Episode 119
Two Decades of Investing in Franchise/Multi-Unit Businesses with CapitalSpring
Richard Fitzgerald, Co-Founder and Managing Partner at CapitalSpring, joins Sean Mooney to share the story behind one of the most enduring sector-focused firms in private equity. In a conversation that moves well beyond deal mechanics, Richard reflects on the early days of CapitalSpring, the value of sticking with a niche, and what it takes to build trust and alignment — across teams, LPs, and portfolio partners — over the long haul.
Episode Highlights:
1:07 – Richard’s path to private equity
7:53 – Building a sector-specialist investment firm with true competitive advantage
11:06 – We'd know Richard better if we knew this about him
18:27 – Working through hard things – navigating the pandemic
26:45 – The art of private equity in the franchise/multi-location sector – best practices
35:48 – Benefits of having a sector specialist franchisee investors for sponsors investing in franchisors
40:42 – Flexibility to provide both debt and equity solutions for growing businesses is a competitive advantage
43:05 – Richard’s advice for his 22 year-old-self
For more on CapitalSpring: https://www.capitalspring.com
To connect with Richard Fitzgerald: https://www.linkedin.com/in/fitzgeraldrichard
For more on Challenge Aspen: https://challengeaspen.org/
For more on the Michael J. Fox Foundation: https://www.michaeljfox.org/
Episode Highlights:
1:07 – Richard’s path to private equity
7:53 – Building a sector-specialist investment firm with true competitive advantage
11:06 – We'd know Richard better if we knew this about him
18:27 – Working through hard things – navigating the pandemic
26:45 – The art of private equity in the franchise/multi-location sector – best practices
35:48 – Benefits of having a sector specialist franchisee investors for sponsors investing in franchisors
40:42 – Flexibility to provide both debt and equity solutions for growing businesses is a competitive advantage
43:05 – Richard’s advice for his 22 year-old-self
For more on CapitalSpring: https://www.capitalspring.com
To connect with Richard Fitzgerald: https://www.linkedin.com/in/fitzgeraldrichard
For more on Challenge Aspen: https://challengeaspen.org/
For more on the Michael J. Fox Foundation: https://www.michaeljfox.org/
EPISODE TRANSCRIPT
[00:00:00] Sean Mooney: Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real-time trends. I'm Sean Mooney, BluWave’s, founder, and CEO. In this episode, we have a fantastic conversation with Richard Fitzgerald, co-founder and managing partner with CapitalSpring. Enjoy.
[00:00:34] I am really, really excited to be here today with Richard Fitzgerald. Richard, thanks for joining us. Happy to be here. Thanks for asking me to join the podcast as our listeners, I think on quite a few occasions, we'll appreciate. With a number of our guests, including Richard, there's gonna be some familiarity in this conversation.
[00:00:52] We probably have mutually assured destruction on each other going all the way back to business school together. We've known each other for quite some time, and so I've been looking forward to this for a whole host of reasons here. So once again, thanks for joining us today, Richard.
[00:01:06] Richard Fitzgerald: Absolutely. I'll save the stories for the next podcast.
[00:01:10] Sean Mooney: Let's jump into it. And for those of our listeners who haven't met Richard before, I. Everyone loves Richard for good reasons because he is one of the most genuine people you'll meet. And I mean that with absolute sincerity. But I'd love to jump in and for our listeners, Richard, hear more of the story of you.
[00:01:27] So can you tell us kinda where you grew up, kind of some experiences, college, and then ultimately your path to pe?
[00:01:33] Richard Fitzgerald: Yeah. I grew up in Nashville, Tennessee, which is where I live now. It's another story in itself is how Sean made it down to Nashville, an Austin. I grew up in Nashville. I was pretty entrepreneurial growing up.
[00:01:46] I was never one to find an hourly wage job. I always was trying to start a grass cutting business, sold Cutco knives one summer. I cleaned boats one summer. Anything where I could feel like I was my own boss. And that was kind of from an early age, something that I was thinking about. And as I thought about my careers way down the road, always thought of something entrepreneurial.
[00:02:10] I ended up going to college in Connecticut at Trinity College. As I neared graduation and, and realized I needed to start thinking about finding a job. Didn't really have any entrepreneurial ideas at the time. I kind of took the approach that I would put a list together of anybody I thought that I could talk into, grabbing a cup of coffee with me.
[00:02:28] And this was parents, friends, friends, parents, alums, teachers or TAs or just anybody I could get on this list. And I kind of posed the question to. I'm getting ready to graduate. I'm starting to think about my first job outta college. Um, I'm not sure what I want to do near term, but if you asked me now what I would like to be doing in 10 or 15 years, it would be something entrepreneurial.
[00:02:52] It'd be starting a company or getting into a small company or buying a small company and and growing it. That's kind of what I'd grown up doing in different flavors and summers. As I started kind of working through my list, I started to hear some kind of familiar, some of these. Going into any sort of business, maybe a training program, an investment banking training program would be a good start.
[00:03:14] You're gonna learn how to build financial models, put PowerPoints together, get coffee, make copies, all the good stuff. Work a lot of hours, which wasn't always that much fun, but it's a great kind of place to start in a career. And as I started getting this feedback from more and more people, I really focused my, uh, search on investment banking and was fortunate to get into a training program.
[00:03:36] And for those, I'm sure most people on this podcast kind of been similar path, but this is typically two, two and a half years where you go in and you're expected to work around the clock and be on call 24 hours a day. But it is a great training ground. By virtue of working a lot of hours, you get a lot of reps and financial modeling and PowerPoints and raising capital and learning about businesses.
[00:03:59] But you could go in without having to kind of fake it and say, this is what I wanna do for the rest of my life. You could go in and say, I think this is the best opportunity for me for the next few years. And that's very much how I approached it. My father was a commercial banker in Nashville lending to the healthcare industry.
[00:04:15] And while he was putting us through school and working very hard, I think he never really got a chance to do something entrepreneurial while I was going and working for a, an investment bank out of college. And. Getting some good training. It was never something I felt that I wanted to do for my career.
[00:04:30] As that program kind of wound down, I kinda went back to my list and added more names to the list, and I grabbed coffee or maybe a beer from time to time with these individuals and said, look, I've done this. This is what I've learned. I don't have an idea yet. I don't have a company I can go step into, or, what is the next step for me, in your opinion?
[00:04:50] That. Give me skills or experience that may improve the probability of success. When I do find that entrepreneurial idea. Now a lot of these people had been a similar path and I kept hearing private equity being a good next step. Kind of leverage the training you had from an investment bank. But instead of just working with companies and helping them raise capital or go public or raise debt, you go in and work with a company and once you, in investment banking, you kind of complete the project and they go on to grow and you go start with the next one.
[00:05:19] With private equity, the way I understood it at that point in time is you kind of buy these companies and you're with them for extended periods of time and sitting on their boards and trying to help them grow and grow the value of the investors' money that you invest in these businesses. So I thought that was a natural next step along the path to me being an entrepreneur.
[00:05:38] So I joined a kind, a small middle market private equity fund. It was.
[00:05:46] I was the only southerner in this group, and so as you can imagine, we had a lot of pitchbooks that came in for companies in small towns in Alabama and Georgia and Tennessee. And I would be asked to go fly down there and go fishing or whatever. Southerners do that. I think my colleagues weren't quite sure how you went over a, a management team that was in rural counties of these small southern states.
[00:06:09] But I would go down oftentimes fishing and farm ponds. Getting to know the CEOs or the CFOs of these family businesses that were considering selling or were for sale with a sole goal of trying to convince them that they should just sell to us and not hire an investment bank to run a broad auction, because I knew where that ended up with typically overpaying for an asset.
[00:06:28] So I would do this and I thought that I was good at it. 'cause oftentimes after two or three visits to these family run businesses, I would be sitting at a dinner table with their family. At their house and saying, look, my boss is gonna love this. Who invites somebody to dinner with their family that they're not gonna do a deal with?
[00:06:43] But time after time, I got a call two or three days later saying, we really like you guys. We think you'd be great partners. We've decided to hire X, Y, Z, middle market investment bank to do a quote unquote valuation assessment, which I really knew was code for. We're putting a PitchBook together, gonna be sent out to 400 middle market private equity firms just like you.
[00:07:03] And if you can outbid everyone. And I kept seeing this happening time and time again. So I stepped back and had a colleague that ultimately ended up being a business partner. We'd go to lunch once a week and kind of say, man, private equities just changed since the early eighties when it was lever these businesses up.
[00:07:18] Not a lot of competition, low hanging fruit, and make a ton of money. Now it was becoming more efficient. This was in the early two thousands. There were a thousand private equity funds at this point in time, everybody chasing the same deals. Every year that number was growing, and every year the amount of capital that was flowing into the private equity or alternatives asset class was growing as big institutions started kind of reorganizing their portfolios to include more alts.
[00:07:43] So we kind of stepped back and said, this is only gonna come more challenging and our jobs are only gonna get harder. If we had a clean slate and just were starting a firm from scratch, how would we build a firm that had a true competitive advantage? So we stepped back and kind of started studying and mapping out the private equity industry. Started looking at firms that we thought oftentimes won competitive situations when they weren't the highest price.
[00:08:07] And those were often situations where they were a sector specialist. And so if you think about it, if you're the hottest tech company in the world and you get a hundred term sheets for a capital raise, and Sequoia or Kleiner Perkins is on the top of one or two of those, you're probably gonna pay attention.
[00:08:21] Those types of firms, those specialists, they had a true competitive advantage. They would have management teams gravitate towards them because of their perceived expertise or or experience in that particular industry. So we said, well, that's a good way to think about building something from scratch sector specialization.
[00:08:38] I thought often sector specialists did have true competitive advantage.
[00:08:42] If we're gonna start a sector specialist, let's go for sectors that are interesting and attractive and may have a good investment thesis you could around, but specialists chasing. Look no further than Main Street of every town. Often the towns we were looking at, we were visiting, looking at these little companies in rural communities.
[00:09:00] And every town seemed to have McDonald's or a Dunking Donuts or a Mr. Car Wash, or a Planet Fitness. Like these were multi-location branded businesses that were kind of part of people's daily routines. And while they may have been regional or national brands, they often had local ownership 'cause they were a franchise model or maybe a regional corporate owned model.
[00:09:20] We couldn't find anybody that was really focused on this. This was the early two thousands. And so to have a, an industry or a, a segment that was that big, that was literally different color neon signs on every main street of every town, big or small across the United States, that we couldn't clearly identify a sector specialist.
[00:09:36] That kind of peaked our interest and we started kind of digging in and saying, look, if we could be the Kleiner Perkins or the Sequoia of this segment, that could be really maybe a way to build something differed.
[00:09:48] In oh five, we, we launched CapitalSpring. While we were in business school, actually, I felt business school was a great opportunity to bounce ideas off colleagues and teachers and start to raise a little money. We started with a $3 million pool of capital, which is laughable.
[00:10:01] Our first deal, we learned a lot of lessons. We've learned a lot of lessons over the years, but just hit our 20 year anniversary. We've done 300 deals, invested about $4 billion and almost a hundred different either franchised or non-franchise brands and franchisees. So.
[00:10:17] Sean Mooney: Hey, as a quick interlude, this is Sean here.
[00:10:20] Wanted to address one quick question that we regularly get. We often get people who show up at our website, call our account executives and say, Hey, I'm not private equity. Can I still use BluWave to get connected with resources? I. And the short answer is yes. Even though we're mostly and largely used by hundreds of private equity firms, thousands of their portfolio company leaders, every day we get calls from everyday top proactive business leaders at public companies, independent companies, family companies.
[00:10:47] So absolutely you can use this as well. If you want to use the exact same resources that are trusted in being deployed and perfectly calibrated for your business needs, give us a call. Visit our website@BluWave.net. Thanks. Back to the episode.
[00:11:06] I love so much about your story there, Richard, and one, I think one common thread is the kids in PE are often the kids who had the boat cleaning business or the landscaping business, or you name it. You can see kind of the seeds that are growing into what became later in life. But what I've always appreciated and appreciate about you, Richard, as well, is.
[00:11:29] This kind of extreme curiosity. And so I always knew you to someone to just talk with lots of people to understand the way that world works. And one of my shortcomings, I think when I was coming up, it was like, it was almost, in some ways, in certain parts of New York PE you're supposed to know everything.
[00:11:45] And so you kind of keep your head down quietly. This is like early Google days even. You're like, oh, I gotta figure this out. But you are such a great super connector and bringer together of people, but also it's the kind of the, the line. We're all born with two ears and one mouth for a reason. You listen really deeply in things.
[00:12:05] So I remember those early days when we were at Columbia together and there was a little cadre of us, whether it was Chris, you, Jeff, me. There were some of us in middle market pe and we would get together and kind of complain over a beer like, and we were like, oh my gosh, this is getting so hard. And the difference was we would go back to our PE firms.
[00:12:27] You actually took action and started something on the way that you thought that it could and should and would be, and I give you a lot of credit for that because taking that leap, it's scary as heck.
[00:12:39] Richard Fitzgerald: It still is. Yeah. Yeah. In some environments, for sure.
[00:12:42] Sean Mooney: But it's interesting, even like you think within the skunk works of what we all did, we all kind of migrated from these firms that were maybe where we were.
[00:12:51] Into maybe other firms that were a little bit more specialized or focused in certain areas or founded things. But I gave you a lot of credit. Like you're like, no, I'm gonna create this thing from ground zero. And I didn't make that leap myself until like years later when I finally got crazy enough to do BluWave.
[00:13:07] But it was more of the picks and shovels play than the Yeah, I love it.
[00:13:10] Richard Fitzgerald: Still love it. It's amazing.
[00:13:12] Sean Mooney: A lot of cred and I love how intentional, what you've created and built into like a true kind of like cornerstone in the industry. And maybe before we go more into kind of the model and what you all do and how you're approaching it.
[00:13:24] One other questions I'd just like to dig a little deeper into is kind of more of the story of you that's maybe off the radar a bit. And so what would be one of the things we'd know you better if we knew this about you, Richard?
[00:13:35] Richard Fitzgerald: I'm super close with my family. Growing up in Nashville, I thought I would live in New York City for two or three years and then move back to Nashville.
[00:13:42] And ended up being in New York City for 23 years, as my parents still remind me. It was the epic failure of a three year New York plan, but I was kind of going back and forth and ultimately moved back to Nashville and moved the headquarters of the business back here as well. Look, I'm 52. I've got a 1-year-old, 3-year-old and a 14-year-old.
[00:13:59] I got started a little bit late on the family, which again, I thought I would be 27 living in Nashville with four kids. That just wasn't way it played out for me. We live a couple miles from, my parents see them a lot. My father's got Parkinson's disease, unfortunately, and my mom is like the champion caregiver, and so being close to him, I think one of the stories that I love is right before starting CapitalSpring and, and going to Columbia, actually I kind of took a sabbatical.
[00:14:23] I left New York, just sublet my apartment for six months, and I moved to a small mountain town in Colorado and worked for a nonprofit and I loved skiing growing up. And I had never lived in a mountain town. I kinda moved right to the rat race of New York City. And so I felt like there was a time in my career where I could go do that.
[00:14:42] Kind of been burned out a little bit. So I moved there and I found this nonprofit that was a ski school for people with disabilities. So it's like rented a smallest department I could find and ate at bars every night and just talked to people. I didn't know many people, but I worked for this nonprofit called Challenge Aspen, which is an amazing organization.
[00:14:58] And every day I'd show up and be assigned a child that was blind or. Somebody who was in a wheelchair that was gonna be on this specially fitted ski and I'd ski with them. And so I did this for six months, a full ski season, and got a season pass as my payment, which was just great. And at one point I was like, do I go back to New York or just stay in this town and try to find a family office that I could go help invest?
[00:15:19] And that was another failure. I never, never found that. But it was interesting in that program, um, skied with a lot of children, but but also some older individuals who had different types of illnesses that were gonna be able to, because kind of. Sit skis where you, if you're in a wheelchair, you could actually sit on a ski and ski.
[00:15:35] Well, fast forward, gosh, 15, 20 years later, my father gets diagnosed with Parkinson's, and today he's in a wheelchair pretty much most of the time. He actually goes to this program and I go back and can ski with my dad, which is one of the most probably deactive thing he can do, and he is got these outriggers and he's with an instructor with rains, basically to keep him from going too fast, but he can ski with our whole family just as fast outdoors, and it's just great.
[00:16:01] Found it was ironic that this is a program. I kind of found my way to not having any family connection and now I'm calling the program, enrolling my dad for a few days when we go out and get a few days of skiing because it's really the one thing he can do actively with everyone and get outdoors. And it's something that's, that's been a great activity for our family and things that we can do together.
[00:16:21] Sean Mooney: Love, love, love that. I didn't know that kind of the rest of the story, the serendipity of that is just so amazing. And for those of you. Who don't know Richard yet, you'll know him as if the world is filled with a continuum of people who give and people who take. Richard is on the far, far, far side of giving, and I don't mean to uncomfortably flatter you, but it's true.
[00:16:42] Richard Fitzgerald: You're kind
[00:16:42] Sean Mooney: and really kind of the reason for the name of this podcast is the Karma School of Business. That's just karma. Like you do really good things with and for good people. The world kind of spins in the right direction and, and so I think you exemplify that. And I certainly also kind of resonate with the beginning of your story.
[00:17:00] In my case, it was an Austin, Texas kid going to New York for two years, and then I met a nice girl from Connecticut.
[00:17:08] Richard Fitzgerald: Now you live in Nashville, who would've known?
[00:17:09] Sean Mooney: And then I, I beat Richard back to his hometown, and so you beat me home.
[00:17:14] Richard Fitzgerald: My parents would've been proud if I had come back as early as you came back.
[00:17:18] Sean Mooney: Hi, karma School of Business listeners, Sean here wanted to shine another quick spotlight on one of the most important ways PE firms preserve and create value. The private equity industry is one of the most regular users of interim executives. Why? Because these select private equity grade executives can be hugely impactful for saving company value during critical times.
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[00:18:28] Can you talk about what's maybe one of the harder things that you've encountered in business or life and how you kind of took it on and addressed it?
[00:18:37] Richard Fitzgerald: Sure. One of the obvious ones was the pandemic, especially for us. When you think about the types of businesses that we invest in, quick service, restaurants, gyms, car washes, things that are part of people's daily routines.
[00:18:50] Those were maybe the most impacted by the pandemic. I think it was kind of the Black Swan event for our strategy. And I remember we were about to do a first close on fund six, and that started unfolding and we kind of called the investors that were line up for our first close and said, look, the world's gotten a little crazy.
[00:19:10] We don't expect you to close. We had one that said, let's go ahead and close. But we said, we're management until this. Put pencils down and just focused on the portfolio and focused on the firm. Like everybody was impacted. People were scared. People didn't know if we were gonna be in business. When you see a lot of the businesses that we invest in went to zero, like literally closed.
[00:19:33] Especially if you think about California or LA County in particular. Like you legally could not open your business, and that was really hard and scary. I think I would be lying if I didn't say well. How do I go find a job now? Because this industry may have changed forever. People are gonna start cooking again or working out at home forever or riding the Peloton.
[00:19:52] A lot of uncertainty. And look, everybody's families were impacted, whether they had family members that were sick and whether we had management team members who had employees or colleagues that were sick or scared or not sure what their job was even gonna be around very, very uncertain time and kind of what we did as a firm is.
[00:20:12] Just double down the portfolio. We said, look, making new investments right now is, there's too many unknowns to be deploying capital. Let's put pause on that. But let's go and just dig into the portfolio and, and be helpful in any way we can. So a lot of what we did was, I know we had probably 30 or 40 different exposures at that point in time.
[00:20:30] So we would set up every two weeks our operations call with the. We kind of go through just every line of the p and l and say, what are you doing to address your landlord? Or you're putting people on paid leave or your suppliers and just would create forums for sharing information or best practices or what people were doing for survival.
[00:20:55] And you know, we had some diners in LA that said, look, we keep getting our bread and toilet paper delivered and best we can tell grocery stores shelves are empty. So let's put a tent in the parking lot and become a. Come a grocery store and we'll at least sell some inventory to keep the lights on. That came up in one.
[00:21:10] And then we had a Florida operator who decided to do the same thing. And it was something that kind of got them through a few weeks of, otherwise, not a lot of other options for trying to generate a little revenue in a, in a tough period. And so I think that was probably the hardest period for our firm, for our industry, and I'm very thankful that.
[00:21:28] It was not too many weeks that people started realizing that they didn't have to wipe their pizza box down with bleach before they dug into a pizza or could go through a dunking drive through and, and not get COVID by drinking a cup of coffee. It came back and it came back strong. Our fifth fund, which was pretty much invested before the pandemic that had to weather the pandemic, is, I think it's gonna be one of our better performing funds.
[00:21:52] Ironically, we're focused on businesses that are. Oftentimes have drive-throughs or have off-premise options, and that really, I think, served us well as pure luck. We were kind of in a decent place to begin with, with the types of businesses that we invest in, but people still have to eat and people still have to get their car fixed, and people decided to go back to the gyms and things like that.
[00:22:14] We were.
[00:22:19] I think a lot of people, including our investors, were smer conversations when we do check-ins with investors and they were, I think, didn't want to ask the question if they were gonna get a zero on this fund or if they were gonna get any money back, and I'm not sure we knew at the time, but fortunately it's worked out all right.
[00:22:34] Sean Mooney: I remember all of us. I mean, it seems to me as, I think like even like thinking about COVID, right? It's like, seems like a hazy dream right now as far as we've moved on since then. And just channeling. I remember a lot of the conversations that all of us were having, and everyone uses this word like forever.
[00:22:52] It's forever changed, and I just was such a skeptic because I'm like, listen, we've been a tribal species for tens and tens of thousands of years based on community, and there's nothing more kind of central to community than kind of food, water, shelter, restaurants, bringing people together. As I look back on it and dare to look back, it's just kind of like one of these kind of triumphs of community and the human spirit over, like fear that came back so quickly and just kind of channeling a conversation that we had when all of this was going on.
[00:23:22] Like, what's going on here with, with you all? I think it, it reflected a lot of what you were doing and it's like, well, how are your restaurants doing? It's like, well, they're hanging in there and what can people do? And the advice that I recall was just pick a restaurant and like support 'em. And that's what we did.
[00:23:39] I remember our, our friends and I picked a local restaurant where we live here in Nashville, and we all just started ordering out even more than we would ever do before, like every night, just ordering out from that place. And what I think I was particularly proud of that was like selfish altruism was I bought a large portion of their bar from them.
[00:23:59] Richard Fitzgerald: So, well, fortunately for them that's their best margin product so that they, they're probably appreciative of that. That's
[00:24:04] Sean Mooney: probably the haziest part of my dream that I can't recall. Yeah, exactly. There's a reason for
[00:24:08] Richard Fitzgerald: that.
[00:24:10] Sean Mooney: But it was good advice and then people just kinda roared back 'cause it's so, I think just central to who we are is not only individuals but communities.
[00:24:19] Richard Fitzgerald: And look, it was a, it was a really hard time, but you look back and you think about, I think in private equity in general, like how did the firms treat their portfolio companies during that really hard time? Like there were definitely situations where banks could have taken keys and private equity firms could have stepped in and taken over and probably to their benefit, taking advantage of a hard situation.
[00:24:42] And I think the way you treat people through hard times is how you get the goodwill to win. That relationship down the road or to, to get a referral from the people that you could have been more aggressive or treated them differently and when you could maybe to the benefit, the near term benefit. But those are some of the relationships that we continue to work with about 40 or 45% of the deals we do.
[00:25:03] Or with people that we've either done deals with in the past or direct referrals from those people. So that's like a stat that we're really proud of. And I think a lot of that is people that we treated well through a really hard time and we all got through it together. Those are great referral sources from us and for us, just thinking about diligence, you think about the opportunity set for the types of businesses we invest in.
[00:25:25] By definition, what's left are the survivors. They've survived. Probably one of the biggest stress tests any business could be presented with, and you get to kind of go back and say you're running your sensitivity analysis. It's not like, hypothetically speaking, your sales go down 15%. What is the margin compression in?
[00:25:42] What's your debt coverage? Well, it's like when your business dropped by 70%, what did you do? And I think that businesses that we're looking at investing in post pandemic, you get to see how they operated in a very extreme kind of situation. And I think that makes you a more effective underwriter when you've got those scenarios and see how people actually adapted to hopefully as as hard as it'll ever be.
[00:26:06] Hopefully you'll never get that hard again. But at least I think it's a benefit to, to portfolios, post pandemic portfolios that you've got the benefit of seeing how they got through tough times.
[00:26:16] Sean Mooney: Yeah. And that was a one in almost literally a one in a hundred year event. Fingers crossed. Gotta help us all.
[00:26:21] Exactly. We have a hundred, another a hundred years before we go through that. But you raised a a really good point though. It's like when you're thinking about partners in business or life, look and see how they did when times were tough. Not when everything was green lit and up and to the right. That is a great measure of the metal and the support and the superpowers of the people you're working with.
[00:26:44] Richard Fitzgerald: A hundred percent.
[00:26:45] Sean Mooney: So as we turn the page here and head to the next chapter of our conversation here, I'd love to dig in a little further and kind of some of the themes we've already touched on, but so much about the art of private equity in this industry now is not only the ability to kind of like assess a business, but.
[00:27:03] Bring something in addition to capital to help them succeed and then all the constituencies succeed. How does your firm approach value creation and what resources are you all bringing to Bear to support your companies in addition to the things that you've talked about, particularly in the very acute times like COVID?
[00:27:20] Richard Fitzgerald: One of the aspects of the types of businesses we invest in that we love is that almost by definition, these are formulaic businesses. So if you think about a multi-location restaurant. Gym, car wash. They're by definition all supposed to look alike and kind of be similar in terms of the p and ls and the operating systems and the vendors and the processes.
[00:27:43] And so what's unique about focusing on businesses like that is that benchmarking is very relevant. When I was a generalist, we would look at a manufacturing business one week and a services business the next week and a healthcare business the next week, and you were trying to kind of, what do we learn from the last one?
[00:27:58] Or how can we apply. The best practices to this next deal? Well, sometimes that's the case, but they don't always match up. They're not always analogous businesses. But when you think about types of businesses we focus on, if we've invested in a 30 location, taco Bell or Dunking Donuts or a Planet Fitness, we may look at 20 other deals in the same industry, in the same brands that are all supposed to look very, very similar.
[00:28:24] And so I think some of our biggest value adds are just. 20 years of experience of looking at thousands of deals that are in businesses that are sometimes identical at the very least, very similar, and just the pattern recognition and the learnings and the scars and bruises that we can talk about and say, look, we've seen this before.
[00:28:45] Here's what happened. And that may prevent or keep another operator that just hasn't reached that point in their, where they're facing those challenges. That's where each deal we do, and in each learning we have in the deal is directly applicable to the next deal. And fast forward 20 years of lots of lessons learned.
[00:29:04] I think we just have a good kind of perspective. We're kind of starting on third base when we go diligence something. We're not trying to do a market study on. What does a franchisor, franchisee dynamic look like? Or what can the brand do good, near bad for a franchisee or, or what is a franchisor? How do they grow and, and what makes a good franchisor versus one that may not be as attractive to attracting franchisees?
[00:29:26] Those are all things that we've just seen time and time again, and so our value add is one, bringing benchmarking, and so we collect data, operating metrics. We've been doing that for 15 years and so we've got a big repository of data that's all applicable 'cause it's data on very similar businesses. So it is apples to apples.
[00:29:45] And you can look at someone's p and l and compare their 20 locations to 400 other locations that you've looked at and see almost to the basis point where there's opportunity in their p and l. And that may be something that they may not have that information, that the brands don't share this necessarily.
[00:30:01] The banks and you can't buy this information out there. We've had to collect it over decades, and that's something we share with our portfolio and we can show them where there's 50 basis points of opportunity. And it's not, hey, grow your revenue and reduce your costs. It's, Hey, if you tweak the labor algorithm on your POS system between two and four, which are lower revenue hours, you can drop 30 basis points.
[00:30:23] The bottom line. And guess what? Our ops team can come in and show you what your p and l looks like and where it should look like, and the three levers you can pull to get there with a lot of precision. And so a lot of times when we're touring these potential businesses that we invest in our ops guys or going back in the kitchen or or behind the counter, depending on what type of business it is, and asking very detailed questions on a specific piece of equipment or a vendor or service that you often get a look kind of like don't like.
[00:30:53] Bankers, like you're asking questions on a turbo chef oven, like, how do you know this? And our ops guys are like, oh, we've been doing this for 40 years. I've been the CEO of 18 different food service businesses and and done workouts. In a lot of these, you get a different kind of open dialogue that quite frankly, if I was wearing a tie and showing up on a management tour, it would be very rehearsed and high level.
[00:31:14] But when our ops team starts asking these questions, they kind of get a look and they, are you gonna charge me for this consulting? Maybe they're introducing 'em to a new manufacturer of a piece of equipment or a new vendor that can do it much cheaper or credit card swipe contract that we have over 4,000 locations that can go across different industries or brands.
[00:31:32] Those are very relevant things that I think they're just not seeing from other capital providers. And once we're in their system with, it's a franchisee and you're getting in a brand, oftentimes we may be invested in three or four different franchisees within a given brand, or we may be invested in the franchisor.
[00:31:49] Or some other similar business. And there's always best practices you can learn. And it's not sharing trade secrets that's, we're very strict on maintaining confidences and, and things that brands have that are special. But if it's an incentive program for regional managers, or if it's an independent concept that's trying to increase the throughput in their drive through and they've just got too many things in the menu, or maybe there's a technology where you can use.
[00:32:14] Voice recognition, it takes some labor out of a business because you, you don't need a physical person to be answering the drive-through. You order everything by voice through your phone, and you can get something delivered on Amazon. Why do you have to have an individual sitting at a drive-through window taking an order?
[00:32:28] It probably gets it right 70% of the time, and you can have Siri do it. There's a lot going on, and the fact that we're looking at five or 600 opportunities a year that all kind of look alike and learning from each one of those opportunities, and then when we go in. To look at a business or we invest in a business, kinda get the benefit of all of those learnings across a lot of different experiences, good and bad.
[00:32:51] And we find vendors that we love, or service providers that do a great job, and we like to share those names and be kind of the consumer reports. If you're an operator in this business and you're trying to find a new point of sale system or a drive through technology, you don't have a lot of time to go research the 15 different options.
[00:33:10] There's not a consumer report you can pick up and say, Hey, we've ranked these and tested all these. Well guess what we have? And so call our ops team. We may have trialed 15 of 'em and we may have narrowed it down to three, and then we may have a special pricing that we've been able to negotiate across our portfolio for those three.
[00:33:25] And that's a quick call. And I think a lot of the bounce backs of people that we've worked with provided capital or bought their business and maybe their family wants to buy it back, we can sell it back to them. We can just be a flexible provider that can be on their speed dial when they have a question, because.
[00:33:39] We've just seen a lot across a lot of different scenarios and, and I think that's pretty unique. You can't necessarily hire a consultant for that.
[00:33:45] Sean Mooney: It's really interesting to hear you talk about this and it even goes back to kind of our earlier conversation where we were kind of re-envisioning the business of private equity.
[00:33:54] In the book that comes to mind that I think is like one of the foundational books of the Bible of business is Jim Collins is Good to Great required reading for one of our classes. I'm trying to remember which one. Yeah, I'm trying to remember which class was that. And I've talked about in this show before is like, everyone should read that if they have it.
[00:34:09] But one of the concepts was, one, you gotta be a hedgehog and not a fox. Like be better at fewer things and stick to those things. And the power of what you just explained was like right out of that book that was, Hey, let's be really good at just a couple things. And that's gonna have these kind of network effects that then create flywheels through your whole business.
[00:34:32] And as I'm hearing you kind of describe this. I can see the flywheels that have taken place over hundreds of deals and billions of capital and all of it kind of getting bigger and better and faster and bigger and better and faster, and all of that kind of now comes to the benefit of your current companies that you're partnering with.
[00:34:48] But I'm guessing that flywheel is really hard to start in 2005.
[00:34:53] Richard Fitzgerald: Yeah, I came from a generalist background. I didn't come from a history of working in car washes or restaurants. These are formulaic businesses that are proven. So we're starting, we don't have to come up with a new idea or back a startup.
[00:35:05] We're backing someone who's already figured that out and is licensing that playbook to an entrepreneur or maybe the playbook that you're investing in. And I think that it is one of those areas where, as you're talking about the learnings can be directly applied to the next deal and they compound. So it's like 20 years of compounded learnings.
[00:35:22] It wasn't always pretty, it didn't always work out perfectly, but you could apply that learning to the next deal and hopefully not do it again. You may get tripped up and do it once or twice, but it's the same thing over and over, just a different color. Neon sign, a different product in a paper bag or a different service that's on Main Street that you're visiting two or three days a week.
[00:35:39] That's part of your daily routine. Those are the types of things that a.
[00:35:48] 20 years ago, it was much more rare to see private equity in a franchisee or a franchisor because I think it was one of the reasons we liked it. It had a short line, well, the line's not as short now, but what you're seeing is a lot of brands are now owned by private equity firms. And so what we love is to be able to go to those private equity firms and say, look, you're trying to grow your franchisee base, and the more you grow, the more royalties you get, which is how you drive value and owning this brand well.
[00:36:13] We're kind of a professional investor in franchisees, and we may be a professional investor in brands too, but we've done a lot of franchisee work. And so if you're trying to grow your franchisee base or trying to consolidate it with professional investors, we understand that dynamic. We're not trying to guess like what the tri-party agreement needs to be signed or if there's a rofer on a deal, like we've helped plug into great operators and kind of removed the constraints.
[00:36:37] Keep them a small business. They may have 10 locations and they say, we, we. We're kind of tapped out at our bank. We don't wanna sell to a private equity fund that's gonna own 90%. We're gonna report to them. We wanna bring on a partner and we can go in and say, look, we've done this in 42 brands and we've done this for 20 years, and we can come in and maybe we buy two thirds of your business.
[00:36:59] And collectively we go and take this and grow it from 20 or 30 locations to a hundred over the next four years. But we'll put in the capital off the table, put it in. We'll put money in the business, help you build out your back office, help you build out a construction team, or leverage our resources there for new developments, help you build out an m and a infrastructure.
[00:37:18] Be ready to have a hundred locations when you're probably built for 20 currently. And then once you get to a hundred, we can go collectively sell this to another private equity fund that may wanna take it to 200, but the brand and the private owns brand loves that you've business and.
[00:37:36] So you've hopefully got a good investment in your hands, but the brand is also loving it 'cause they've got a growing franchisee that helps them drive value in their company too. So
[00:37:45] Sean Mooney: maybe with that value creation in mind and the flywheel and the compounding and this acceleration that you're bringing to the franchisees and the groups you partner with, what's maybe one of the value creation opportunities that you're really kind of thematically engaging with them now?
[00:38:00] Richard Fitzgerald: It really revolves around that removing the constraints to growth. There's just a lot of 20 location businesses out there with dreams of being a hundred, and it's a playbook and so it's not any one specific thing. It's taking a playbook and saying To get from 20 to a hundred, you're gonna need a new development function, so you're gonna need to go to the brand and buy territory.
[00:38:21] So you can go develop. You need to, to be developing with good returns, so you're not gonna develop if it's not working. But hopefully that's kind of table stakes for getting into the investment. And then hopefully as these brands consolidate, you're gonna need an m and a function to go acquire ones and twos and threes, kind of mom and pops to creatively acquire to hit your a hundred locations.
[00:38:40] And by the way, you need to build out your back office. You need to build out your team. You probably need an HR function. You need to incorporate some technology. You're not on QuickBooks anymore. Just these steps and process that need to be put in place. But that process and those steps are the same. If you're a Wingstop or a Taco Bell, a McDonald's, a Jiffy Lube, or a Crunch Fitness, those are very similar kind of steps.
[00:39:03] That's kind of what we bring. It's, it's finding the scenarios where we can be relevant is the opportunity for us. We're pretty ference. We've been through pandemic with a bunch of people, so hopefully we get feedback people, well, we. Collaborative, but don't have to come in and, and change the culture or run the business.
[00:39:24] We're trying to find good partners where they need capital and playbooks and, and resources that will help them kind of achieve their goals and at the same time, hopefully achieve the goals of we and our investors.
[00:39:34] Sean Mooney: I like so much of what you said there, and really as you think about being as an entrepreneur, the people that you're investing with, that's the really big, hard thing is like you get to a business, 20 locations.
[00:39:45] That's a really good company. But at some point you stall out unless you do something different. And I felt that even here at BluWave, like where you go through and if you're building a plane while it's flying, you reach this elevation. And unless you do something different, you add more infrastructure, more thrust in the engine, more power, like you're just not gonna get to that next level.
[00:40:05] And one of the things that I think in particular that I really appreciate that people should not sleep on is the investing in your infrastructure
[00:40:13] Richard Fitzgerald: a hundred percent. That's hard to do if you're just bank financing, right? Because if you've got 20 locations, whether you're franchised or all corporate owned, maybe it's a 20 location brand.
[00:40:24] A lot of businesses have bootstrapped, they've passed the hat to friends and family, and then they rely on the bank once they get to that scale to kind of continue to grow. But if you're gonna invest in infrastructure and maybe not be as profitable because you're doing that for a few years, playing for the long term, like that's not always consistent with what you can do with a bank.
[00:40:42] At the same time, you may not want to sell 90% of your business and retire. And so there's this kind of middle ground where I think that's where the flexible capital comes in and you can really can talk to them and say, what are you trying to achieve? Maybe that's a two step process. And we can design capital structures that may be a mix of debt and equity that can come from us one fund.
[00:41:00] We're not having to pull three different financing sources together to do this. Tap into the resource base and the learnings and the infrastructure that that we have and, and hopefully that's kind of a good combination to, to help get them to their reach, their full potential. That probably was never gonna be a possibility if they were just looking to own a hundred percent of the business and bank finance it.
[00:41:19] Sean Mooney: And there's that great proverb, right? You may be able to go faster alone, but you're gonna go further together. You bring in a partner and someone who's done it before. I think there's value to it. And just once again, I'm just double, double tapping for any of the entrepreneurs out there listening to this.
[00:41:34] It's easy to get bigger, but it's also easy for that house of cards to collapse if you haven't built into the rigging and the scaffolding and the pillars to do it. The batphone of B BluWave gets called all the time for multi-location businesses.
[00:41:47] Richard Fitzgerald: Yeah. We just exited a deal that we've been with this family run business for 12 years.
[00:41:51] We started out, they were doing kind of a complicated transaction, trying to buy some partners out. So we came in as kind of Mez with some warrants, and then the owner of the business. I think his sons at the time were not as interested in running it. So he actually said, would you like to buy my business?
[00:42:06] And we said we'd love to. So we'd gotten to know him through just being Mez. So we ended up stepping in and owning the business. We were kind of debt and equity in the cap structure. And then his son started getting more involved in the business and we're great operators. And he said, well, I think they actually do wanna run this and we buy it back from you said, sure.
[00:42:22] And so we went from being Mez to being an owner. To now being totally outta the business because the family's needs changed, and we were pretty flexible. We said, look, this has been a decade plus relationship. Been in and out of your cap structure, helped you triple in size, and now the family owns it Again, that wouldn't necessarily have been the case if a private equity fund said, yeah, you can buy it back if you can beat out 300 other private equity funds.
[00:42:44] Like it's, it was like, no, that was, we've been good partners and it's at a fair price.
[00:42:52] Kind of flexibility and more long-term relationship driven approach puts you in situations that can be really, really interesting. That may not be the case if you're just always trying to play for the quick win.
[00:43:05] Sean Mooney: And I love that. And maybe with kind of the circle of life in mind here, one of the things that I love to do is I don't often like to look back in my own past, but I love to get advice from those who do it for me.
[00:43:16] And so, so Richard, if you were to kind of look back to 22-year-old Richard. Say young Richard, here's a piece of advice for you that I wish I knew then and I'm sharing with you now so you can kind of have your best life ahead. What might be one of those kind of pieces of advice?
[00:43:34] Richard Fitzgerald: So for me, I think the importance of relationships and look, when you get out of college and you're in one of these training programs or in any kind of probably job outta school, I, I was really focused on learning skills.
[00:43:47] Skills, how to build a financial model or put a PowerPoint presentation together or keep processes moving. But the reality is those are somewhat commodity at the end of the day. If you look at the people who are running great firms or are great fundraisers, relationships are really their core. And I look back, I didn't have many interviews that asked me about my relationships or how I thought about relationships or how I built relationships.
[00:44:12] Had a lot of questions about how you build a financial model or let me get a do a case study. That's all important, but that's kind of table stakes in private equity. And I think once you get past maybe up through a senior associate or vp, you've kind of got that down and hopefully you check the box for doing that.
[00:44:28] But then the people that go from VP to starting their firms or kind of on fast tracks in their own firms relationships are really at the core. It's relationships that help you. Help you attract a management team to take your capital versus someone else's. It's relationships that help you find deals.
[00:44:46] And I think that that's something that a lot of people don't kind of carve out proactive practices around. And it's not fake, like let's go network. I remember we had business school, there was a teacher on networking and it was this awkward like, Hey, just go network. And it felt very strange. But Adam Grant got a book, the Give and Take book I think you were referencing maybe earlier.
[00:45:06] That's kind of an interesting play on. Just always finding ways to be helpful and connect dots, and that's building karma, but that's how business works. People want to work with people they trust and they know. And so you think about you're gonna be really successful in private equity, like be good at developing relationships and finding ways to help other people without expecting something immediately back.
[00:45:28] Like it can't be fake or superficial. It's like, no, if you can help somebody get a deal or you can introduce them to one of your investors that may also like their strategy. Do that every day and, and guess what? You may need a favor or you may be looking for an investor and you want that person to think of you because you helped them at that point.
[00:45:46] I just think that's critically important. Me as a 22-year-old, I didn't fully appreciate that, and that's not always something you can read about in a book or be trained, but I look at the people that I feel I have a lot of respect for, or that I look up to, or that I've considered mentors and, and really the core of their skillset is.
[00:46:04] They're great at developing relationships and, and maintaining relationships and finding ways to help people, and that's made them successful in their own right. I think
[00:46:12] Sean Mooney: that's a timeless advice, but probably no better to kind of embrace than right now as we witness the rise of ai. 'cause a lot of these skills now, they're, they're being equalized and democratized instantly.
[00:46:28] What's not being equalized and democratized instantly is the human part of us. It's this relationship part of who we are. Those are the things that are gonna really matter. It's the liberal arts education that's coming right back. It's the idea who can think and interact and build and grow and share and be humans together.
[00:46:47] That really matters. And I think your advice, as we said, it's not only important for, like when you and I were 22. Just a minute ago. At least it feels that way. But particularly today, for anyone coming up lean, lean, lean into this advice now because that is gonna be such a recipe for success in terms of what the world will be in terms of the growth, development, and the requirements to be not only a good human, but also a successful one.
[00:47:13] A hundred percent. So Richard, this has been a really awesome conversation. I've learned all sorts of things that I wish I knew about you before and now I do, which I think is amazing. But also I think I've become a better and a more insightful person as a result of this conversation. So that's a tremendous gift and I really genuinely mean that.
[00:47:33] And I've appreciated not only this conversation, but the ones we've had for decades at this point.
[00:47:39] Richard Fitzgerald: Well, it, it goes both ways. I appreciate all that you do for the private equity community. You've been a real, I mean, built an incredible business that I've always admired, and I'd probably tell your story more than my story when people are talking about interesting businesses, but maybe more than just the business just to.
[00:47:53] Proponent of the private equity industry and community. You're always thinking of ways to figure out how to get back to the community, how to, to let people know that private equity is a good thing for society and communities and the world we live in. So really appreciate all your efforts on that front.
[00:48:09] Congratulations on building a great firm with Blu Wave.
[00:48:13] Sean Mooney: Oh, thanks so much, Richard. Sounds good, and we will get together again soon, probably at one of your restaurants.
[00:48:18] Richard Fitzgerald: That sounds great. We'll go through the drive through together. Thanks, Richard. Thanks so much, Sean.
[00:48:34] Sean Mooney: That's all we have for today. Special thanks to Richard for joining. If you'd like to learn more about Richard Fitzgerald in CapitalSpring. Please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcast. We truly appreciate your support.
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[00:49:15] Whether or not you're in pe, give us a call or visit our website@BluWave.net. That's B-L-U-W-A-V-E. And will support your success onward. The views and opinions expressed in this program are those of the individuals presenting and do not necessarily reflect the user positions of any other persons or entities, including those referenced herein. No representations, warranties, financial, legal, tax, or other advice are made herein. Consult your advisors regarding any topics discussed during this episode.
[00:00:34] I am really, really excited to be here today with Richard Fitzgerald. Richard, thanks for joining us. Happy to be here. Thanks for asking me to join the podcast as our listeners, I think on quite a few occasions, we'll appreciate. With a number of our guests, including Richard, there's gonna be some familiarity in this conversation.
[00:00:52] We probably have mutually assured destruction on each other going all the way back to business school together. We've known each other for quite some time, and so I've been looking forward to this for a whole host of reasons here. So once again, thanks for joining us today, Richard.
[00:01:06] Richard Fitzgerald: Absolutely. I'll save the stories for the next podcast.
[00:01:10] Sean Mooney: Let's jump into it. And for those of our listeners who haven't met Richard before, I. Everyone loves Richard for good reasons because he is one of the most genuine people you'll meet. And I mean that with absolute sincerity. But I'd love to jump in and for our listeners, Richard, hear more of the story of you.
[00:01:27] So can you tell us kinda where you grew up, kind of some experiences, college, and then ultimately your path to pe?
[00:01:33] Richard Fitzgerald: Yeah. I grew up in Nashville, Tennessee, which is where I live now. It's another story in itself is how Sean made it down to Nashville, an Austin. I grew up in Nashville. I was pretty entrepreneurial growing up.
[00:01:46] I was never one to find an hourly wage job. I always was trying to start a grass cutting business, sold Cutco knives one summer. I cleaned boats one summer. Anything where I could feel like I was my own boss. And that was kind of from an early age, something that I was thinking about. And as I thought about my careers way down the road, always thought of something entrepreneurial.
[00:02:10] I ended up going to college in Connecticut at Trinity College. As I neared graduation and, and realized I needed to start thinking about finding a job. Didn't really have any entrepreneurial ideas at the time. I kind of took the approach that I would put a list together of anybody I thought that I could talk into, grabbing a cup of coffee with me.
[00:02:28] And this was parents, friends, friends, parents, alums, teachers or TAs or just anybody I could get on this list. And I kind of posed the question to. I'm getting ready to graduate. I'm starting to think about my first job outta college. Um, I'm not sure what I want to do near term, but if you asked me now what I would like to be doing in 10 or 15 years, it would be something entrepreneurial.
[00:02:52] It'd be starting a company or getting into a small company or buying a small company and and growing it. That's kind of what I'd grown up doing in different flavors and summers. As I started kind of working through my list, I started to hear some kind of familiar, some of these. Going into any sort of business, maybe a training program, an investment banking training program would be a good start.
[00:03:14] You're gonna learn how to build financial models, put PowerPoints together, get coffee, make copies, all the good stuff. Work a lot of hours, which wasn't always that much fun, but it's a great kind of place to start in a career. And as I started getting this feedback from more and more people, I really focused my, uh, search on investment banking and was fortunate to get into a training program.
[00:03:36] And for those, I'm sure most people on this podcast kind of been similar path, but this is typically two, two and a half years where you go in and you're expected to work around the clock and be on call 24 hours a day. But it is a great training ground. By virtue of working a lot of hours, you get a lot of reps and financial modeling and PowerPoints and raising capital and learning about businesses.
[00:03:59] But you could go in without having to kind of fake it and say, this is what I wanna do for the rest of my life. You could go in and say, I think this is the best opportunity for me for the next few years. And that's very much how I approached it. My father was a commercial banker in Nashville lending to the healthcare industry.
[00:04:15] And while he was putting us through school and working very hard, I think he never really got a chance to do something entrepreneurial while I was going and working for a, an investment bank out of college. And. Getting some good training. It was never something I felt that I wanted to do for my career.
[00:04:30] As that program kind of wound down, I kinda went back to my list and added more names to the list, and I grabbed coffee or maybe a beer from time to time with these individuals and said, look, I've done this. This is what I've learned. I don't have an idea yet. I don't have a company I can go step into, or, what is the next step for me, in your opinion?
[00:04:50] That. Give me skills or experience that may improve the probability of success. When I do find that entrepreneurial idea. Now a lot of these people had been a similar path and I kept hearing private equity being a good next step. Kind of leverage the training you had from an investment bank. But instead of just working with companies and helping them raise capital or go public or raise debt, you go in and work with a company and once you, in investment banking, you kind of complete the project and they go on to grow and you go start with the next one.
[00:05:19] With private equity, the way I understood it at that point in time is you kind of buy these companies and you're with them for extended periods of time and sitting on their boards and trying to help them grow and grow the value of the investors' money that you invest in these businesses. So I thought that was a natural next step along the path to me being an entrepreneur.
[00:05:38] So I joined a kind, a small middle market private equity fund. It was.
[00:05:46] I was the only southerner in this group, and so as you can imagine, we had a lot of pitchbooks that came in for companies in small towns in Alabama and Georgia and Tennessee. And I would be asked to go fly down there and go fishing or whatever. Southerners do that. I think my colleagues weren't quite sure how you went over a, a management team that was in rural counties of these small southern states.
[00:06:09] But I would go down oftentimes fishing and farm ponds. Getting to know the CEOs or the CFOs of these family businesses that were considering selling or were for sale with a sole goal of trying to convince them that they should just sell to us and not hire an investment bank to run a broad auction, because I knew where that ended up with typically overpaying for an asset.
[00:06:28] So I would do this and I thought that I was good at it. 'cause oftentimes after two or three visits to these family run businesses, I would be sitting at a dinner table with their family. At their house and saying, look, my boss is gonna love this. Who invites somebody to dinner with their family that they're not gonna do a deal with?
[00:06:43] But time after time, I got a call two or three days later saying, we really like you guys. We think you'd be great partners. We've decided to hire X, Y, Z, middle market investment bank to do a quote unquote valuation assessment, which I really knew was code for. We're putting a PitchBook together, gonna be sent out to 400 middle market private equity firms just like you.
[00:07:03] And if you can outbid everyone. And I kept seeing this happening time and time again. So I stepped back and had a colleague that ultimately ended up being a business partner. We'd go to lunch once a week and kind of say, man, private equities just changed since the early eighties when it was lever these businesses up.
[00:07:18] Not a lot of competition, low hanging fruit, and make a ton of money. Now it was becoming more efficient. This was in the early two thousands. There were a thousand private equity funds at this point in time, everybody chasing the same deals. Every year that number was growing, and every year the amount of capital that was flowing into the private equity or alternatives asset class was growing as big institutions started kind of reorganizing their portfolios to include more alts.
[00:07:43] So we kind of stepped back and said, this is only gonna come more challenging and our jobs are only gonna get harder. If we had a clean slate and just were starting a firm from scratch, how would we build a firm that had a true competitive advantage? So we stepped back and kind of started studying and mapping out the private equity industry. Started looking at firms that we thought oftentimes won competitive situations when they weren't the highest price.
[00:08:07] And those were often situations where they were a sector specialist. And so if you think about it, if you're the hottest tech company in the world and you get a hundred term sheets for a capital raise, and Sequoia or Kleiner Perkins is on the top of one or two of those, you're probably gonna pay attention.
[00:08:21] Those types of firms, those specialists, they had a true competitive advantage. They would have management teams gravitate towards them because of their perceived expertise or or experience in that particular industry. So we said, well, that's a good way to think about building something from scratch sector specialization.
[00:08:38] I thought often sector specialists did have true competitive advantage.
[00:08:42] If we're gonna start a sector specialist, let's go for sectors that are interesting and attractive and may have a good investment thesis you could around, but specialists chasing. Look no further than Main Street of every town. Often the towns we were looking at, we were visiting, looking at these little companies in rural communities.
[00:09:00] And every town seemed to have McDonald's or a Dunking Donuts or a Mr. Car Wash, or a Planet Fitness. Like these were multi-location branded businesses that were kind of part of people's daily routines. And while they may have been regional or national brands, they often had local ownership 'cause they were a franchise model or maybe a regional corporate owned model.
[00:09:20] We couldn't find anybody that was really focused on this. This was the early two thousands. And so to have a, an industry or a, a segment that was that big, that was literally different color neon signs on every main street of every town, big or small across the United States, that we couldn't clearly identify a sector specialist.
[00:09:36] That kind of peaked our interest and we started kind of digging in and saying, look, if we could be the Kleiner Perkins or the Sequoia of this segment, that could be really maybe a way to build something differed.
[00:09:48] In oh five, we, we launched CapitalSpring. While we were in business school, actually, I felt business school was a great opportunity to bounce ideas off colleagues and teachers and start to raise a little money. We started with a $3 million pool of capital, which is laughable.
[00:10:01] Our first deal, we learned a lot of lessons. We've learned a lot of lessons over the years, but just hit our 20 year anniversary. We've done 300 deals, invested about $4 billion and almost a hundred different either franchised or non-franchise brands and franchisees. So.
[00:10:17] Sean Mooney: Hey, as a quick interlude, this is Sean here.
[00:10:20] Wanted to address one quick question that we regularly get. We often get people who show up at our website, call our account executives and say, Hey, I'm not private equity. Can I still use BluWave to get connected with resources? I. And the short answer is yes. Even though we're mostly and largely used by hundreds of private equity firms, thousands of their portfolio company leaders, every day we get calls from everyday top proactive business leaders at public companies, independent companies, family companies.
[00:10:47] So absolutely you can use this as well. If you want to use the exact same resources that are trusted in being deployed and perfectly calibrated for your business needs, give us a call. Visit our website@BluWave.net. Thanks. Back to the episode.
[00:11:06] I love so much about your story there, Richard, and one, I think one common thread is the kids in PE are often the kids who had the boat cleaning business or the landscaping business, or you name it. You can see kind of the seeds that are growing into what became later in life. But what I've always appreciated and appreciate about you, Richard, as well, is.
[00:11:29] This kind of extreme curiosity. And so I always knew you to someone to just talk with lots of people to understand the way that world works. And one of my shortcomings, I think when I was coming up, it was like, it was almost, in some ways, in certain parts of New York PE you're supposed to know everything.
[00:11:45] And so you kind of keep your head down quietly. This is like early Google days even. You're like, oh, I gotta figure this out. But you are such a great super connector and bringer together of people, but also it's the kind of the, the line. We're all born with two ears and one mouth for a reason. You listen really deeply in things.
[00:12:05] So I remember those early days when we were at Columbia together and there was a little cadre of us, whether it was Chris, you, Jeff, me. There were some of us in middle market pe and we would get together and kind of complain over a beer like, and we were like, oh my gosh, this is getting so hard. And the difference was we would go back to our PE firms.
[00:12:27] You actually took action and started something on the way that you thought that it could and should and would be, and I give you a lot of credit for that because taking that leap, it's scary as heck.
[00:12:39] Richard Fitzgerald: It still is. Yeah. Yeah. In some environments, for sure.
[00:12:42] Sean Mooney: But it's interesting, even like you think within the skunk works of what we all did, we all kind of migrated from these firms that were maybe where we were.
[00:12:51] Into maybe other firms that were a little bit more specialized or focused in certain areas or founded things. But I gave you a lot of credit. Like you're like, no, I'm gonna create this thing from ground zero. And I didn't make that leap myself until like years later when I finally got crazy enough to do BluWave.
[00:13:07] But it was more of the picks and shovels play than the Yeah, I love it.
[00:13:10] Richard Fitzgerald: Still love it. It's amazing.
[00:13:12] Sean Mooney: A lot of cred and I love how intentional, what you've created and built into like a true kind of like cornerstone in the industry. And maybe before we go more into kind of the model and what you all do and how you're approaching it.
[00:13:24] One other questions I'd just like to dig a little deeper into is kind of more of the story of you that's maybe off the radar a bit. And so what would be one of the things we'd know you better if we knew this about you, Richard?
[00:13:35] Richard Fitzgerald: I'm super close with my family. Growing up in Nashville, I thought I would live in New York City for two or three years and then move back to Nashville.
[00:13:42] And ended up being in New York City for 23 years, as my parents still remind me. It was the epic failure of a three year New York plan, but I was kind of going back and forth and ultimately moved back to Nashville and moved the headquarters of the business back here as well. Look, I'm 52. I've got a 1-year-old, 3-year-old and a 14-year-old.
[00:13:59] I got started a little bit late on the family, which again, I thought I would be 27 living in Nashville with four kids. That just wasn't way it played out for me. We live a couple miles from, my parents see them a lot. My father's got Parkinson's disease, unfortunately, and my mom is like the champion caregiver, and so being close to him, I think one of the stories that I love is right before starting CapitalSpring and, and going to Columbia, actually I kind of took a sabbatical.
[00:14:23] I left New York, just sublet my apartment for six months, and I moved to a small mountain town in Colorado and worked for a nonprofit and I loved skiing growing up. And I had never lived in a mountain town. I kinda moved right to the rat race of New York City. And so I felt like there was a time in my career where I could go do that.
[00:14:42] Kind of been burned out a little bit. So I moved there and I found this nonprofit that was a ski school for people with disabilities. So it's like rented a smallest department I could find and ate at bars every night and just talked to people. I didn't know many people, but I worked for this nonprofit called Challenge Aspen, which is an amazing organization.
[00:14:58] And every day I'd show up and be assigned a child that was blind or. Somebody who was in a wheelchair that was gonna be on this specially fitted ski and I'd ski with them. And so I did this for six months, a full ski season, and got a season pass as my payment, which was just great. And at one point I was like, do I go back to New York or just stay in this town and try to find a family office that I could go help invest?
[00:15:19] And that was another failure. I never, never found that. But it was interesting in that program, um, skied with a lot of children, but but also some older individuals who had different types of illnesses that were gonna be able to, because kind of. Sit skis where you, if you're in a wheelchair, you could actually sit on a ski and ski.
[00:15:35] Well, fast forward, gosh, 15, 20 years later, my father gets diagnosed with Parkinson's, and today he's in a wheelchair pretty much most of the time. He actually goes to this program and I go back and can ski with my dad, which is one of the most probably deactive thing he can do, and he is got these outriggers and he's with an instructor with rains, basically to keep him from going too fast, but he can ski with our whole family just as fast outdoors, and it's just great.
[00:16:01] Found it was ironic that this is a program. I kind of found my way to not having any family connection and now I'm calling the program, enrolling my dad for a few days when we go out and get a few days of skiing because it's really the one thing he can do actively with everyone and get outdoors. And it's something that's, that's been a great activity for our family and things that we can do together.
[00:16:21] Sean Mooney: Love, love, love that. I didn't know that kind of the rest of the story, the serendipity of that is just so amazing. And for those of you. Who don't know Richard yet, you'll know him as if the world is filled with a continuum of people who give and people who take. Richard is on the far, far, far side of giving, and I don't mean to uncomfortably flatter you, but it's true.
[00:16:42] Richard Fitzgerald: You're kind
[00:16:42] Sean Mooney: and really kind of the reason for the name of this podcast is the Karma School of Business. That's just karma. Like you do really good things with and for good people. The world kind of spins in the right direction and, and so I think you exemplify that. And I certainly also kind of resonate with the beginning of your story.
[00:17:00] In my case, it was an Austin, Texas kid going to New York for two years, and then I met a nice girl from Connecticut.
[00:17:08] Richard Fitzgerald: Now you live in Nashville, who would've known?
[00:17:09] Sean Mooney: And then I, I beat Richard back to his hometown, and so you beat me home.
[00:17:14] Richard Fitzgerald: My parents would've been proud if I had come back as early as you came back.
[00:17:18] Sean Mooney: Hi, karma School of Business listeners, Sean here wanted to shine another quick spotlight on one of the most important ways PE firms preserve and create value. The private equity industry is one of the most regular users of interim executives. Why? Because these select private equity grade executives can be hugely impactful for saving company value during critical times.
[00:17:39] Accelerating strategic initiatives and bridging executive transitions that happen to almost any company over time. To this day, many don't know that B BluWave has turned the interim exec offering on its head and completely made it the way that my friends and I in PE always wished it was. BluWave has a dedicated team that does nothing but interview pre-vet credentialize and reference private equity grade groups and people so that we know who you need before you call us.
[00:18:07] In the case of interims, we have more than a thousand top interim private equity grade CEOs and CFOs that are ready to be matched for your exact need. When you need it, give us a call or visit our website@BluWave.net and we can give you excellence in Alpha with ease back to the show.
[00:18:28] Can you talk about what's maybe one of the harder things that you've encountered in business or life and how you kind of took it on and addressed it?
[00:18:37] Richard Fitzgerald: Sure. One of the obvious ones was the pandemic, especially for us. When you think about the types of businesses that we invest in, quick service, restaurants, gyms, car washes, things that are part of people's daily routines.
[00:18:50] Those were maybe the most impacted by the pandemic. I think it was kind of the Black Swan event for our strategy. And I remember we were about to do a first close on fund six, and that started unfolding and we kind of called the investors that were line up for our first close and said, look, the world's gotten a little crazy.
[00:19:10] We don't expect you to close. We had one that said, let's go ahead and close. But we said, we're management until this. Put pencils down and just focused on the portfolio and focused on the firm. Like everybody was impacted. People were scared. People didn't know if we were gonna be in business. When you see a lot of the businesses that we invest in went to zero, like literally closed.
[00:19:33] Especially if you think about California or LA County in particular. Like you legally could not open your business, and that was really hard and scary. I think I would be lying if I didn't say well. How do I go find a job now? Because this industry may have changed forever. People are gonna start cooking again or working out at home forever or riding the Peloton.
[00:19:52] A lot of uncertainty. And look, everybody's families were impacted, whether they had family members that were sick and whether we had management team members who had employees or colleagues that were sick or scared or not sure what their job was even gonna be around very, very uncertain time and kind of what we did as a firm is.
[00:20:12] Just double down the portfolio. We said, look, making new investments right now is, there's too many unknowns to be deploying capital. Let's put pause on that. But let's go and just dig into the portfolio and, and be helpful in any way we can. So a lot of what we did was, I know we had probably 30 or 40 different exposures at that point in time.
[00:20:30] So we would set up every two weeks our operations call with the. We kind of go through just every line of the p and l and say, what are you doing to address your landlord? Or you're putting people on paid leave or your suppliers and just would create forums for sharing information or best practices or what people were doing for survival.
[00:20:55] And you know, we had some diners in LA that said, look, we keep getting our bread and toilet paper delivered and best we can tell grocery stores shelves are empty. So let's put a tent in the parking lot and become a. Come a grocery store and we'll at least sell some inventory to keep the lights on. That came up in one.
[00:21:10] And then we had a Florida operator who decided to do the same thing. And it was something that kind of got them through a few weeks of, otherwise, not a lot of other options for trying to generate a little revenue in a, in a tough period. And so I think that was probably the hardest period for our firm, for our industry, and I'm very thankful that.
[00:21:28] It was not too many weeks that people started realizing that they didn't have to wipe their pizza box down with bleach before they dug into a pizza or could go through a dunking drive through and, and not get COVID by drinking a cup of coffee. It came back and it came back strong. Our fifth fund, which was pretty much invested before the pandemic that had to weather the pandemic, is, I think it's gonna be one of our better performing funds.
[00:21:52] Ironically, we're focused on businesses that are. Oftentimes have drive-throughs or have off-premise options, and that really, I think, served us well as pure luck. We were kind of in a decent place to begin with, with the types of businesses that we invest in, but people still have to eat and people still have to get their car fixed, and people decided to go back to the gyms and things like that.
[00:22:14] We were.
[00:22:19] I think a lot of people, including our investors, were smer conversations when we do check-ins with investors and they were, I think, didn't want to ask the question if they were gonna get a zero on this fund or if they were gonna get any money back, and I'm not sure we knew at the time, but fortunately it's worked out all right.
[00:22:34] Sean Mooney: I remember all of us. I mean, it seems to me as, I think like even like thinking about COVID, right? It's like, seems like a hazy dream right now as far as we've moved on since then. And just channeling. I remember a lot of the conversations that all of us were having, and everyone uses this word like forever.
[00:22:52] It's forever changed, and I just was such a skeptic because I'm like, listen, we've been a tribal species for tens and tens of thousands of years based on community, and there's nothing more kind of central to community than kind of food, water, shelter, restaurants, bringing people together. As I look back on it and dare to look back, it's just kind of like one of these kind of triumphs of community and the human spirit over, like fear that came back so quickly and just kind of channeling a conversation that we had when all of this was going on.
[00:23:22] Like, what's going on here with, with you all? I think it, it reflected a lot of what you were doing and it's like, well, how are your restaurants doing? It's like, well, they're hanging in there and what can people do? And the advice that I recall was just pick a restaurant and like support 'em. And that's what we did.
[00:23:39] I remember our, our friends and I picked a local restaurant where we live here in Nashville, and we all just started ordering out even more than we would ever do before, like every night, just ordering out from that place. And what I think I was particularly proud of that was like selfish altruism was I bought a large portion of their bar from them.
[00:23:59] Richard Fitzgerald: So, well, fortunately for them that's their best margin product so that they, they're probably appreciative of that. That's
[00:24:04] Sean Mooney: probably the haziest part of my dream that I can't recall. Yeah, exactly. There's a reason for
[00:24:08] Richard Fitzgerald: that.
[00:24:10] Sean Mooney: But it was good advice and then people just kinda roared back 'cause it's so, I think just central to who we are is not only individuals but communities.
[00:24:19] Richard Fitzgerald: And look, it was a, it was a really hard time, but you look back and you think about, I think in private equity in general, like how did the firms treat their portfolio companies during that really hard time? Like there were definitely situations where banks could have taken keys and private equity firms could have stepped in and taken over and probably to their benefit, taking advantage of a hard situation.
[00:24:42] And I think the way you treat people through hard times is how you get the goodwill to win. That relationship down the road or to, to get a referral from the people that you could have been more aggressive or treated them differently and when you could maybe to the benefit, the near term benefit. But those are some of the relationships that we continue to work with about 40 or 45% of the deals we do.
[00:25:03] Or with people that we've either done deals with in the past or direct referrals from those people. So that's like a stat that we're really proud of. And I think a lot of that is people that we treated well through a really hard time and we all got through it together. Those are great referral sources from us and for us, just thinking about diligence, you think about the opportunity set for the types of businesses we invest in.
[00:25:25] By definition, what's left are the survivors. They've survived. Probably one of the biggest stress tests any business could be presented with, and you get to kind of go back and say you're running your sensitivity analysis. It's not like, hypothetically speaking, your sales go down 15%. What is the margin compression in?
[00:25:42] What's your debt coverage? Well, it's like when your business dropped by 70%, what did you do? And I think that businesses that we're looking at investing in post pandemic, you get to see how they operated in a very extreme kind of situation. And I think that makes you a more effective underwriter when you've got those scenarios and see how people actually adapted to hopefully as as hard as it'll ever be.
[00:26:06] Hopefully you'll never get that hard again. But at least I think it's a benefit to, to portfolios, post pandemic portfolios that you've got the benefit of seeing how they got through tough times.
[00:26:16] Sean Mooney: Yeah. And that was a one in almost literally a one in a hundred year event. Fingers crossed. Gotta help us all.
[00:26:21] Exactly. We have a hundred, another a hundred years before we go through that. But you raised a a really good point though. It's like when you're thinking about partners in business or life, look and see how they did when times were tough. Not when everything was green lit and up and to the right. That is a great measure of the metal and the support and the superpowers of the people you're working with.
[00:26:44] Richard Fitzgerald: A hundred percent.
[00:26:45] Sean Mooney: So as we turn the page here and head to the next chapter of our conversation here, I'd love to dig in a little further and kind of some of the themes we've already touched on, but so much about the art of private equity in this industry now is not only the ability to kind of like assess a business, but.
[00:27:03] Bring something in addition to capital to help them succeed and then all the constituencies succeed. How does your firm approach value creation and what resources are you all bringing to Bear to support your companies in addition to the things that you've talked about, particularly in the very acute times like COVID?
[00:27:20] Richard Fitzgerald: One of the aspects of the types of businesses we invest in that we love is that almost by definition, these are formulaic businesses. So if you think about a multi-location restaurant. Gym, car wash. They're by definition all supposed to look alike and kind of be similar in terms of the p and ls and the operating systems and the vendors and the processes.
[00:27:43] And so what's unique about focusing on businesses like that is that benchmarking is very relevant. When I was a generalist, we would look at a manufacturing business one week and a services business the next week and a healthcare business the next week, and you were trying to kind of, what do we learn from the last one?
[00:27:58] Or how can we apply. The best practices to this next deal? Well, sometimes that's the case, but they don't always match up. They're not always analogous businesses. But when you think about types of businesses we focus on, if we've invested in a 30 location, taco Bell or Dunking Donuts or a Planet Fitness, we may look at 20 other deals in the same industry, in the same brands that are all supposed to look very, very similar.
[00:28:24] And so I think some of our biggest value adds are just. 20 years of experience of looking at thousands of deals that are in businesses that are sometimes identical at the very least, very similar, and just the pattern recognition and the learnings and the scars and bruises that we can talk about and say, look, we've seen this before.
[00:28:45] Here's what happened. And that may prevent or keep another operator that just hasn't reached that point in their, where they're facing those challenges. That's where each deal we do, and in each learning we have in the deal is directly applicable to the next deal. And fast forward 20 years of lots of lessons learned.
[00:29:04] I think we just have a good kind of perspective. We're kind of starting on third base when we go diligence something. We're not trying to do a market study on. What does a franchisor, franchisee dynamic look like? Or what can the brand do good, near bad for a franchisee or, or what is a franchisor? How do they grow and, and what makes a good franchisor versus one that may not be as attractive to attracting franchisees?
[00:29:26] Those are all things that we've just seen time and time again, and so our value add is one, bringing benchmarking, and so we collect data, operating metrics. We've been doing that for 15 years and so we've got a big repository of data that's all applicable 'cause it's data on very similar businesses. So it is apples to apples.
[00:29:45] And you can look at someone's p and l and compare their 20 locations to 400 other locations that you've looked at and see almost to the basis point where there's opportunity in their p and l. And that may be something that they may not have that information, that the brands don't share this necessarily.
[00:30:01] The banks and you can't buy this information out there. We've had to collect it over decades, and that's something we share with our portfolio and we can show them where there's 50 basis points of opportunity. And it's not, hey, grow your revenue and reduce your costs. It's, Hey, if you tweak the labor algorithm on your POS system between two and four, which are lower revenue hours, you can drop 30 basis points.
[00:30:23] The bottom line. And guess what? Our ops team can come in and show you what your p and l looks like and where it should look like, and the three levers you can pull to get there with a lot of precision. And so a lot of times when we're touring these potential businesses that we invest in our ops guys or going back in the kitchen or or behind the counter, depending on what type of business it is, and asking very detailed questions on a specific piece of equipment or a vendor or service that you often get a look kind of like don't like.
[00:30:53] Bankers, like you're asking questions on a turbo chef oven, like, how do you know this? And our ops guys are like, oh, we've been doing this for 40 years. I've been the CEO of 18 different food service businesses and and done workouts. In a lot of these, you get a different kind of open dialogue that quite frankly, if I was wearing a tie and showing up on a management tour, it would be very rehearsed and high level.
[00:31:14] But when our ops team starts asking these questions, they kind of get a look and they, are you gonna charge me for this consulting? Maybe they're introducing 'em to a new manufacturer of a piece of equipment or a new vendor that can do it much cheaper or credit card swipe contract that we have over 4,000 locations that can go across different industries or brands.
[00:31:32] Those are very relevant things that I think they're just not seeing from other capital providers. And once we're in their system with, it's a franchisee and you're getting in a brand, oftentimes we may be invested in three or four different franchisees within a given brand, or we may be invested in the franchisor.
[00:31:49] Or some other similar business. And there's always best practices you can learn. And it's not sharing trade secrets that's, we're very strict on maintaining confidences and, and things that brands have that are special. But if it's an incentive program for regional managers, or if it's an independent concept that's trying to increase the throughput in their drive through and they've just got too many things in the menu, or maybe there's a technology where you can use.
[00:32:14] Voice recognition, it takes some labor out of a business because you, you don't need a physical person to be answering the drive-through. You order everything by voice through your phone, and you can get something delivered on Amazon. Why do you have to have an individual sitting at a drive-through window taking an order?
[00:32:28] It probably gets it right 70% of the time, and you can have Siri do it. There's a lot going on, and the fact that we're looking at five or 600 opportunities a year that all kind of look alike and learning from each one of those opportunities, and then when we go in. To look at a business or we invest in a business, kinda get the benefit of all of those learnings across a lot of different experiences, good and bad.
[00:32:51] And we find vendors that we love, or service providers that do a great job, and we like to share those names and be kind of the consumer reports. If you're an operator in this business and you're trying to find a new point of sale system or a drive through technology, you don't have a lot of time to go research the 15 different options.
[00:33:10] There's not a consumer report you can pick up and say, Hey, we've ranked these and tested all these. Well guess what we have? And so call our ops team. We may have trialed 15 of 'em and we may have narrowed it down to three, and then we may have a special pricing that we've been able to negotiate across our portfolio for those three.
[00:33:25] And that's a quick call. And I think a lot of the bounce backs of people that we've worked with provided capital or bought their business and maybe their family wants to buy it back, we can sell it back to them. We can just be a flexible provider that can be on their speed dial when they have a question, because.
[00:33:39] We've just seen a lot across a lot of different scenarios and, and I think that's pretty unique. You can't necessarily hire a consultant for that.
[00:33:45] Sean Mooney: It's really interesting to hear you talk about this and it even goes back to kind of our earlier conversation where we were kind of re-envisioning the business of private equity.
[00:33:54] In the book that comes to mind that I think is like one of the foundational books of the Bible of business is Jim Collins is Good to Great required reading for one of our classes. I'm trying to remember which one. Yeah, I'm trying to remember which class was that. And I've talked about in this show before is like, everyone should read that if they have it.
[00:34:09] But one of the concepts was, one, you gotta be a hedgehog and not a fox. Like be better at fewer things and stick to those things. And the power of what you just explained was like right out of that book that was, Hey, let's be really good at just a couple things. And that's gonna have these kind of network effects that then create flywheels through your whole business.
[00:34:32] And as I'm hearing you kind of describe this. I can see the flywheels that have taken place over hundreds of deals and billions of capital and all of it kind of getting bigger and better and faster and bigger and better and faster, and all of that kind of now comes to the benefit of your current companies that you're partnering with.
[00:34:48] But I'm guessing that flywheel is really hard to start in 2005.
[00:34:53] Richard Fitzgerald: Yeah, I came from a generalist background. I didn't come from a history of working in car washes or restaurants. These are formulaic businesses that are proven. So we're starting, we don't have to come up with a new idea or back a startup.
[00:35:05] We're backing someone who's already figured that out and is licensing that playbook to an entrepreneur or maybe the playbook that you're investing in. And I think that it is one of those areas where, as you're talking about the learnings can be directly applied to the next deal and they compound. So it's like 20 years of compounded learnings.
[00:35:22] It wasn't always pretty, it didn't always work out perfectly, but you could apply that learning to the next deal and hopefully not do it again. You may get tripped up and do it once or twice, but it's the same thing over and over, just a different color. Neon sign, a different product in a paper bag or a different service that's on Main Street that you're visiting two or three days a week.
[00:35:39] That's part of your daily routine. Those are the types of things that a.
[00:35:48] 20 years ago, it was much more rare to see private equity in a franchisee or a franchisor because I think it was one of the reasons we liked it. It had a short line, well, the line's not as short now, but what you're seeing is a lot of brands are now owned by private equity firms. And so what we love is to be able to go to those private equity firms and say, look, you're trying to grow your franchisee base, and the more you grow, the more royalties you get, which is how you drive value and owning this brand well.
[00:36:13] We're kind of a professional investor in franchisees, and we may be a professional investor in brands too, but we've done a lot of franchisee work. And so if you're trying to grow your franchisee base or trying to consolidate it with professional investors, we understand that dynamic. We're not trying to guess like what the tri-party agreement needs to be signed or if there's a rofer on a deal, like we've helped plug into great operators and kind of removed the constraints.
[00:36:37] Keep them a small business. They may have 10 locations and they say, we, we. We're kind of tapped out at our bank. We don't wanna sell to a private equity fund that's gonna own 90%. We're gonna report to them. We wanna bring on a partner and we can go in and say, look, we've done this in 42 brands and we've done this for 20 years, and we can come in and maybe we buy two thirds of your business.
[00:36:59] And collectively we go and take this and grow it from 20 or 30 locations to a hundred over the next four years. But we'll put in the capital off the table, put it in. We'll put money in the business, help you build out your back office, help you build out a construction team, or leverage our resources there for new developments, help you build out an m and a infrastructure.
[00:37:18] Be ready to have a hundred locations when you're probably built for 20 currently. And then once you get to a hundred, we can go collectively sell this to another private equity fund that may wanna take it to 200, but the brand and the private owns brand loves that you've business and.
[00:37:36] So you've hopefully got a good investment in your hands, but the brand is also loving it 'cause they've got a growing franchisee that helps them drive value in their company too. So
[00:37:45] Sean Mooney: maybe with that value creation in mind and the flywheel and the compounding and this acceleration that you're bringing to the franchisees and the groups you partner with, what's maybe one of the value creation opportunities that you're really kind of thematically engaging with them now?
[00:38:00] Richard Fitzgerald: It really revolves around that removing the constraints to growth. There's just a lot of 20 location businesses out there with dreams of being a hundred, and it's a playbook and so it's not any one specific thing. It's taking a playbook and saying To get from 20 to a hundred, you're gonna need a new development function, so you're gonna need to go to the brand and buy territory.
[00:38:21] So you can go develop. You need to, to be developing with good returns, so you're not gonna develop if it's not working. But hopefully that's kind of table stakes for getting into the investment. And then hopefully as these brands consolidate, you're gonna need an m and a function to go acquire ones and twos and threes, kind of mom and pops to creatively acquire to hit your a hundred locations.
[00:38:40] And by the way, you need to build out your back office. You need to build out your team. You probably need an HR function. You need to incorporate some technology. You're not on QuickBooks anymore. Just these steps and process that need to be put in place. But that process and those steps are the same. If you're a Wingstop or a Taco Bell, a McDonald's, a Jiffy Lube, or a Crunch Fitness, those are very similar kind of steps.
[00:39:03] That's kind of what we bring. It's, it's finding the scenarios where we can be relevant is the opportunity for us. We're pretty ference. We've been through pandemic with a bunch of people, so hopefully we get feedback people, well, we. Collaborative, but don't have to come in and, and change the culture or run the business.
[00:39:24] We're trying to find good partners where they need capital and playbooks and, and resources that will help them kind of achieve their goals and at the same time, hopefully achieve the goals of we and our investors.
[00:39:34] Sean Mooney: I like so much of what you said there, and really as you think about being as an entrepreneur, the people that you're investing with, that's the really big, hard thing is like you get to a business, 20 locations.
[00:39:45] That's a really good company. But at some point you stall out unless you do something different. And I felt that even here at BluWave, like where you go through and if you're building a plane while it's flying, you reach this elevation. And unless you do something different, you add more infrastructure, more thrust in the engine, more power, like you're just not gonna get to that next level.
[00:40:05] And one of the things that I think in particular that I really appreciate that people should not sleep on is the investing in your infrastructure
[00:40:13] Richard Fitzgerald: a hundred percent. That's hard to do if you're just bank financing, right? Because if you've got 20 locations, whether you're franchised or all corporate owned, maybe it's a 20 location brand.
[00:40:24] A lot of businesses have bootstrapped, they've passed the hat to friends and family, and then they rely on the bank once they get to that scale to kind of continue to grow. But if you're gonna invest in infrastructure and maybe not be as profitable because you're doing that for a few years, playing for the long term, like that's not always consistent with what you can do with a bank.
[00:40:42] At the same time, you may not want to sell 90% of your business and retire. And so there's this kind of middle ground where I think that's where the flexible capital comes in and you can really can talk to them and say, what are you trying to achieve? Maybe that's a two step process. And we can design capital structures that may be a mix of debt and equity that can come from us one fund.
[00:41:00] We're not having to pull three different financing sources together to do this. Tap into the resource base and the learnings and the infrastructure that that we have and, and hopefully that's kind of a good combination to, to help get them to their reach, their full potential. That probably was never gonna be a possibility if they were just looking to own a hundred percent of the business and bank finance it.
[00:41:19] Sean Mooney: And there's that great proverb, right? You may be able to go faster alone, but you're gonna go further together. You bring in a partner and someone who's done it before. I think there's value to it. And just once again, I'm just double, double tapping for any of the entrepreneurs out there listening to this.
[00:41:34] It's easy to get bigger, but it's also easy for that house of cards to collapse if you haven't built into the rigging and the scaffolding and the pillars to do it. The batphone of B BluWave gets called all the time for multi-location businesses.
[00:41:47] Richard Fitzgerald: Yeah. We just exited a deal that we've been with this family run business for 12 years.
[00:41:51] We started out, they were doing kind of a complicated transaction, trying to buy some partners out. So we came in as kind of Mez with some warrants, and then the owner of the business. I think his sons at the time were not as interested in running it. So he actually said, would you like to buy my business?
[00:42:06] And we said we'd love to. So we'd gotten to know him through just being Mez. So we ended up stepping in and owning the business. We were kind of debt and equity in the cap structure. And then his son started getting more involved in the business and we're great operators. And he said, well, I think they actually do wanna run this and we buy it back from you said, sure.
[00:42:22] And so we went from being Mez to being an owner. To now being totally outta the business because the family's needs changed, and we were pretty flexible. We said, look, this has been a decade plus relationship. Been in and out of your cap structure, helped you triple in size, and now the family owns it Again, that wouldn't necessarily have been the case if a private equity fund said, yeah, you can buy it back if you can beat out 300 other private equity funds.
[00:42:44] Like it's, it was like, no, that was, we've been good partners and it's at a fair price.
[00:42:52] Kind of flexibility and more long-term relationship driven approach puts you in situations that can be really, really interesting. That may not be the case if you're just always trying to play for the quick win.
[00:43:05] Sean Mooney: And I love that. And maybe with kind of the circle of life in mind here, one of the things that I love to do is I don't often like to look back in my own past, but I love to get advice from those who do it for me.
[00:43:16] And so, so Richard, if you were to kind of look back to 22-year-old Richard. Say young Richard, here's a piece of advice for you that I wish I knew then and I'm sharing with you now so you can kind of have your best life ahead. What might be one of those kind of pieces of advice?
[00:43:34] Richard Fitzgerald: So for me, I think the importance of relationships and look, when you get out of college and you're in one of these training programs or in any kind of probably job outta school, I, I was really focused on learning skills.
[00:43:47] Skills, how to build a financial model or put a PowerPoint presentation together or keep processes moving. But the reality is those are somewhat commodity at the end of the day. If you look at the people who are running great firms or are great fundraisers, relationships are really their core. And I look back, I didn't have many interviews that asked me about my relationships or how I thought about relationships or how I built relationships.
[00:44:12] Had a lot of questions about how you build a financial model or let me get a do a case study. That's all important, but that's kind of table stakes in private equity. And I think once you get past maybe up through a senior associate or vp, you've kind of got that down and hopefully you check the box for doing that.
[00:44:28] But then the people that go from VP to starting their firms or kind of on fast tracks in their own firms relationships are really at the core. It's relationships that help you. Help you attract a management team to take your capital versus someone else's. It's relationships that help you find deals.
[00:44:46] And I think that that's something that a lot of people don't kind of carve out proactive practices around. And it's not fake, like let's go network. I remember we had business school, there was a teacher on networking and it was this awkward like, Hey, just go network. And it felt very strange. But Adam Grant got a book, the Give and Take book I think you were referencing maybe earlier.
[00:45:06] That's kind of an interesting play on. Just always finding ways to be helpful and connect dots, and that's building karma, but that's how business works. People want to work with people they trust and they know. And so you think about you're gonna be really successful in private equity, like be good at developing relationships and finding ways to help other people without expecting something immediately back.
[00:45:28] Like it can't be fake or superficial. It's like, no, if you can help somebody get a deal or you can introduce them to one of your investors that may also like their strategy. Do that every day and, and guess what? You may need a favor or you may be looking for an investor and you want that person to think of you because you helped them at that point.
[00:45:46] I just think that's critically important. Me as a 22-year-old, I didn't fully appreciate that, and that's not always something you can read about in a book or be trained, but I look at the people that I feel I have a lot of respect for, or that I look up to, or that I've considered mentors and, and really the core of their skillset is.
[00:46:04] They're great at developing relationships and, and maintaining relationships and finding ways to help people, and that's made them successful in their own right. I think
[00:46:12] Sean Mooney: that's a timeless advice, but probably no better to kind of embrace than right now as we witness the rise of ai. 'cause a lot of these skills now, they're, they're being equalized and democratized instantly.
[00:46:28] What's not being equalized and democratized instantly is the human part of us. It's this relationship part of who we are. Those are the things that are gonna really matter. It's the liberal arts education that's coming right back. It's the idea who can think and interact and build and grow and share and be humans together.
[00:46:47] That really matters. And I think your advice, as we said, it's not only important for, like when you and I were 22. Just a minute ago. At least it feels that way. But particularly today, for anyone coming up lean, lean, lean into this advice now because that is gonna be such a recipe for success in terms of what the world will be in terms of the growth, development, and the requirements to be not only a good human, but also a successful one.
[00:47:13] A hundred percent. So Richard, this has been a really awesome conversation. I've learned all sorts of things that I wish I knew about you before and now I do, which I think is amazing. But also I think I've become a better and a more insightful person as a result of this conversation. So that's a tremendous gift and I really genuinely mean that.
[00:47:33] And I've appreciated not only this conversation, but the ones we've had for decades at this point.
[00:47:39] Richard Fitzgerald: Well, it, it goes both ways. I appreciate all that you do for the private equity community. You've been a real, I mean, built an incredible business that I've always admired, and I'd probably tell your story more than my story when people are talking about interesting businesses, but maybe more than just the business just to.
[00:47:53] Proponent of the private equity industry and community. You're always thinking of ways to figure out how to get back to the community, how to, to let people know that private equity is a good thing for society and communities and the world we live in. So really appreciate all your efforts on that front.
[00:48:09] Congratulations on building a great firm with Blu Wave.
[00:48:13] Sean Mooney: Oh, thanks so much, Richard. Sounds good, and we will get together again soon, probably at one of your restaurants.
[00:48:18] Richard Fitzgerald: That sounds great. We'll go through the drive through together. Thanks, Richard. Thanks so much, Sean.
[00:48:34] Sean Mooney: That's all we have for today. Special thanks to Richard for joining. If you'd like to learn more about Richard Fitzgerald in CapitalSpring. Please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcast. We truly appreciate your support.
[00:48:49] If you like what you hear, please follow five star rate, review and share. This is a free way to support the show. And it really helps us when you do this, so thank you in advance. In the meantime, if you want to be connected with the world's best in class private equity grade professional service providers, independent consultants, interim executives that are deployed and trusted by the best business builders in the world, including many hundreds of top PE firms and thousands of their portfolio companies, and you can do the same.
[00:49:15] Whether or not you're in pe, give us a call or visit our website@BluWave.net. That's B-L-U-W-A-V-E. And will support your success onward. The views and opinions expressed in this program are those of the individuals presenting and do not necessarily reflect the user positions of any other persons or entities, including those referenced herein. No representations, warranties, financial, legal, tax, or other advice are made herein. Consult your advisors regarding any topics discussed during this episode.
THE BUSINESS BUILDER’S PODCAST
Private equity insights for and with top business builders, including investors, operators, executives and industry thought leaders. The Karma School of Business Podcast goes behind the scenes of PE, talking about business best practices and real-time industry trends. You'll learn from leading professionals and visionary business executives who will help you take action and enhance your life, whether you’re at a PE firm, a portco or a private or public company.
BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.
BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.
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