Category: Industry Interviews

Private Equity Interview with TCV General Partner Susan Clark

May 26, 2021 Sean Mooney

Susan Clark is an insightful force who spent nearly a decade in Dell operations prior to getting bit with the private equity bug. While watching Silver Lake Partners lead the privatization of Dell, a publicly-traded, end-to-end technology solutions company, Clark recalls: “After observing the transformation process, I basically decided I wanted to be on the other side of the table. I was good at fixing things, making operational decisions to increase efficiency, and I knew I could take my expertise and apply it to many companies beyond Dell.” So, that is exactly what she did.

Her first move was to Vista Equity Partners, where she held both VP of Operations and Chief of Staff roles, focusing on operational excellence and driving value creation across the portfolio. Now, as General Partner of Portfolio Operations at TCV, she has developed an operations strategy and model that helps fuel sustainable growth across the portfolio.

From her residence in New York City—where she is coaching a newly acquired company’s exec team through their first 100 days—we spoke about PE’s current state of affairs and why she is so enthusiastic about the future. During the interview, we covered everything from “sustainable growth” to what “operational excellence really means”, and why interim executives and experts are “necessary for the ebbs and flows of company growth.”

Sean Mooney: At TCV, you developed a portfolio operations strategy and model. What went into that formula?

Susan Clark: We are a growth-focused fund that focuses on technology businesses. The model I developed is specifically rooted in figuring out what will fuel sustainable growth over the long term. My team and I get involved in diligence to scope out operational opportunities, then do an assessment to determine the biggest needle movers. This can be anything from an updated go-to-market strategy, implementing a customer success organization, and/or looking at the discipline around their product roadmap. Ultimately our goal is to develop an achievable strategy that will quickly drive value while also building a strong foundation for future growth.

SM: In roughly 35 words, what is your definition of “operational excellence?”

SC: From prospect to product to a new market—you are confident it is the right thing to go after. In other words, when you throw the dart, you know you’re landing on the right board.

SM: In your opinion, what are a few of the greatest challenges portfolio companies face?

SC: After having worked with so many different companies and leadership teams, it typically comes down to feeling confident about taking calculated risks. This is where portfolio operations within a Private Equity firm can be helpful. We have the operational experience to help alleviate concerns about entering a new market, expanding a sales team, or going after an M&A target. In a sense, we offer a boost of confidence and support them while they start making investments in people, products, and processes that drive growth.

SM: I’ve heard you mention a “partner approach” to investing in companies. What does that look like?

SC: I’ll start with what a non-partner approach looks like, for sake of context. Ultimately, this is when an investor comes in and takes the stance that they know the business and customers better than the company owners. Then, they begin executing a plan, blindly and with little attention to nuances or details about legacy people, products, or processes.

Alternatively, with a partner approach, an investor believes that the current company leaders should run the business. While they (current leaders) may not have the best strategy in place for growth, they still understand the ins and outs of the business. In essence, at TCV, we bring the coaching, but the actual execution lands on the executive team. If the executive team—or one or two leaders within it—prove they don’t have the right skills to execute on the plan, or they aren’t coachable, then and only then will we move to find a more suitable candidate. This approach is somewhat a part of the evolution of the Private Equity industry over the last decade.

SM: Why is access to third-party, expert resources invaluable to Private Equity funds and their portfolio companies?

SC: As you know, because this is BluWave’s area of expertise, the needs of portfolio companies ebb and flow as far as demand. Private Equity firms don’t want to staff up internally, because of the episodic nature of these needs. We use best-in-class, vetted resources—search firms, Salesforce implementation experts, interim executives, advisors, and more—to fill these gaps and save time, money, and effort in the long run.

SM: What surprises you (and what would surprise others) about private equity?

SC: Private Equity has this “big bad wolf” aura: we break down the door, come in to tear apart companies, then cut costs in unsustainable ways. In my experience, we instead want companies to grow and flourish. Fundamentally, we want to facilitate getting them to where we believe they can be. The media and Private Equity detractors do a wonderful job of perpetuating this negative narrative, but I think things are shifting in positive ways, particularly with the post-Covid growth happening across PE-backed industries and sectors.

SM: Most would think your role is very cut and dry. But this isn’t always true. What are some of the soft skills required to do your job well?

SC: Simply put, change induces anxiety, whether it’s good or bad change—and this requires special attention to quelling fear and stabilizing emotions. As such, a large part of my job is coaching, and it squarely sits in the bucket of “valuing people.” Additionally, a key aspect of my role is rallying a company around a revamped mission or growth vector. I need to influence them toward the vision and get buy-in. I also have to ensure the CEO, executive team, and employees feel supported. This requires awareness, communication, and transparency. Presenting a spreadsheet filled with sales targets is one thing, listening to them voice fears about any aspect of executing a plan is quite another. I have to be able to do both.

SM: Finding the right talent is key and many companies can’t find talent fast enough. Would you rather step in as a CEO or spearhead HR.

SC: Hands down, CEO. HR is probably the hardest job on the planet, especially right now with so many changes and complexities in the current business environment. My hat goes off to them, but I’ll take the “chief job” any day of the week.

The views and opinions expressed are those of the author and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the author and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified above are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this interview and blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.

Private Equity Interview with LaSalle Capital partner & COO Kelly Cornelis

May 11, 2021 Sean Mooney

As the daughter of a retired sportscaster, Kelly Cornelis had little knowledge of the finance world growing up on the outskirts of Chicago. She entered college at Notre Dame as an English major and stayed there until her sophomore year—when one of her professors noticed her proclivity for math and suggested she enroll in some business courses. “I was immediately drawn to the analytical aspects of finance,” she recalls. This led her to an investment management class, where she had the opportunity to manage money from the college endowment and was given 200k to track stocks and invest on their behalf. The rest, as the saying goes, was history. 

Today, she serves as a Partner and Chief Operating Officer for Lasalle Capital, where she is responsible for deal sourcing and execution, financial operations, portfolio management, and investor relations.  Kelly is also a founding member of Chicago Women in Private Equity, is a member of WAVE and PE WIN (Private Equity Women’s Investor Network) and served as a Board Member of MBBI (Midwest Business Brokers and Intermediaries) and ACG Chicago. In 2018, she was named one of mid-market M&A’s “Most Influential Women” by Mergers & Acquisitions magazine.  

I had the pleasure of sitting down with Kelly and picking her brain about appointing female CEOs, how to create value, and how to embrace change in all its various forms. 

Sean Mooney: What are some investments you are most excited about at LaSalle Capital? 

Kelly Cornelis: We are primarily focused on the food and beverage sector, and we are seeing a tremendous amount of innovation, particularly in the middle to smaller markets. Because we invest in mostly small businesses, family-owned operations, or entrepreneurs, it’s exciting to partner with these founders and support them as they grow—despite a tumultuous 2020.  

One example is our portfolio company, Fresh Origins, the leading grower of microgreens and edible flowers in the U.S. It was founded over 30 years ago by a solo entrepreneur—he basically invented the category. He started with one greenhouse, and now we have over 30 greenhouses and over two million square feet of space in San Diego, California. Recently, we promoted his right-hand person to CEO, and she is steering the company toward rapid growth, given her vast experience and deep understanding of the niche industry landscape. 

SM: The PE industry speaks generally about “value creation” continually. What does this mean to you, specifically? 

KC:  We look at this in a variety of ways, but we mostly focus on revenue, EBITA growth, and margin enhancement (implementing production efficiencies). We also try to assess the strength of the management team; then we spend time adding the right-fit experts and people to finance, operations, sales, and other areas of importance. Although this isn’t directly related to numbers, it comes through in the numbers. Simply put, strong teams made up of the right people are what enable value creation. 

SM: 2020 was quite a year for the food and beverage sector. What were some positive results of the shifting pandemic world in terms of this industry?  

KC: Our portfolio companies were extremely impacted by covid-19, as you can imagine, and as a result, we implemented crisis management tactics and protocols at many of our food businesses—which were broadly recognized as essential businesses. Three of our companies are in manufacturing, and they sell to restaurants, so after the initial shock of March 2020, we adjusted by reducing headcount (unfortunately), implementing safety procedures, while simultaneously increasing wages for employees putting themselves at risk. We even had one of our portfolio company CEOs working the production line because we had several people out sick.  But many positive things came out of the pandemic as well. We became more efficient and also entered new sales channels. All of the companies are now performing extremely well and almost back to pre-COVID sales; and I think many of the changes we have seen in consumer behavior such as grocery delivery, take-out, and meal kits and increased focus on healthier eating will stick. 

SM: How do you leverage interim executives and experts to create value within your portfolio companies? What resource areas are most “in demand” right now? 

KC: We use interim executives for various reasons: if someone leaves unexpectedly, or need specific project expertise for ERP systems. We often bring in interim CFOs before we exit a business because we need extra help with the sale process. As far as experts in demand,  covid-19 has created opportunities for new channels and new products. Using Fresh Origins again as the example, we are going into the retail channel, so we are looking for experienced sales executives and expert resources to help us take advantage of this opportunity. 

SM: Above all else, what is the one quality you always look for in a leader—whether short-term project hire or long-term for company growth? 

KC: We have seen different styles work in different situations, and not all leaders are cut from the same cloth. But the ability to problem solve is the key; being able to create solutions that move quickly and not get sidetracked or bogged down by every little obstacle that arises. 

SM: Any advice for striking that elusive work/life balance, particularly in our increasingly virtual and 24/7 world?  

KC: Being on devices all day is draining, compared to pre-pandemic when you were meeting someone in person for lunch or coffee. I’ve been trying to take technology breaks throughout the day—go for a walk or read a physical book. I don’t think we realize the impact this is having on our mental and physical health. As we move into the “new normal” we need to retain some balance and not let ourselves get sucked into our desks, our computers, and our phones. 

SM: In one sentence, what was the biggest, unexpected change in 2020 that you are embracing in 2021? 

KC: Being less scheduled, not attending kids’ birthday parties [laughs], and not commuting. 

Interview With Forrester’s CMO Executive Partner Sheryl Pattek

April 15, 2021 Kyle Johnson

As Forrester’s Executive Partner serving CMOs and Chief Experience Officers, partner, Sheryl Pattek regularly works with senior-level marketing executives to advance their major initiatives, with a special focus on creating customer-obsessed strategies that drive business growth. She has been named “CMO Whisperer” and “One of 18 People in Marketing You May Not Know, but Should,” as well as “one of the thirty most influential women in marketing technology.” Prior to joining Forrester, Sheryl spent over 30 years leading global marketing organizations for both Fortune 500 and early-stage companies in the logistics, transportation, software, software-as-a-service (SaaS), technology, and telecommunications industries.

Are you impressed yet?

Candidly, as a career marketer, she is both inspirational and intimidating at the same time; but gratefully acknowledges she is continually learning and transforming just like the rest of us. When I requested an interview recently, she graciously accepted and dropped knowledge in areas ranging from how to measure marketing success to why interim CMOs are more important now than ever.

Kyle Johnson: Why is due diligence in digital marketing important?

Sheryl Pattek: When you are doing M&A it is imperative to dig in to see what is really there, versus what you are being told on the surface. As today’s consumers and business buyers prefer to engage in digital channels, it is important to understand the tech stack and get a picture of what products are currently used to manage overall customer engagement. It’s also extremely important to know what the data looks like (is it “clean” data or does it need extrapolation) and who owns the data. To create a connected customer experience in today’s digital environment both a strong tech stack and robust data are critical. Customers will accelerate decision-making if they have a good experience, and if not they will “vote with their feet” (and go right out the door) as the saying goes. So, digging into both areas to ensure they are solid is vital to achieving the value a specific M&A is looking for.

KJ: How do you measure the ability of a company’s marketing function?

SP: In terms of its ability to drive growth, the first thing I look at is the business plan and the marketing plan to determine if they are aligned. In a B2B environment, marketing is seen as a driver of growth, owning part of the pipeline and new customer acquisition, in addition, to cross-sell and upsell opportunities. So, alignment between the business and marketing plan ensures that the marketing team will deliver or exceed expectations. Next, I look at the KPIs to see if they map to business outcomes: I want to know the length of time it takes for a customer to make a buying decision, how many “touches” until someone buys, what the ROI looks like, and if they are doing attribution in a way that is actionable. Once I understand the baseline, I try to assess whether or not the existing marketing team has the core capabilities in place to implement go-to-market plans, customer acquisition strategies, or continuous improvement processes. Beyond that, do they have the ability to make data-based decisions and a 360-degree understanding of their customer base.

KJ: Is interim/fractional CMO a thing? Are you seeing this trend post-Covid?

SP: It is definitely a thing and a model that is growing quickly for several reasons. For midsize companies, the interim model is an efficient way of covering a tremendous amount of ground in a short period of time. Typically, as you likely know, it takes at least four to five months to find a full-time marketing executive. Then, once they are on-boarded, understand the business, and start having an impact, you are talking at least six to nine months. Even then, you don’t really know if you have the right fit.

The fractional model allows you to hit the ground running with very specific deliverables in a short period of time. It enables you to then iterate quickly. If you are midsize to a smaller company, you may have a marketing organization of doers in place. An interim CMO can quickly provide strategy and some leadership to kickstart results and accelerate growth. Then, you’d have the flexibility to bring in a fractional CMO episodically, as needed.

KJ: Any insight for hiring a fractional CMO?

SP: If you’re a CEO looking for interim talent, my number one suggestion is to not do it on your own. By tapping into experienced, robust networks, you can find a resource that fits culturally, skills-wise, industry knowledge-wise, and many times even geographically. The typical CEO is not going to have a deep well of interim experts at their disposal.

KJ: What is marketing’s role in creating value for a company?

SP: First and foremost, building and driving a growth engine. Second, bringing customer understanding to the c-suite so decisions are made from the outside in. Third, typically marketing is thought of as owning the company brand. But I prefer to think about the value marketing creates as going beyond just the brand. It’s marketing’s role to link together the brand’s value, the customer’s experience, and employee’s experience to provide the necessary underpinnings of the growth engine.

KJ: Last but not least, what is one marketing trend you’re seeing emerge in 2021.

SM: There are quite a few, but the one companies need to adjust for now is related to data privacy and the changes being made with regard to third-party cookies. These sweeping changes underscore the importance of first-party data. In short, companies who own their own data will win.

Private Equity Interview with MiddleGround Capital founder Lauren Mulholland

March 18, 2021 Sean Mooney

What happens when a former New York investment banker and mother of two young children (with a third not far behind) decides to take a “measured risk?” First, she teams up with long-time colleagues John Stewart (no, not this one, this one) and Scot Duncan in Lexington, Kentucky; next, together they decide to build a franchise focused squarely on the middle market; and, certainly not last, in under three years they grow their private equity firm to a team of nearly 40 individuals, raise capital for three funds, and invest in ten companies within the industrial and manufacturing space. Mission accomplished? Hardly. She’s just getting started. 

This is all in a day’s work for Lauren Mulholland, founding partner of MiddleGround Capital. Speaking with her was not only enlightening but inspiring, as she and her team have opened the aperture on what’s possible for private equity investment for the “missing middle.”   

Katie Marchetti: What was the genesis of MiddleGround Capital, and what circumstances led you to that choice? 

Lauren Mulholland: For me personally, it was an opportunity to be a leader of an organization from day one, and to build a team and culture I could be truly excited about—along with partners committed to a common vision. Scot, John, and I had all worked together for nine years and have complementary skill sets, so I had confidence in our collective ability to execute against our plan. Together we had experience across all aspects of the business: sourcing, execution, back office management, and portfolio operations. 

In terms of the firm’s vision, we wanted to build a specialized franchise for the middle market.  Most private equity firms start in the lower middle market and then move up-market as they raise bigger and bigger funds. But we are taking a different approach and have committed to our investors to keep our first three flagship funds under $700M. This allows us to stay focused on the middle market, where we see substantial opportunities to acquire privately-held businesses ripe for operational improvement 

KM: I like to ask this question because it seems like a good way to understand someone’s thinking in short order. So, as an homage to Hemingway, what is your “six-word story”? 

LM: Measure risk, but take your opportunities. 

KM: What was the most challenging aspect of raising your first fund and getting those first three portfolio companies? 

LM: Getting our first institutional investor was a huge milestone, but we closed three deals before we held a final close on the fund, and this fast-tracked the entire process. The more challenging part was wearing multiple hats at any given time and figuring how to be the most effective. One hour I would be focused on sourcing, the next hour fundraising, the next diligence—plus I was hiring people and constantly acquiring more office space, and this is an entirely different aspect of the business. 

KM: Speaking of hiring, do you have a professional guiding mantra or principle for “why” you make the choices you do?  

LM: I try to hire people that are smarter than I am but also have the right worth ethic. We seek out individuals who are proactive and entrepreneurial but have mastered certain skills. At the end of the day, we are a services firm in service to our Limited Partners, so it’s all about the “right fit” people. 

KM: What is technology’s role in what you do, and for the future of PE in general? 

LM: Having access to data is extremely important and gives us an edge, and I see this “data first” mindset being adopted industry-wide. As an example, we work with third parties to obtain data to help us prioritize our sourcing initiatives and optimize where we are spending our time.  We have also invested in building out a dashboard using Microsoft BI, so we have comparable analytics on all of our portfolio companies available at our fingertips, enabling us to spot trends quicker and make better decisions. For our portcos specifically, we focus on upgrading them along the tech continuum, including helping them understand and embrace automation as the manufacturing industry goes through a transformational shift.  

KM: Third-party resources are a substantial part of what you offer your portcos. Any best practices for how to source and engage with third-parties so everyone wins? 

LM: We try to engage with key providers for each specific work area. In other words, “right fit experts” who have deep knowledge and functional expertise in a particular resource area. Beyond that, third-party service providers are an extension of our firm, so they have to be willing to understand our approach and our culture. This is where a firm like yours has been valuable, because, much like our approach, you have data that can easily map resources to our specific needs and even geographical areas. Finding these third–parties quickly is also extremely important. 

KM: In ten years, where do you see the private equity industry? What has changed, for better or worse? 

LM: I think private equity’s reputation needs to change, particularly with an increasing emphasis on ESG that many firms are putting in place. PE has historically been known as a white man’s world that utilizes high leverage to financially engineer a return and doesn’t invest in its companies or people. That story and reputation is an outdated perspective, and while convenient for media narratives and PE detractors, is not the reality. 

At MiddleGround, we are working on a project right now to highlight change agents in the industry and bring to life some stories that talk about diversity, sector expertise, investing in businesses, growing jobs, and ESG efforts. My hope is that, as a community, the firms and professionals who share these shifting perspectives will come together and invest in redefining the brand of private equity. After all, if we expect our portfolio companies to continuously invest in themselves and their markets, we must be willing to do the same.

An interview with Blackstone Growth’s Ann Chung

December 14, 2020 Sean Mooney

It’s not every day you land a job with one of the world’s leading investment firms ($571 billion in assets under management), then one month later find yourself amidst a global pandemic—just as you’re getting acclimated. Enter Ann (Kim) Chung. In February 2020, Blackstone made this announcement welcoming her as a core part of their nascent endeavor, Blackstone Growth (BXG). As Ann puts it: “We are like a startup. Most of us at BXG are from outside the firm; we are a scrappy, entrepreneurial effort that’s rapidly growing.” A few weeks ago, in a rarefied interview, I captured her thoughts, feelings, insights, and predictions for how life in the investment world is shifting beneath our feet, while altogether keeping its “long view” fundamentals.

Katie Marchetti: What was it like joining as managing director for BXG, then immediately getting hit with the economic contraction?

Ann Chung: When I joined in February 2020, I was just beginning to work on integrating within a large firm [Blackstone]. Then Covid hit, and we all began working from home. Simultaneously, we were getting ready for a big LP event, and at the last minute had to flip it to a virtual format. This was the moment I thought: “Ok, this is going to be much different than what I expected.” At first, the firm was doing a lot of virtual meetings to maintain connectivity (over time it was pared back), and I was a little overwhelmed because I was still in the “getting to know you” phase with everyone—it’s different attempting to build a relationship over a video call. But Blackstone did a phenomenal job of checking in with me, with everyone, to make sure the culture was preserved.

KM: Did the pandemic change your initial investment focus?

AC: I was focused on consumer-based companies, and no one really knew what the consumer was going to do in the pandemic-driven environment. I basically thought I was going to sit around for a year, but within a few weeks the consumer began bifurcating rapidly; assets followed suit. Relationship-based, value-driven brands with loyal customers grew almost overnight. But the consumer traded down pretty quickly if they weren’t heavily invested (emotionally, economically) in a particular brand. In other words, the consumer chose the tried and true value option. This is why iconic, legacy brands like Kraft (and the P&G portfolio as a whole) did well, driven in part by the fact that grocery stores and retailers went back to basics.

In terms of deals, we quickly spotted winners in the consumer space and were very busy in April, May, and June. My first deal at BXG, with oat-milk company Oatly, closed in July. I thought we were going to get a breather, but we continued to get inundated with amazing opportunities, and as a result raised the bar on the types of deals closed.

KM: In your opinion, what makes a company “poised for high growth”?

AC: Companies poised for high growth have a proven ability to execute really well on their particular focus area. Essentially, this gives them “permission” to expand beyond the core product. I call this a “concentric circle” model. To use Oatly as an example, the company executed well on core milk products. They launched in high end coffee shops and proved to artisanal baristas why their product was better. This gave them permission to expand into grocery retail; now they produce ice cream, yogurt, and more.

KM: How has 2020 shifted your thinking about anything from your personal approach to daily life to your investment thesis? How will this affect decisions made moving forward into 2021?

AC: We have little kids (ages two and four), so when Covid hit it was suddenly extremely hectic. Every day felt like we were gearing up for battle. Over time we figured it out—lots of communication and flexibility. My husband was a godsend, and, because he’d been in his job for a while (and mine was new and all over the place), he did the brunt of housework and childcare.

The combo of all the disruption and the announcement of Oatly opened the floodgates. From late summer to early fall, I was on calls for 12 hours a day, working weekends, etc. When you’re working from home, it’s really easy to just schedule back-to-back calls. By Labor Day, I was back in the physical BXG office, so my husband and I had to find a new normal again. For most of 2020, I’ve had a lot of balls in the air, and I wasn’t able to give the right amount of attention to the right things. So for 2021, my goal is to carve out time to relax, spend quality time with my husband; and on weekends spend time exclusively with my kids.

Also, I’m trying to refine my own process for 2021, and not be tempted to look at other people. I’m trying to stay focused.

KM: What is one (or more) myths about private equity you wish would go away for good?

AC: There’s a pervading theme that investors are all super greedy capitalists. Certainly there are some who have a singular focus, but for the most part the people I’ve come across are focused on building businesses, not breaking them down and extrapolating every dollar. PE funds are generally good fiduciaries, and they aren’t making decisions solely based on the money.

To use Oatly as an example (again), part of our investment thesis was based on the CEO vision: Oatly can be a change agent for environmental sustainability on a large, global scale. The idea that a company can make money and do good. I think many funds are taking this holistic approach to investing, it just doesn’t get a tremendous amount of attention.

Lastly, I’m trying to open the aperture for future investments. I want our portfolio to be inclusive. As a team, we are working on laying the groundwork for these initiatives. As a thesis-driven growth fund, we are looking for all the players who can help support our thesis—and we believe this will come from casting a wide net, not by getting stuck in an echo chamber.

An interview with Hidden Harbor’s Chris Paldino

December 2, 2020 Sean Mooney

There’s a common misperception that private equity (PE) firms only make investments to maximize short-term profits, but this generally isn’t the case. Many PE firms develop long-term relationships with their portfolio companies (portcos), and the COVID-19 pandemic has been a reminder that these relationships can prove invaluable in times of crisis. Chris Paldino is a Managing Partner of Hidden Harbor Capital Partners, and he has more than two decades of PE experience across predominantly Business Services and Industrials industries. Chris understands the value of healthy relationships between PE firms and their portcos, and he recently took the time to chat with BluWave CEO Sean Mooney about how these relationships are sustained and what changes he’s seeing in the PE industry during COVID-19 and beyond.

Sean Mooney: What will the PE industry look like in 2021?  

Chris Paldino: Our economy will likely continue its recovery in 2021, although economic activity will still be depressed, particularly in certain industries. The stark contrast in performance across different end markets will likely create PE portfolios with more of a “barbell” profile than expected (which refers to having winners and losers with less in between). This has wide-ranging implications for industry participants that invest across the capital structure.

SM: What lessons have you learned during the pandemic?  
 
CP: The pandemic has forced many changes that have affected all of us to varying degrees and we have focused on supporting the health of our colleagues.  Quarantining and social distancing has created isolation while health concerns overlay fears about jobs and financial well-being. This combination results in increased stress and a lack of healthy interactions to counteract such stresses. This is why we have encouraged our employees to take more frequent vacations and tried to enable full disconnection from work during these times.  Relatedly, we have also highlighted the importance of managing mental/emotional well-being.

SM: How do you ensure that your portcos are creating value? What are you doing to support them?  

CP: We have an in-house operating team that works full-time with our portcos. Their job is to provide guidance and resources that accelerate each company’s progress on growth initiatives. This team differentiates Hidden Harbor from others in the lower-middle market and helps to deliver better, more consistent outcomes for our investors.

SM: What types of companies excite you the most? 

CP: We look for companies within business services and industrials with strong value propositions that are founder-owned or a division of a larger entity (corporate carve-outs). We believe these situations align with our in-house operational capabilities and hands-on approach to building value.

SM: What has been your deal sourcing strategy through the downturn? 

CP: We have used this time to more effectively convey Hidden Harbor’s key areas of industry expertise. To do this, we have expanded our roster of Executive Partners in focus industries and spent more time developing relationships with industry bankers.

SM: What attributes do you look for in leadership teams for your portfolio companies? 

CP: We tend to focus on hiring ethical managers who have proven experience executing on initiatives that will build value at a specific company. Colin Powell said it best when he advised to “hire for strengths, not lack of weaknesses.” Therefore, we develop a detailed list of experience and competencies for each candidate that are needed to drive identified areas of value creation. We then interview and grade relative to those competencies. This process helps us distinguish between candidates we like and those who are most likely to create value.

SM: How has 2020 shifted your investment thesis? 

CP: 2020 has been challenging and it has reinforced our view that our most important job is to support our management teams. There was no playbook for operating through a pandemic and, in many cases, there were no good solutions available. We are so thankful for the extraordinary efforts of our portfolio management partners who continue to work through this unprecedented situation. My hope is that 2020 provides an important reminder that value is created at the companies by talented individuals, not in the PE conference room. Anyone who thinks otherwise is looking at the world through the wrong lens.

SM: What’s one myth about PE you wish would go away for good? 

CP: There’s a perception that PE is solely focused on short-term shareholder gains. However, we believe that investing in businesses to promote long-term success is the only way to consistently build enterprise value. Consequently, we invest in people, processes, and systems that promote long-term growth and organizational health across our portfolio.

SM: What are your suggestions for outsourcing expertise? 

CP: I spend a lot of my time ensuring that our diligence processes focus on critical questions and that we have the right resources evaluating each of these important issues. We must be brutally honest about where we lack expertise and access experts who can guide us appropriately in these areas. Firms such as BluWave help us quickly identify resources to help across diligence and post-close value creation.

An interview with CapitalSpring’s Richard Fitzgerald

November 17, 2020 Sean Mooney

COVID-19 has fundamentally altered the way many businesses operate, and restaurants have been forced to make the most significant changes of all. Richard Fitzgerald is a co-founder and Managing Partner at CapitalSpring, a PE firm dedicated to the restaurant industry (companies in their portfolio include staples like Taco Bell and Dunkin’ Donuts), and he recently shared his insights about how his portfolio companies are responding to the pandemic and what his industry can teach us about navigating one of the biggest crises companies have faced in decades.

Sean Mooney: What do you see as the post-COVID future of the restaurant industry?  

Richard Fitzgerald: The National Restaurant Association recently reported that the restaurant industry has experienced 100,000 closures tied to the pandemic. Many of those are independent mom and pop businesses or concepts that come into the pandemic in a weak position. The industry has become crowded – growth in the number of restaurants has been outpacing growth in the population. In other words, supply has been exceeding demand, which could ultimately mean COVID-19 will be healthy for the industry because it corrects for the imbalance.

Post COVID-19, labor management will likely be easier, as higher unemployment will lead to easier hiring and lower turnover. It’s been hard for restaurants to grow in recent years, because rents have been high with fierce competition for good locations. More affordable locations will become available after the pandemic; meanwhile, a pivot toward delivery, drive-through, and off-premise services will take place. Fast casual restaurants (FCR) and quick service restaurants (QSR) will likely see continued growth, as they are best positioned for our “new normal.”

SM: What has CapitalSpring been focused on over the past six months?  

RF: Between March and June, we stopped looking at new deals and really focused on the portfolio. We talked to most of our companies every day for months. We didn’t know how long the headwinds would persist, so we wanted to fortify portfolio company balance sheets and ensure operations were as efficient as possible, and prepare for a severe and protracted downturn. We also worked closely with the portfolio to ensure off-premise capabilities were optimized, including creating temporary drive thrus and outside dining rooms with tents in parking lots and other stop-gap measures.

SM: What attributes do you look for in your companies’ leadership teams? 

RF: We’re always trying to find leaders who have solid track records of managing through certain environments and against specific goals. If we’re looking to back a company that will focus on acquisitions, we try to find someone who’s done that before. Matching up leaders’ experience and track record to the growth strategy of the business is a core priority for us.

Throughout COVID-19, we’ve had a lot of discussions with portco leaders about how they handled the economic crisis in 2008 and 2009, and the current crisis will help to inform relationships with portcos down the road. For example, we’ll be able to ask, “What did you do when you saw the news about restaurants being closed, people sheltering at home, and so on?” This is a new stress test against which we can evaluate people and companies. If managers did a good job through the pandemic, they’ve been battle-tested and will likely be reliable partners in future crises.

SM: How does CapitalSpring use third-party resources and expertise to fill gaps with their portfolio companies? 

RF: There are a lot of great resources out there that help improve decision-making around new site selection – for example, resources that can be used to identify the right location to build a new restaurant by leveraging AI to analyze large datasets of variables related to traffic patterns, site attributes, and local demographics. We also rely on third parties for supply chain and procurement analysis – everything from napkins and food to how restaurants can improve their facilities by reducing the cost of engineering and maintenance.

We work with a group that helps us look for efficiencies at the store level and optimize menus (there’s far more science behind this than most people realize). There are data analytics services that can tell restaurant owners how to implement a 3 percent price increase while minimizing reductions in foot traffic – for example, by changing prices on items that people purchase less frequently (think hash browns versus the Big Mac). We collect a lot of proprietary data with our portcos, but in some areas they don’t have the “depth of data” that third parties can provide.

SM: How has 2020 shifted your thinking about how you interact with portcos? 

RF: One major challenge is maintaining a healthy company culture while working remotely. I spend a lot of time just calling colleagues and checking in on them now. You don’t need to be as proactive about culture when people are seeing each other every day, but now it’s difficult to know who’s overwhelmed or who’s potentially dealing with stress at home.

SM: What is one myth about private equity you wish would go away for good? 

RF: There’s a pervasive idea that PE firms buy companies, strip them down, and try to sell them as quickly as possible to make a profit. In the vast majority of cases, this simply isn’t true – the industry often adds jobs, spearheads diversity initiatives, and brings focus on environmental, social, and governance (ESG) issues. PE firms also cultivate long-term relationships with their portcos – there are times when we’re lenders and times when we’re owners, but our role is always to put a company in the strongest possible position to succeed. That way, everyone wins.

An interview with The Halifax Group’s Scott Plumridge

October 28, 2020 Sean Mooney

As American companies fight to recover from COVID-19 and the resulting economic downturn, the private equity industry has stepped in to provide capital, expertise, and many other forms of assistance. But how, exactly, are PE firms approaching such an unprecedented situation? What lessons can they teach other companies, including those that aren’t PE-backed? What does the future of the industry look like? Scott Plumridge is a Managing Partner at The Halifax Group, and he recently took some time out of his busy schedule to answer these questions and offer other insights on the state of the PE industry.  

Sean Mooney: What industries and companies do you primarily invest in? 

Scott Plumridge: We invest in healthcare and pharma services, business services, and franchising companies. Examples of our prior and current portfolio companies include Caring Brands International (the leading international franchisor of homecare), StrataTech Education Group (a major welding and training school for HVAC and industrial trades), AAMP (a provider of aftermarket parts for vehicles), and many others.

SM: What kind of strategies have you implemented and what investments have you made during the economic contraction and why? 

SP: The pandemic has been a great time to highlight the value of functioning PE relationships for a lot of small to medium-sized businesses. Many were dealing with supply chain issues, closed facilities, or COVID breakouts with staff. We helped to plug the financial hole – non-PE-backed companies don’t have our financial resources. But we were also able to give our portcos “CliffsNotes” versions of best practices and considerations.   

For example, we started a weekly newsletter and webinars that ran over the course of eight weeks, which discussed issues such as furloughing employees, safety, how to bring teams back, unique forecasts for each company, cash flow, and contingency plans. We wanted to make sure companies had capital to weather a storm, fund new models, and meet new requirements (masks, shields, and so on). It’s essential for PE firms to provide emotional, technical, tactical, and financial support to keep businesses on track. We’ve got ten portcos, and we’re consolidating best practices and using them with all our companies. 

SM: What general advice would you offer other companies trying to get through a period of economic uncertainty?  

SP: The hardest discipline we offer in the middle of an environment like this is: don’t forget about your growth plan. Look for opportunities to offer new services or products. We had multiple companies launch new services or complete acquisitions during this period.  

SM: What role does data play in your decision-making, as well as portcos’ ability to be agile and quickly make decisions?  

SP: One of the biggest things is data transparency. Our companies need help organizing and understanding datasets. We help them set goals against data and the overall business environment, then we use that data to enhance offerings compared to competitors. Figuring out how to channel and productize data can be an alternative business model. 

SM: What can non-PE-backed businesses learn from the way PE-backed companies approach growth and value creation? 

SP: Two things came to mind. First, I would tell any independent business: don’t try to do it all by yourself. Seek out experts and build a diverse team. We come in and work with our management team, then we bring in a bespoke set of directors to identify gaps and fill them, and selectively use third parties (which BluWave helps us with). Have a good group of advisors who will hold you accountable and who have a stake in your success. 

Second, constantly be looking for undiscovered opportunities for reinvestments. Every company we’ve ever worked with has had fabulous reinvestment opportunities that were unrealized when we came aboard. Most people have either become set in their ways with a narrow vision of what their business is, or they’re scared to reach into their wallets and fund themselves. We can unlock new opportunities. The highest return dollars come from reinvestments we do after the initial investment. 

SM: What trends are you seeing over the next six to twelve months? 

SP: The role of PE will only become more vital. There are tough times ahead, but as other sources of capital shrivel up, PE will step in to keep companies moving forward and fill the void.

An interview with the American Investment Council’s Drew Maloney

October 12, 2020 Sean Mooney

At a time when companies are in desperate need of capital (and every other form of support they can get), the private equity industry has assumed a larger role in the U.S. economy. That’s why now is a good time to take a closer look at private equity – how it functions, the ways in which it’s misunderstood, and how it can help companies get through one of the most difficult economic downturns in decades. Drew Maloney is the President and CEO of the American Investment Council (AIC), and we’re delighted that he was willing to speak with us about how his industry works, how PE firms are responding to COVID-19, and what other companies can learn from private equity.  

Sean Mooney: What role does PE play in the U.S. economy?  

Drew Maloney: Private equity plays a significant role in the economy – the industry invests in more than 30,000 companies in every state and district, directly employs 8 million workers, and provides capital, expertise, and supply chains to help companies grow and restructure. PE investments also provide significant returns to retirees throughout the country, making retirements more secure.  

During economic distress like this one, flexible and patient capital is more important than ever for businesses to stay open and continue to employ their workers.  

SM: What are the biggest misconceptions about the industry?   

DM: At AIC, our primary mission is to educate policymakers about success stories. In the news cycle, conflict sells. But the majority of PE deals are successful. The fact is that private equity investors are deeply committed to the success of their portfolio companies. In addition to the reputational risk of failed investments, they’re required to have “skin of the game” and invest in the funds that they manage. 

PE firms invest in businesses of all sizes, but particularly in the middle market. Many of these businesses don’t get the attention of the big splashy public companies, so the public doesn’t necessarily hear about the value that private equity is able to create in their portfolio companies. It’s incumbent on the industry to explain how we’re helping companies get through COVID-19 and making the economy stronger. We have to define ourselves or others will define us. 

SM: How did the private equity industry perform during the Great Recession? 

DM: PE-backed companies are better positioned to ride out a downturn – during the last recession, for example, they generated returns well above 10 percent per year. For one thing, they’re much more nimble, agile, and can move faster. For another, they have operational expertise, access to capital, and extensive networks, which eases the burden on managers and allows them to take the time to create lasting value. This is what I describe as long-term, patient capital. 

SM: How is the PE industry responding to COVID-19?   

DM: PE managers are working to save and strengthen the businesses in their portfolio. As liquidity dried up earlier this year, private equity managers made PIPE deals with public companies, invested in debt instruments in dislocated markets, and made equity investments in businesses that needed capital to ride out the pandemic. They also contributed to their communities, donating hospital beds, spearheading back to school initiatives, and providing resources to teachers and parents.  

For example, we recently launched a new Back to School initiative because we know so many families are trying to navigate this unprecedented school year. If you visit our website, you can learn how private equity-backed companies are helping make school safer and more accessible for students, teachers, and parents.   

SM: What can non-PE backed companies learn from the PE industry, particularly during COVID-19?  

DM: First of all, they need to have the flexibility to react to a rapidly changing marketplace. They should always think ten years out and try to make decisions over the long term. It’s also important to avoid panicking – tap into your networks, develop a plan, and be prepared for an environment of uncertainty for the foreseeable future.

State of PE: An Interview with Huron Capital’s Gretchen Perkins

August 13, 2020 Sean Mooney

Private equity is a widely misunderstood industry – from the common belief that Private Equity firms snatch up companies just to strip them down and sell them to the lack of awareness about the pivotal role PE plays in the modern economy. Gretchen Perkins is a partner who focuses on business development at Huron Capital, and there’s nobody better to correct the mistaken assumptions about her industry and give us a glimpse into the current state of PE. Gretchen was kind enough to answer a few of our questions about the state of her industry, the effects of COVID-19 on her firm, and what she envisions for the future. 

Sean Mooney: Tell me a bit about Huron Capital’s investment focus. 

Gretchen Perkins: We’re a middle market PE firm that implements a buy and build strategy to grow businesses. We focus on business services, consumer goods, and specialized industrial companies in the United States and Canada. We have both a control buyout strategy and a non-control equity strategy.  

SM: What are a few of the biggest myths about the PE industry? 

GP: The single biggest myth about PE firms is that we buy companies and sell them in pieces to make our money. The PE industry is a significant job creator across the U.S. – over the past ten years, PE-backed businesses created more jobs and secured more sales than other companies. There’s a reason college endowments, pension funds, insurance companies, foundations, and nonprofits invest in PE – it has been the single leading asset class over the past 20 years. There are billions of dollars flowing into PE because of the returns and the fact that the industry creates more value and is less volatile than other investment vehicles. 

Despite the perception that PE firms always take over and try to sell companies quickly, the PE industry plays a long-term game. Firms generally want business owners to stay and maintain equity in the business – they don’t just take over.   We want to make the companies substantially better over time because it’s the best interest of both our firm and our stakeholders. 

SM: What was your firm’s initial response to COVID-19? 

GP: We acted several weeks before everything started shutting down to increase support for our portfolio companies. For example, we developed a Rapid Response Playbook focused on the implementation of safety protocols and developing guidelines for remote work. There are 7,000 employees at our portfolio companies, and their safety is our top priority.  

SM: How do the prospects for recovery look?  

GP: When the crisis hit, we immediately started doing 13-week cash flow forecasts, and we’ve discovered that things aren’t as bad as we initially thought it could have been. Now we’re focused on implementing our Restart Playbook, which is designed to take a close look at business operations across our portfolio and help companies emerge from the crisis even stronger and more adaptable. We’re doing everything we can to help our portfolio companies navigate COVID-19 and the economic aftermath, but our management teams are rising to the occasion. This should serve as a reminder that in the current state of PE, firms are more interested in finding effective partners they can work with to build great companies over the long run than ineffectively micromanaging the companies in their portfolios.  

SM: What types of businesses are you focused on investing in and growing now?  

GP: We’re looking at add-on acquisitions to companies that can thrive during the crisis – insurance companies, for instance. We are also looking into food and beverage businesses that have proven to be COVID-19 resistant. But what we’re most interested in are companies that have solid leadership teams and growth potential – these are the partners that will help us move into the post-COVID-19 era in a stronger position than ever.

Industry Insights: An Interview with ParkerGale’s Devin Mathews

July 21, 2020 Sean Mooney

This is an unprecedented time for private equity firms and their portfolio companies. As the economy begins to show signs of a tenuous post-COVID-19 recovery, there is no telling how the business landscape will be impacted. But one thing is clear: PE will be a major factor in the recovery. Devin Mathews is a partner at ParkerGale, and he generously took the time to discuss his firm, perceptions of the PE industry, and what investment trends we should be keeping an eye on right now. 

Sean Mooney: Tell me about ParkerGale’s history and investment philosophy. 

Devin Mathews: ParkerGale was founded in 2014, though the founding team worked together running the technology group at another private equity firm. We only do tech buyouts (not venture capital or growth equity) and always take a majority control position. We only buy in two ways: directly from bootstrapped founders or as carve out divisions from larger companies. Both of these strategies have similar dynamics – good businesses that need some care and attention. We focus on owners who are at an inflection point with all their wealth tied up in the business – we help them greatly reduce their personal financial risk and take their businesses to the next level. 

SM: Why would an owner want to partner with ParkerGale?  

DM: Quality, not quantity, is our ambition. At the end of the day, founders bring us in because they believe we’re going to respect the businesses they’ve built. We’ll change things, but the employees will still feel like it’s a great place to work. We place a heavy emphasis on culture and developing people at our portfolio companies, and even though our expectations are high, we recognize that we have to provide the necessary resources to meet those expectations. 

SM: What are a few of the biggest myths about PE? 

DM: For starters, not all PE firms are created equal. There are different types of PE firms out there: some are more transactional, while others are more hands-on and operational to help companies build long-term success.  

Also, it’s important to recognize that private equity is the economy – it’s not a niche asset class anymore. There are twice as many private equity-backed companies as public companies. This is all the more reason why PE firms have to focus on improving the image of the industry and showing others that our success as an industry is determined by the long term success of the companies we own. This industry cannot thrive if our companies fail.  

As an industry, our reputation isn’t great. People sometimes expect all of us to be MBA jerks, with low EQ and high intensity. While much of that is well-deserved, we try to show people we’re human, empathic, and prepared to listen. At ParkerGale, we talk a lot about vulnerability, transparency, and trust. That’s really the only way to get results in our experience. 

SM: How has COVID-19 impacted your firm?  

DM: We are all getting older around here and have invested during booms and busts before. We all subscribe to the great Howard Marks quote that “you can’t predict – you can only prepare.” So we don’t make predictions. We just get up every day and execute alongside our management teams.   

SM: What types of businesses are you focused on investing in now?  

DM: We look for software companies that are hard to hurt – that means they have sticky products, no customer concentration, no vendor concentration, and good profit margins. They’re also in segments of the market where VCs aren’t pointing their money cannons, which usually ends up poorly. When we get involved, the companies are customer-centric and profitable, but may not necessarily be doing the things they need to do to secure long-term viability. There are tens of thousands of companies in North America that fit our criteria, and we need to invest in one or two per year. We operate at the small end of the market – we’re providing the first institutional capital that any of these companies have had.  

SM: What’s your take on the future of PE investment?  

DM: Within the next six months, will founders say “I’m too old for this sh*t” and want to sell even if it’s at a price less than the top of the market? Or will they wait for the market to come back enough to get them the price they need to walk away? Just imagine you’re a founder in your sixties and you’ve been through way too many ups and downs already. Do you have the stomach to hang on a few years or is it time to find the right partner that helps you walk away and enjoy retirement? My sense is that it will be a mix of the two, but as I said earlier, we don’t try to predict. So we’ll just prepare for whatever comes our way.