ok, I have one last, very important question: Is the BBQ in Kansas City really that good?

RS: Transparently, loyally, and no BS (because that’s how we do things around here) … YES. It really is! 

An Interview with Trivest Managing Partner Troy Templeton

At first glance, Troy Templeton is a stereotypical private equity managing partner demonized by the click-bait driven media machine and industry detractors as “people in charge of thrashing companies only to fill Steven Schwarzman’s pockets.” Is part of his role at Trivest to make money? Of course, because that is the role of any business. But when I spoke to Troy—who joined the “oldest private equity firm in the Southeastern United States” in 1989—he told quite a different story than the general public is used to seeing in the headlines.

From his “Just Say No” philosophy to Trivest’s proven “Path to 3x” methodology, Troy considers his main job as the firm’s leader to be “acting as a steward of any business we put its dollars into”; thus, preserving the positive aspects of the culture and providing incentives for founders to take their business to the next level instead of cashing out to fulfill their childhood dream of racing cars (which some inevitably do). With all the disruption happening around us, it’s nice to hear about those who value hard work, job creation, and stability over the long-term—while prioritizing high-growth and money-making. Perhaps this is the headline we should all strive to attain, despite the naysayers’ seeming grasp on the narrative.

Sean Mooney: I’ve heard you say “we run a business not a deal shop.” What do you mean by that?

Troy Templeton: From the beginning of Trivest (1981) the investment philosophy was always about finding good deals and working with companies to make them more valuable. At first, this meant doing a couple of deals a year. But over time, the realization was that we needed to build a scalable business model for PE, otherwise we would just be a deal shop. In order to consider ourselves a business, we worked on the three main components of an investment (deal sourcing, deal execution, and value creation), and put process, data, and strategy around each one of them to make it scalable.

SM: Any chance you will open the kimono on how this works, even on a high level?

TT: Well, for starters, in terms of deal sourcing: we used to source about 300 deals per year, which translates to roughly 25 a month. In June 2021 alone, we sourced 418 deals; and we will likely end up sourcing around 4,000 deals this year. That’s over 10x in deal sourcing compared to what it was with the old model. We’ve done that by investing heavily in this area, and almost 20% of our firm is comprised of business development professionals. We are not reliant on a single source of deals; instead, we source from multiple channels and have a strategy for finding opportunities in each of those channels. We no longer have to wait for good deals to find us because we are proactively going out with a dedicated team and finding them.

With regard to deal execution, it really comes down to differentiating in a crowded market. In other words: how can we convince an owner to choose us based on things other than price? Our model eliminates pain points for the seller with our “Just Say No” philosophy. This pertains to saying “no” to things like requiring them to reinvest proceeds, aggressive capital structures, requiring heavy debt burdens, escrow requirements, and indemnification or working capital adjustments. We want the seller to see us as stewards of their life achievement. We want to be fair and transparent where both parties feel good afterward.

Lastly, it’s about value creation. This is what PE is all about. In public markets just 4% of public companies triple their value over a five-year period; but 75% of Trivest companies triple their value over five years. This value creation process is called the “Path to 3x.” Every company has six areas of focus: category of one (differentiate), management, measure what matters, organic growth strategy, acquisition strategy, benchmarks to measure against greatest companies. If we can work with a company to align and execute on these areas, that is where the real value is created, and ultimately money is made.

SM: If you’re a founder-owned business considering private equity as a path for expansion and growth, what are the most important questions to ask potential PE investors?

TT: The first question is “will I have to reinvest?” Not all founders will want to do this, but they never ask the question upfront. We had a very successful investment (it was a 10x deal) where three of the key players wanted to reinvest nothing. They wanted a 90-day “out” plan so they could go race cars. Most PE funds wouldn’t invest in this situation, because for the most part, they want founders to reinvest.

The second question is “will I receive 100% of the purchase price at closing?” This question is important from a deal perspective. The devil is in the details, and some term sheets will require all these costs (escrows, working capital adjustments, seller note, earn-out, etc.) that will lower the purchase price significantly. Owners should understand what they will get at close.

I also think owners have a responsibility to ensure their company has a proper chance to succeed, and it shouldn’t be just about the seller maximizing value. An owner should be asking themselves whether the company will be better off five years from now if we do this deal. So, this translates to the third question: “how much debt is going to be on my business moving forward?” Businesses fluctuate, and if an appropriate capital structure is not in place for the company to help it weather whatever storms occur over the next several years, then both the buyer and seller lose. To avoid this, Trivest has a policy of only using senior debt and no more than 3x of operating cash flow.

SM: Have any investments you’ve made outperformed your expectations? How and why?

TT: We purchased a small plumbing business in Kentucky about four years ago and used the “Path to 3x” to build it up significantly through roughly 15 add-ons. During the pandemic, the business started thriving. With each add-on, the founders remained in place after they sold. We minted over 20 people becoming millionaires: this was a life-changing event for most of them. Additionally, 100 employees were shareholders—since we believe strongly in bringing as many employees into the equity of the business as possible. It was such an amazing thing to witness and play a role in, as this isn’t something you normally see in a privately held business.

SM: In terms of “Topgrading”—a term that simply means ensuring the right people are in place—how do expert, third-party resources play into that?

TT: The key to Topgrading isn’t just about the CEO and C-level. It’s also about the next two layers below the C-suite. This is where you can make a dramatic difference, but unfortunately, far too many companies don’t focus on it. I think this is why Trivest has been growing so quickly, because we’ve used this concept in our own company, and it works! Our business development team is filled with great people who “own” their function, and as a result we’ve been able to build a culture of success around it. For any organization, this is an important part of overall company health. While leadership has to come from the top, if you don’t empower other levels of the organization to thrive, then you essentially build a layer of dependency into the process. When that happens, it becomes nearly impossible to scale.

SM: Add-on acquisitions are a core part of the Trivest playbook. In your opinion, what are a few elements that ensure a smooth transition and integration process?

TT: We’ve done about 75 in the past couple of years. Truthfully, some worked and some didn’t—but that’s all part of the risk portion of being an investor. Here’s what we’ve learned:

First up, there has to be a business fit. A lot of people will buy companies when there isn’t a reason for the companies to be together. It’s just about size and irrelevant to the core business; you see this a lot with tech companies. In addition to business fit, there also has to be a cultural fit.

Second, communication must be prioritized in order for the integration to work. You have to be transparent, otherwise, people will think the worst about what’s going to happen (read: they think they are going to get fired). This uncertainty leads to poor performance, and ultimately, people leaving whether this was part of the plan or not.

Third, and likely most importantly: you need a “butt on the line.” Someone has to be responsible for the transition, and you need a dedicated resource to be held accountable for any missed opportunities or failures (and successes too).

SM: If private equity didn’t exist, what would the economy look like?

TT: This may seem hyperbolic, but (especially after 2020) it would be in shambles. Private equity is a key component of liquidity, and a key buyer in every major, essential industry. If PE didn’t exist, founder and/or family-owned businesses could only sell to strategics or a management team. You’d have more public companies, which on average perform poorly compared to PE-backed companies—as I noted earlier. The focus may largely be on cost savings and making money, and wouldn’t necessarily account for people or culture. In short: there would be fewer options for selling, with worse outcomes for the companies post the sale.

Also, to wit, you never hear about the other side of the PE-equation: what these companies we invest in do for their families, communities, and partners. Most founders who realize their life’s goal by selling their business don’t immediately go out and buy a yacht and a new mansion, rather—they typically invest in other companies, provide security for their families and become much more philanthropic. Yes, sometimes they pursue their hobbies like racing cars…but that’s generally the exception and a small part of their overall net worth.

Without private equity, there would be no vehicle for most investors, large and small, to participate in the most vibrant and growing part of our economy—lower and middle-market companies. PE is an important growth engine of the economy, and the economy wouldn’t be nearly as robust.

SM: What is one thing you wish everyone understood about private equity?

TT: I wish everyone would think of us like the Meghan Trainor song “It’s all about that bass”—except for us it’s: “It’s all about that growth.” If we are growing, then our companies are going to do well. From the frontline workers to the founder to the investor, it’s a win-win. Money is simply a byproduct of being a good steward and helping a company grow. [drops the mic]

An Interview with Riveter Capital Founder Colleen Gurda

Anyone who has spent a significant amount of time in the private equity industry understands how difficult it is to “disrupt” the space. This has less to do with a lack of desire and more to do with the heaviness of the lift: being an innovator or a market leader is not for the faint of heart. But as we are discovering, after a year that rocked the globe and upended many aspects of our lives, now is the time to make strides and truly challenge the status quo. 

For Colleen Gurda and her partner Sarah Abdel-Razek, they embraced the economic contraction and shifting tides of 2020 by founding New York-based fund, Riveter Capital. Passionate about supporting women and minority-owned or led businesses in the lower middle market, they built their thesis around this underserved demographic and are on the hunt for quality founder- and family-owned businesses to partner with.  

Case in point: When I hopped on a call to discuss everything from entrepreneurship to diversity to fractional talent, Colleen opened with: “It’s a little hectic today, we have three LOIs going out, so I’ll talk fast.” Her enthusiasm and passion are clear, and I have no doubt you’ll find her take on the future of PE to be filled with hope, realistic insights, and food for thought. 

Sean Mooney: What was the genesis of Riveter?

Colleen Gurda: Having spent the majority of my career in a male-dominated industry, I knew the specific challenges many women in positions similar to mine faced—as well as the opportunities to do things differently. I’d been thinking about how I could combine my passion for women in business with my skillset, so when the pandemic hit and all these businesses owned by women and minorities were being disproportionately affected, I knew it was time to make the jump.  

Women represent so many small businesses, but they don’t have access to capital. My partner and I saw a huge market gap in the PE world for these types of businesses in the $1M to $5M EBITDA range. We essentially close the “access to capital” gap, while realizing good returns for our investors. 

SM: How did you overcome any “fears” about stepping out on your own and becoming an entrepreneur?

CG: I’ve always had an entrepreneurial itch but wanted to make sure I had the experience and credentials to be successful. After 15 years of investment banking and investing experience, I finally felt like I had the necessary tools to go out on my own. Having a partner in crime (Sarah) was also really important—both of us had the same vision yet complementary skillsets and the mutual support made the decision much easier.  

Beyond that, during my years at other investment firms, I saw my peers moving upmarket only. So, I knew, from a competitive perspective, there was a chance to do smaller deals but have an outsized impact. The path to revenue growth was wide open and not oversaturated; this gave Sarah and me the confidence to test the thesis without the cost of having to outpace a lot of competition. 

SM: You invest in minority-owned/managed businesses, but can you talk a bit more about your criteria for choosing companies in which to invest?

CG: Our core focus is women and minority-owned and/or managed businesses. Right now, we are focused on companies with $10M+ revenue with $1M to $5M EBITDA in the areas of business services, manufacturing, consumer/retail, and healthcare services—although that will likely expand in the future. We are mostly interested in buyouts, founder ownership transitions, recapitalizations, growth and acquisitions, and rollup strategies. Beyond the leadership criteria, we look for fairly standard industry things like proven business models in stable industries, a strong value proposition, high free cash flow, and an identifiable value creation plan. 

SM: Any examples of how a company you’ve been involved with saw positive economic impact by leaning into the idea of building a diverse workforce?

CG: We were recently involved with a waste management company specializing in waste collection, processing, and recycling. The organization had very little diversity on the teams, particularly in leadership positions, and no formal HR strategy. Our investment thesis was to formalize all policies and procedures, then top grade the management team. After implementing our suggested changes, the company attracted a more diverse workforce, which in turn embraced the ‘professionalization’ of the company. This included the way the company related to and communicated with its diverse customer base. As a result, the company improved its margins, increased customer retention, and was better positioned to win larger contracts from commercial customers. 

SM: For middle market companies, why is access to fractional executives or specialized groups important?

CG: What we often see in the lower middle market are resource-constrained companies that can’t afford to build out a full team, or simply don’t have the bandwidth to manage growing their teams formally. At these companies, the CEO is also the COO and CFO, and probably more. Having access to episodic, expert teams and people is imperative for their growth.  

Companies, like BluWave for example, allow us to bridge the skill gap until our portfolio companies are ready to hire full-time executives. 

SM: What is one goal you have for 2021?

CG: As a fund, our goal is to prove the Riveter thesis, given there aren’t many (if any) firms out there doing what we are doing. We want to prove that there are really high-quality women and minority-owned or led businesses worth investing in, and that good returns are possible by looking at these largely underrepresented groups. While we do enjoy the fact that there isn’t much competition yet, I hope we inspire other investors to start thinking outside the box.