Private Equity Deal Sourcing with Audax’s Dave Santoni

Sean Mooney: ​[00:00:00] 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 an awesome conversation with Dave Santoni, managing director with Audax Private Equity. Enjoy.

I'm super excited to be here with Dave Santoni. Dave, it's great to see you.

Dave Santori: Good to see you, Sean Long time since that pitch in Connecticut in 2003.

Sean Mooney: Dave and I go as far back as probably both of us could probably go far back in this world, and it comes down to a pitch on a deal that was, I think, literally the first exit [00:01:00] of a buyout that I had in private equity.

Dave Santori: It's the only time I've been called, Sean, after a pitch saying we were in last place.

Sean Mooney: Yeah, I don't know about that. The deck was primo, though.

Dave Santori: We learned a lot from that.

Sean Mooney: But you guys did have the coolest looking deck.

Dave Santori: Yeah, the Goldsmith books. I have plenty of them in my office here that Audax people unloaded on me when I joined.

Sean Mooney: I remember seeing those and I was like, "Whoa... look at these," because that's how you would get information. You used to not get things over email, you'd literally get books. You'd ask them, "How many you want?" And then we would pass it around, or we'd have someone copy it.

Dave Santori: That's right.

Sean Mooney: So for all the new people, it's a lot easier now, in some ways.

All right, so Dave, why don't you take us a little bit further back? Can you talk about, where you grew up, college, first job out of college, and then what you did along your pathway to ultimately getting into private equity?

Dave Santori: Yeah. I was originally born in Philadelphia. My parents were both longtime Philadelphia [00:02:00] residents, and lived in Philly until sixth grade.

My father was a lawyer and decided he wanted to become a professor, and he told my sister and I and my mother that we were going to move to Omaha, Nebraska when I was in sixth grade. My father ended up teaching law school at Creighton in Omaha, and I went to high school there. Had a great life in Omaha, have one daughter that's actually at Creighton now, so it gives me a reason to go to Omaha.

And then went to undergrad in St. Thomas in Minnesota, which was a small Catholic college, to play Division III football. I had a lot of excitement to play football, and Creighton had this great program. If you're a Jesuit professor, your kids could go to any Jesuit university free of tuition.

Unfortunately, I wasn't qualified to play football at BC, so I chose to go to a non-Jesuit Catholic school and pay tuition. Graduated in St. Thomas in 1988 as a math major. The stock market had crashed in '87. [00:03:00] No one was getting jobs. I was a math major, I didn't know what I wanted to do, and so I immediately took the LSAT and went to law school, against my dad's wishes, who was a law professor. He thought that my work ethic might not help me survive in law school, and he scared the crap out of me, and so I went to law school and probably studied more than I've ever studied in my life, and did extremely well and was able to get a job in Cleveland, where I went to law school at Case.

Practiced law in Cleveland for a few years at a firm called Thompson Hine, and then met my wife as a summer intern to United Way in Cleveland. All the law firms and accounting firms would send a professional to United Way for the summer to help with the fundraising campaign locally with professional services organizations.

And because I wasn't from Cleveland, I got picked to do it. My wife was from Canada. We ended up moving to Toronto, and I practiced law at Skadden in Toronto for several years. And I think my wife's dream was we would live in [00:04:00] Canada and stay in Toronto, and I loved it there. And lo and behold, I got a call in mid-1996 from my college roommate who had joined this boutique firm, Goldsmith, Agio, Helms, said I should really come visit.

He had been a lawyer at Cravath. The strategy at Goldsmith at the time, because it was a new boutique, was: we're going to hire lawyers and corporate development officers and investment bankers, but build a different model of investment bank. So I dragged my wife kicking and screaming to Minnesota in 1996.

And then Goldsmith over the next 12 years grew quite substantially, and we sold that business to Lazard in '07. And I stayed at Lazard for a period of time. I left a couple times to go to boutiques, and during COVID left Lazard finally to join Hennepin Partners in Minnesota, which was a boutique founded by 9 of my former colleagues at Lazard.

I was having a blast. And while there, I sold two companies for [00:05:00] Audax as their banker, and started to have rekindled conversations about would I ever consider joining Audax to lead the BD group. Was never my intention to leave Minnesota. We raised our family there, but the Audax opportunity was one that I couldn't pass up.

And so this time I didn't have my wife kicking and screaming. She was excited to come to Boston. We did have one daughter still in high school, so I commuted to Boston for two years from Minneapolis, and then last fall we moved fully to Boston. I just moved into a house last month, so it's great.

Sean Mooney: That's amazing.

One of the things I love being able to have these conversations, Dave, is that you know someone for so long, and I didn't know probably half of the backstory that you just shared about. And so maybe it's like that joke, particularly maybe with... and I don't mean to be like genderist, but with guys.

Comedian tells a story about, he's on a golf cart with his buddy the whole time, and the person like had this major life event, and they had no clue [00:06:00] the major life event happened. And it's "How did you not talk about this?" "Well, we didn't say it." Right. And then he's "What do you know?" He's "Well, I know he got a new driver."

Dave Santori: Yeah. Yes.

Sean Mooney: So it's like of all the conversations we've had, throughout the time, like I never got...

Dave Santori: Yeah, I think it's funny. When I left Hennepin, I was a partner, and when Steve Beck announced to the firm that I was leaving, the one thing that kind of really touched me, but also shows how my relationship with Audax has been long term, he announced to the firm that I was leaving, and he said, "If you've known Dave as long as we have, you're very sad that he's leaving. But if you've known him as long as we have, you'd know he's going where he's always wanted to be." Which was really true. I mean, I think I've worked on, prior to joining here, close to thirty deals with Audax over the span of two thousand and three to two thousand and twenty-four when I joined.

So I knew the team here very well. I knew the culture. And for me, making a switch late in my [00:07:00] career to do something new, I'd rather do it with people that I really know and really like, and I can build a team. It's been everything that I expected.

Sean Mooney: The story is so good because, A) it shows like your path is always evolving.

My daughter's in college. She's going through a crisis because these kids are told like they need to know what they need to know, like they're going to do for the rest of their life their freshman year. Because one internship leads to the next. And I'm just trying to share, "It's going to be okay. You're probably going to have multiple paths in your career, and it's going to be this serendipitous journey. Don't think that you're painting your life in permanent ink over time."

Dave Santori: Yeah, that's right. I mean, I think it's one of the reasons I chose law school, is because we didn't have that when we were in school.

I didn't know what investment banking was. I didn't know what private equity was. But I knew if I went to law school that I would be a lawyer, and so I would do that because it was the easiest. I had no idea. I did one or two actuarial exams and thought, "I'm not going to be an actuary." I had a math professor that [00:08:00] told me that's what I should do, and she didn't know me very well. I would've been bored to death.

Sean Mooney: You would be a billionaire hedge fund guy if you did.

Dave Santori: Maybe. Maybe. With our children, it's the same thing. I have one son who's graduated from school, who's a communications major, and he's in the music industry, so he's got his path. I've got one that's pre-med. She has it more defined, "I know I'm going to go to med school and then hopefully become a doctor." And then my youngest, who's just finished her freshman year, she's doing an internship this summer at an investment bank. I don't think it's necessarily her path, but I'm encouraging her to do a bunch of different things and see what you like. You don't have to pick. It's like you never know where you're going to end up.

Sean Mooney: And like you said, there's nothing too late. I think a lot of probably who are our peers, they view it as "This is what I'm going to do." I had a similar deal. I worked the tens of thousands of hours to become a partner and on the investment committee of a PE firm.

Once you do that, you don't leave.

Dave Santori: But you left.

Sean Mooney: Some people have massive midlife crises in their 40s. So [00:09:00] yeah. But no, but it was just you know what? Life is too great. You only go around the track once.

Dave Santori: Yes.

Sean Mooney: Dare to do what you want to do, and you can make it happen if you just have the audacity to take that step.

Hey, as a quick interlude, this is Sean here. Wanted to address one quick question that we

regularly get. We often get people who show up at our website, call our account executives, they say, "Hey, I'm not private equity. Can I still use BluWave to get connected with resources?" 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.

So absolutely, you can use this as well. If you want to use the exact same resources that are trusted and being deployed and perfectly calibrated for your business needs, give us a call, visit our website at bluwave.net. Thanks. Back to the episode.[00:10:00]

So Dave, it's amazing knowing each other since the early 2000s, but one of the things I do love to ask every guest, I'd love to know like, we'd know you better if we knew this about you. Is there something else in addition that kind of jumps off the page is that helps us understand you just a little bit more?

Dave Santori: I would say my passion for sports, and my ability in being a banker. While I was at Prestwick, I had a son who was in sixth grade, and I did coach basketball for five years. I loved being around the kids. I coached an AAU basketball team every spring, and my AAU team was for the C players that were still runts, and none of them had grown, and they were in sixth, seventh, and eighth grade, and they would have all quit basketball had I not encouraged them to continue to play.

And the best part of it was one of my son's friends grew seven inches between eighth and ninth grade, and ended up being a varsity high school player, and I guarantee you he would have quit. And so for those kids I still, when I see [00:11:00] them, my son's 26, almost 27, when we get together with that group, they still call me 'Coach', and I just love that.

I would do it again. I thought about, at one point in my life, took a year and a half off of banking, and one of the considerations before I got back in was, "Do I just go teach high school and be a coach?" And I actually reached out to a bunch of high schools, and they said, "You actually have to go back to college and get a degree in education..." And I was like, "Well, I'm not doing that."

Sean Mooney: Really?

Dave Santori: That makes no sense. You could do it at a private school, but public schools, yeah, you had to go and do it.

Sean Mooney: As you moved as a kid from Philadelphia to Nebraska, were you able to bring the Eagles with you...

Dave Santori: Absolutely...

Sean Mooney: in your childhood?

Dave Santori: It's the one team that is ingrained in our family, and my son was actually a senior in high school when the Eagles played the Patriots in the Super Bowl in Minneapolis. And so the two of us went along with a bunch of my cousins from Philadelphia, so we have that memory. I still follow the Eagles [00:12:00] religiously, but the rest of the Philly... I became a Minnesota sports fan. I don't know that I'll become a Boston sports fan.

Sean Mooney: That's a hard one for a Philly fan. There's only so much you can do in your evolution as a person.

Dave Santori: Exactly.

Sean Mooney: Both of you all have had an embarrassment of success, at least in football.

Dave Santori: There was actually a picture of me that got put on the Boston Celtics website two years ago during the playoffs. I was at a game with a couple of our LPs, and I think they were playing the Pacers, and Jaylen Brown hit a three-pointer to put the game into overtime.

And I had already had my jacket on, and I was standing like this, and they had the clip of Jaylen Brown running right in front of us, and I was standing. It went around the office like, "He can't go to any more Celtics games. He's a Pacers fan." I'm like, "I'm not a Pacers fan. I just wanted to go home." It was late.

Sean Mooney: And so for those listening, Dave was folding his arms in a really angry scowl look. Exactly.

So let's turn the page here and talk about some of the business concepts. I really love [00:13:00] this question. It turns into almost like a little MBA class for people listening. What I'd love to get your thoughts on are, you've seen at this point, geez, probably thousands of companies over time, both as a banker and a private equity professional. And no doubt you've gotten a perspective on here are the core elements of value of a company.

And so I'm really interested to see, given all you've seen in what makes companies successful and where they come from and what those foundations are, what are some of the traits that when you're looking at a CIM, what are you looking for and say, "Oh, this is an interesting company for Audax Private Equity," et cetera?

Dave Santori: Sure. And I'll start just zooming out a little bit, and just telling you where we focus from a size perspective, because it makes a difference. I mean, we are investing out of multiple funds. In our lower-middle-market fund, we'll do platforms as small as $5 million of EBITDA up to $20, and then in our middle market fund, $ 20 to $75.

And so it's a little different in each of those areas. And then we focus on [00:14:00] 5 industry verticals, so business and financial services, healthcare, industrial services, and tech and software. So when I talk about what we look for, it's different based on size, but the one key element for us that holds true is finding niche market leaders and very often regional smaller businesses that have sit in a large market, that we can employ all of our value creation methodologies, including our buy and build, which is what we've been known for for a very long time, to really turbocharge organic growth.

And so we'll look for deals with a small priced product that goes into an end market that there's a high cost of failure. And so if someone wants to get into this industry, you're not going to worry so much about the $100 product that goes, "But if our product fails, then the whole system goes [00:15:00] down."

That's a really valuable business for us. We love finding management teams that we want to back, and that's another important thing, and that spans both funds. It's really going out and finding out the management teams that are backable and that we think we can work for and have a vision that's similar to our value creation vision.

Sean Mooney: I like what you said there a ton because it's, if you listen to the venture capital industry, they're going to say, "We want massive markets with companies that will grow quickly and completely turn over the apple cart and disrupt." That always rubbed me the wrong way, candidly, because like, why do you want to break things?

And then B), I think we came from the same school of thought: there's riches in niches. And so, why not find someone that has a strong relative position in their addressable market or their serviceable market, and it doesn't have everyone trying to lop their head off? So they're like a small piece of a larger pie, but they're making really good money [00:16:00] because their relative cost of the value that they're producing is really high. But it's not big enough also to get on the Pareto chart of all the supply chain people who want to just crush everyone.

Dave Santori: If we can find a business that, through acquisition, we can accelerate the organic growth of the business, and without our capital and our strategic resources group and everything we can bring to bear to help the business, we can do add-ons that help grow into new addressable markets, to go into new geographies, to add new customers, to diversify from customer concentrate.

I mean, there's lots of angles you can use add-on acquisitions to approach, and it's not just to make a bigger company. It's to make a bigger, stronger faster-growing business. And so what we've done by organizing the firm within formal industry verticals is, our deal teams really have theses that have been built, and we help in our group and with our strategic resource group, have them have lanes of things that we want to like. [00:17:00] So right now, professional services is a very core area of focus for us. And so what we're building is lists of, "Here's things we know in the next 6 to 12 months are coming. Let's try and get to meet the CEO. Let's reach out to the PE owner. Let's go to this conference. Let's do this." And so by the time they come, we've already done a lot of the work, and we've already started to think about what are the possibilities for add-ons, and we'll work with buy-side brokers to help us map an industry well ahead of ever seeing a book sometimes, so that when the deals come in, we're ready to go.

And each of our groups and each of our vice presidents, principals, and MDs have their own kind of watch list that we've helped them create, and it's keeping them accountable to following up, making sure if there's an industry that you like. Let's see everything. Let's learn. Maybe we don't want to be the first person to do a deal in a particular industry, but once we see that there's enough flow and there's enough add-ons, we'll jump in.

Sean Mooney: And I love [00:18:00] that perspective, know before you go and meet them. It's do the work up front. Preparation often beats inspiration. So the things that you're talking about I think really matter a lot. It's the unsexier part of the job, but it's the thing that really makes a difference.

And you knew this from both sides of the ledger.

Dave Santori: That's right.

Sean Mooney: If you're just learning everything about the company and asking basic questions to the management team during the management meeting...

Dave Santori: Yeah you're behind...

Sean Mooney: you're toast. And you probably don't have the right to own that business.

Dave Santori: That's right. I learned that from the banking side. It was the same way as a banker. Like, when you're out talking to PE, if you couldn't show that you had some industry knowledge or some relevant expertise in a space, it's long gone where you could be a generalist banker and just go in and say, "I'm really good at selling companies, and we'll figure out how to sell your company."

It's very similar. And we're unique in the way we're set up. We have a very large strategic resources group, 60-plus people that help us with diligence and market mapping. And in particular, as we're looking at a deal, what we're trying to figure out early on is, [00:19:00] we'll supplement management right away, and we'll already start like looking at a deal.

They've got a great CFO, and we're like, "God, we could... If you had a couple FP&A people under you, man, we could really turbocharge to help you manage the acquisition side, but make sure all the numbers get in." So we have everything to deliver there, so that makes us different. So it means that we don't necessarily need to find like the A-plus deal that every other private equity firm's bidding on.

We can find something that might need a little bit of tender care and do well with it. So we like carve-outs, we love founder-owned businesses. We'd like to be the first institutional capital. We get it, we have to play in processes.

Sean Mooney: It's just: here's the way it is. You can play to win or you can get upset about it, and what you're doing here at Audax Private Equity, from what we see and from what you're saying here is, all right, this is the way it is, and so we're going to come in, and it's not about necessarily what the company is.

We want to see core foundational elements, but we have a really strong perspective about what this company [00:20:00] can, should, and will be, and that enables you to not play at the intersection of supply and demand in an efficient M&A process.

Dave Santori: That's right.

Sean Mooney: Hey, Karma School listeners, this is Sean with a quick aside.

Virtually every day I'm having conversations with private equity firm professionals and business operators, and we're talking about the same exact thing: where and how do we actually start with AI? The answer is: you start with people who have already done it successfully for others.

This is exactly what BluWave does. We have built a one-of-one, invitation-only network of trusted AI enablement providers that top private equity firms are using right now to create real value. Private equity-grade quality, pre-vetted by BluWave, ready to go at a moment's notice. And they're not just for PE. Whether you're a PE professional or an operating company CEO, go to BluWave.net. That's B-L-U-W-A-V-E. We'll get you to the right resources, so you can start on your AI [00:21:00] journey right now.

Well, let's talk a little bit about that. You've made the investment. Talk about the role that your operating support group plays, and then also, I think a lot of people are curious, how do you manage the interplay between the deal teams, the business development teams, the PE operating professionals, and then the PortCo leadership team?

How does that all work together?

Dave Santori: The way I think about our business development team and our strategic resources group at Audax is we're really extensions of the deal team. We're not what you would see at a lot of middle market firms, where there's one person in BD and their job is to source deals. Yes, we help source deals, but what we're really helping our teams do is, as we're looking at a particular target area or vertical, we're helping them map the industry.

We're helping them by making introductions to [00:22:00] CEOs, by ensuring that they're talking to PE groups that own assets that we might want to own. And from the time we get a book in, the strategic resources group and the BD team is working with the deal team to say, "Okay, we've now got the CIM. We're going to start looking and mapping out the add-on possibilities," so that by the time you go meet management, we normally show up with a list of, "Hey, we've already done some research. You gave us a list, or your banker did, of who you think would be good targets. Here's a couple other ideas. Let's bounce."

So we start that way in advance of ever owning a business. And I think if you looked at the stats, it used to take Audax, fifteen years ago, a year to do the first add-on acquisition after acquiring a platform, and we do a lot of add-ons, like more than a hundred a year.

We now do the first add-on in twenty weeks. And in many cases, we're doing an add-on within weeks, because we've already started doing that mapping. So our business development team sits in the industry group's weekly meetings. We sit and [00:23:00] listen to their pipeline. We know everything about their portfolio, so that's up until we own.

Once we own the business, once we win, we're out scouring the universe like you might expect with brokers, working with the corp dev teams at our portfolio companies to help find add-ons. And then we start, in mid-hold, thinking about, "Okay, we've got to start thinking about exit." So we work with the banks to get our CEOs speaking at conferences, to get out on the circuit, get the company and the businesses more well-known.

And as our businesses grow in the larger fund, we're out talking to the large cap PE world. We're meeting with strategics, because it's the same thing for them. They need to know about an asset before it shows up, or they're not going to be successful, and so that interplays really well. And then when we get to exit, obviously, we help the deal teams decide who are the right bankers to come pitch, who's going to get the engagement, and then we embed ourselves in the deal team.

So while we're in an exit process, [00:24:00] we sit in on every update call. We know what's going on in the process. So across the firm, because we have a big portfolio, we're always aware of everything that's happening, and it's really helpful as people are bidding in on one deal, and we can watch behavior and give advice to other deal teams.

Well, on this deal, that group started low and, moved up significantly during the round. We have those stats that go back twenty-six years. We're a little different. I meet quarterly With a group of heads of BD, and they come from all different sized funds, and you probably know the One West group, but I was lucky enough to be able to join that when I came here.

And you talk to some of them, and they're a one-person, and if you get busy on an exit, you can't do the source. So they're really focused on sourcing. We have a big team on our BD team. We have 10 full-time people, so we can do a little bit of everything, and I can kind of spend time on the most important stuff that's happening in real time.

Sean Mooney: I love what you're saying there, [00:25:00] and we've talked about it a lot on this show. It's like, the business of private equity turning into a business. When we first met years ago, it was: we specialize in partnership. We have a picture of a handshake on our front page of our website.

Dave Santori: Exactly. Exactly.

Sean Mooney: See, like there we go. We're really good partners, and then we're going to buy low, sell high.

And not to diminish it, it was still really hard then, because you had so much information asymmetry. Like just like we were saying earlier, like you literally had to FedEx a deck to get the information to people, and the internet was mostly not useful, and email, you couldn't put anything of size in an attachment.

When I started, I was like, "Oh, I wish I was 10 years older. I've missed it." And every year I think I'm saying PE is like, "Oh, it's so much easier, so much easier." But the reality is, welcome to the world and welcome to life. It gets harder, but there are certain firms that play the game to win and continue to evolve.

And what you're describing here is the business of business. Private equity's turned into an efficient market. More often than not, if you're not doing anything, for those of you who have taken Econ 101, you're buying at the intersection of supply and demand, so you have to do something [00:26:00] else to change the curve and get a surplus back in the game.

What I'm hearing from Audax Private Equity, and what you all are doing is, it's not a one-instrument band or different instruments playing in different rooms. You guys are doing a symphony. You're all working together, and playing together, and passing the notes back and forth. You've got to do all of this together in a coordinated motion, just like one of your PortCos does.

Dave Santori: Yeah, I mean, one of my favorite things to be able to do here is, when we're in a process, particularly with a founder-owned business, is to get them to make a trip to Boston and sit down with our strategic resources group, and listen to all of the things that we can offer. because a lot of times, especially in our lower-middle market fund, we're competing with a fund that has, they have eight people at the fund, and they all have a different role, and they might have an operating exec.

We have 60 people that can help, and we don't make you use them, but if there is a need for someone, if you're doing an acquisition, you need an ERP implementation, we have someone that focuses on helping you do that. And so it's a difference maker, and it's [00:27:00] really eye-opening when those founders can come and see our team in action.

Sean Mooney: You all are applying not only capital, but resources and tools to actually help make the magic happen with your teams.

With that in mind, so you've got a lot going on within your firm. You've got lots of resources. It's a pretty dynamic time. That might be understating it right now in terms of what's going on in the world. Lots of black swans flying around constantly, but that's the new normal now.

Dave Santori: Yeah, I was going to say, thankfully, I've been around long enough to have seen the dot com bubble burst in 2000, and the financial crisis, and then COVID, and now. So yes, you're right.

Sean Mooney: But now we're all just kind of getting used to it.

Dave Santori: That's right.

Sean Mooney: So I'm curious, Dave, what are some of the top value creation opportunities that you all are thematically engaging with your portfolio companies these days, maybe that other business leaders should also be thinking about?

Dave Santori: I'd probably get fired if I didn't talk about AI and how we're using that.

I mean, that [00:28:00] is the number one topic around the firm, and it's not just AI or looking at a new deal and asking the obvious question: is AI going to make this business irrelevant? It's how can we use AI to do a bunch of different things? So we now have in our strategic resource group an AI team. We have a task force across the firm of, I think 35 people from different industry groups, two people on my team, figuring out all the different ways we can use AI to make us better at what we do.

We then take it to the portfolio level, and so when we buy a new portfolio company, one of the first things we're doing is we're going in with an AI team and mapping out like, here are 30 ideas that could work to help make your business do better, change the way you operate. Let's pick off the easy ones and then help accomplish those.

And it was interesting, we had a CEO conference in Boston a month or 6 weeks ago now, and the main topic of the conference was AI. [00:29:00] And listening to all the different CEOs talk about how they're implementing it in their businesses, some of them are simple things, but if you're a business that constantly has to bid on work, how can you make the bid process more quick and efficient through AI by looking at the last 1000 bids you've done and taking them and turning it into a more efficient practice to prospecting, growing?

So we're really using it as a way to make our businesses better. And then one of the things that I talked to the CEOs about, and we're seeing it real time, and we've actually created an AI tool that we use that we call the devil's advocate tool, that when a CIM comes in, you can run it through, and it will give you all the reasons you shouldn't do the deal.

And what I told the CEOs is: expect that during an exit process, that whoever's looking at the deal is running our stuff through AI.

We would never listen to AI to tell us [00:30:00] whether to do a deal, but it helps create a conversation. That's probably number one. I'd say the last value enablement tool that we were really using was global delivery, and how can we use a global delivery model across the portfolio by operating efficient global places.

Sean Mooney: AI is one of those topics that's polarizing. It's one of those ones that people are probably exhausted by it, but it's so critical.

The demand at BluWave over the last 90 days, it's for AI project enablement, like top AI providers, because frankly, that world is so filled with charlatans and influencers, no one really knows who to use. And so that's part of our job, is we equip the industry with the best of the best. That demand is up 350% year-over-year over the last ninety days, and it's just getting bigger.

And so the thing that surprises me, though, as I talk with either the portfolio company CEOs or do those CEO roundtables for PE from customers of ours, so many people are ostriching it. They want to resist [00:31:00] it. They'd want to find every reason not to use it. Part of my job on these roundtables I go to, it's: change is going to win.

Your customers are using it. Your competitors are using it. PE is using it. And most people, it's fancy Google, where they're paying $30 a month for every employee, and most people are probably doing like shopping on it or something like "Give me a list of best grill tools for the summer." But if you use it, and you know how to use it, and you have a resource group like yours that can say, "Here's actually how you get ROI on it," and it's not just like a lot of little projects that don't go anywhere, that's incredibly powerful for the PortCos you have.

Dave Santori: We're not using it with our PortCos to tell them this is a way to cut people. This is a way to make your people more efficient, and enable them to do things that actually help grow revenue, rather than spending all their time creating a bid letter that if they could do that quickly, they could make another sales call.

I mean, that's how I think about it, and I think about the way we're using it on my team and on the BD team. We have 26 years of data [00:32:00] that has been collected, and you think about all of the IC memos that sit in our data that it's like 600+, and all of the market studies that we've done over the years, that when deals come in, we can pretty quickly implement and ask with our data to compare and contrast it to deals we've looked at in the past, and build comps, and pretty quickly get a deck together that a deal team can discuss with some history in mind. I have three people on my team, that's all they do is help build AI tools to help us do things better.

I was one of the last adopters, and we have both ChatGPT and Anthropic Claude available to us. And I finally, as I was preparing for this, was able to search all of our due diligence questionnaires, all of our descriptions of all our industry groups that we use in fundraising, and query how do we describe our business development, so that I could make sure that I'm not [00:33:00] saying anything that isn't already approved.

So it's pretty amazing.

Sean Mooney: It's so amazing. You have the sum total of human knowledge that's publicly available in one little device that you take around with you everywhere. And you said two things that I think are really important for our listeners here. One is: there's this fear that AI is going to take jobs.

My personal belief, that is overblown, in part because of look at precedent. Anytime there's been a major technological innovation, every time, it's ended up creating more productivity and more jobs. Now, in a zero-sum game, if you're the only one using it, then yeah, you probably will lose jobs. But the reality is, everyone else is using it, and they're getting more productive, and then everything frankly just goes faster.

Remember when the internet came out, the same thing. Everyone's "Oh, the jobs are going to go away," and blah, blah, blah, blah. It's no, we just did ten times as much...

Dave Santori: it enabled me to not go to the public library to research for a pitch that I was doing, and I could go on the internet and research. That's what it did.

Sean Mooney: [00:34:00] Yeah. You compressed like what would be like a month of research into a week of research.

Dave Santori: I still remember we would all in Minnesota go to the Hill Research Library in downtown St. Paul to read trade magazines to literally to figure out who might be a buyer for these small businesses that we had. And then all of a sudden you could just search it on the internet. This makes it even faster. Some of the tools we've built, when we get a CIM, and you talk about confidential information memorandum, we build a tool I think in probably ten minutes can summarize the CIM in the format that we've used for twenty-six years of what a CIM summary looks like.

But what's great about it is you can build on the questions that were asked to build that summary. And so when an analyst or an associate takes it to the VP, they're not just sharing the CIM summary, they're sharing what questions they ask. And then the VP can maybe ask a few more questions. And there's real learning that happens.

That normally doesn't happen if they just do it themselves, but you can see what [00:35:00] did the VP ask, and then you learn. "Oh, next time I'll remember to ask that question." It's not going to do anything with jobs, It's going to create much more efficiency.

Sean Mooney: 100%. And like for people think, "Oh, are there going to be any more investment banking analysts and associates at private equity firms?"

The answer is yes, because everyone's just going to go faster. Every PE firm's still going to invest every dollar of that 2% management fee. You're just going to be able to process and understand and get smarter in minutes versus weeks. Whereas, if during the internet came out, it was months that turned into weeks.

So it's going from months to weeks to minutes, and you're just going to be able to look, and it's going to open the field of use of the value that you can actually bring, because now you have these thinking partners that are helping you think broader than an individual set of life experiences. I'm in the glass half full abundance camp on this stuff.

Dave Santori: I am too.

Sean Mooney: The other thing that you noted that I'll just spend a moment on, that I think is really important, and I'm a broken record on this, is the data. Those who win in this AI age are those who have the sum total of publicly available human knowledge, and a data set that no [00:36:00] one else has, and it's structured in a way that you can use it, and you are clearly like way ahead of most on this.

Dave Santori: Yeah, that's one of the advantages that have been around since 1999, and having collected data. I mean, the other thing, we do weekly reporting at every portfolio company, so all of that weekly reporting is also data that's available that you can see trends, and when things are changing and tariffs were implemented, and we could kind of compare that to when there was supply chain shortages in other areas, and you could kind of predict what might happen and kind of get the portfolio companies ready for, you're probably going to get a lot of orders now, and then it's going to slow down because everyone's pulling things in because of tariffs. And then once the tariffs are implemented, you might not get your product. We're using it to manage our businesses too, which is great.

Sean Mooney: I'll tell you, just even from a personal anecdote, and you know maybe from my background in the firm I was at before, we're very data-centric.

Dave Santori: Yes.

Sean Mooney: From day one here at BluWave. And realizing, data in itself is like flour, sugar, salt, or ingredients. [00:37:00] If you use it in the right way, you can make cakes with it. And we have this tool that we casually call Jarvis, and so we've structured all of our data over tens of thousands of projects with private equity. We have semantic layers over it, so it gives the same answer at the same time.

We give it to every person on our team. But what I love about it now as a CEO, I can ask any question about it. It'll combine what we're seeing at large. We see a statistically significant portion of what PE's doing today. We get to see what the best business builders in the world are doing as they're doing it, how it's changing in time, what they're using, where they're using it.

And I frankly use those same insights to equip "Oh, what are the themes that I should be thinking about our business?" But I get it in real time in our AI tools, and then I can have it create dashboards that I used to have to get in line with our BI group for like weeks. And then now I can do it, and I can iterate it, and I can self-serve, and then our analytics team can do like real heavy stuff.

But if I just want to have something dashboard. So like the things that you're describing that you already have, it's just mind-boggling.

Dave Santori: [00:38:00] Yeah, a lot of the dashboards that we've developed just pulling from our CRM. Every morning, I can come in and see every CIM that was received yesterday, who's tagged to it in the system, so that I can reach out to the deal team and say, "Hey I see you just got the book on this. What can we do to help?" That's a real time dashboard.

Our conversion dashboard that everyone in private equity is always concerned about is like, how many management presentations do you need to have to make certain you're going to do a certain amount of platforms? That updates hourly. We track that, and it's important for us because we can go and talk to the business services and say, "It doesn't look like... is it that you're not seeing anything interesting or you're too busy, but you're not doing X, Y, and Z right now? Let us help you. Let's get you more flow."

I'm a big believer in it, and we thankfully did the Salesforce implementation just before I joined, so I didn't have to live through that because I'd done it twice before.

But it's a great tool, and we've gotten real buy-in, which is great.

Sean Mooney: [00:39:00] I love that.

So Dave, as we bring our conversation full circle, we're going to dare to get introspective with each other here. One of the things I love to ask, as a massive borrower of other people's wisdom that is hard-earned, so if life were up to me, I'd be in a lot of trouble.

So if you were to go back and meet 22-year-old Dave, what might be one of those pieces of advice that you'd share with yourself that you wish you knew then?

Dave Santori: That's a good question.

So when I think, 22-year-old Dave was driving from the Twin Cities to Cleveland, Ohio to start law school, and I think two things.

Had I known that investment banking and/or private equity was a career path that I could follow, I would've started then, rather than spending 3 years in law school and then 6 years as a lawyer. While it was a great experience and I learned a lot, there were 9 years that I could've been doing what I've truly found as my passion.

And then the other thing that I wasn't good [00:40:00] at, as a 18 to 22-year-old, I'm social, but I was never curious enough to meet and reach out to meet people that were doing different things. When I went to law school, I met lawyers. I knew what lawyers did. But even as a lawyer, when I was at Skadden, like my primary client at Skadden was Goldman Sachs.

But I never spent time saying, "What do you guys do?" I just did their work and tossed it back to them. And had I been more curious, I probably would have found myself into banking more quickly. And it's funny how fast it changed, because once I got into banking and executed deals for a long time, what I realized was what made me most happy about the job was the relationships that I could build.

And that's when, in 2003, I gave a business plan to my partners at Goldsmith and said I would like to do sponsor coverage, which didn't really exist back then. And as a matter of fact, I flew to Boston to meet with Jay Jester, who was one of the original OGs of BD, and said, [00:41:00] "When you choose a bank, how are you choosing them? What are the most important things?" It was... I helped to put my business plan together, and what I realized was, had I started that 6 years earlier, I would've been even more successful.

I was too scared as a 22-year-old to be curious. Mike McFadden, who I mentioned, who ended up bringing me back to Goldsmith, who was my college roommate, was the most curious 22-year-old, almost obnoxiously curious. And I can remember him asking whether he could talk to my dad when he was like a sophomore in college because he was thinking maybe law school, and, "Can I just talk to your dad and ask him about law?"

And I was like, "That's weird. Like why are you thinking about that?" But I think being curious earlier in life would've been very advantageous.

Sean Mooney: I think that's such great advice. If I try to internalize that advice, and go back to my prior self, and having started off in like PE right out of the gates, and old-school PE, I think, is different than it is today. There was this false expectation that you had to know everything, [00:42:00] and so I was constantly afraid to ask people out loud key questions about things.

And then I, what I would do is like secretly try to learn it on whatever resource I had, so I could demonstrate that I already knew it, which was insane.

Dave Santori: Right.

Sean Mooney: So like a 24-year-old, and then a 34-year-old, and then a 40... I think by the time I got into my upper 30s, I got over it. But to your point it's: have the audacity to be curious and ask people questions.

What I also found like later in life is that people enjoy sharing what they've learned. It's a gift to them, not a burden to them because they get to do that. I, and I think most parents probably get the same thing. I only wish my kids would take my advice seriously.

Dave Santori: Yeah.

Sean Mooney: But sometimes you can't coach your own kids.

Dave Santori: True.

Sean Mooney: I think it's excellent advice. It's one that I certainly wish I had before, and is something that particularly in this age, where there's an abundance of information, but also to your point, don't lose the humanity part of it. Don't just become a robot.

Dave Santori: Yeah, totally agree.

Sean Mooney: Well, Dave, this has been an [00:43:00] awesome conversation. I've learned all sorts of things I wish I knew before. So my friend, I appreciate you taking the time, because I know you're super busy, and spending some time with us here today.

Dave Santori: Yeah. Thanks for having me, Sean.

Sean Mooney: That's all we have for today. Special thanks to Dave for joining. If you'd like to learn more about Dave Santoni and Audax Private Equity, please see the episode notes for links.

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The views and opinions expressed in this program are those of the individuals presenting, and do not necessarily reflect the views or 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.

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.