Private Equity's Growth Engine: A CEO's Journey with HCI

[00:00:00] Lloyd Metz: Get ready to peer behind the curtain of the private equity universe with each episode of Best But Never Final. I'm Lloyd Metz, joined by Doug McCormick and Sean Mooney. Together, we'll navigate the corridors of private equity, revealing the uncommon knowledge, challenges, successes, and risks. And lessons that drive the world of private equity and business forward.

Let's go.

[00:00:35] Sean Mooney: We have another great episode today where we're going to talk about value creation from both the lens of the private equity firm, but also the portfolio company CEO. So today we're really fortunate, not only to have our co host, Extraordinary Doug McCormick, who leads HCI as their managing partner and chief investment officer.

But we also have Scott Milberg, who is CEO of HCI portfolio company, AmerCare Royal. So Scott, thanks for joining us today. Doug, thanks for being here again. Once again. Good to be here.

[00:01:10] Scott Milberg: My pleasure.

[00:01:12] Sean Mooney: So our listeners, of course, know the one and only Doug, so we're not going to flatter him anymore, I think what would really be helpful and valuable to our listeners is to spend some time getting to know Scott a little bit and AmerCare Royal.

So Scott, can you share a bit about yourself and your business?

[00:01:30] Scott Milberg: Yeah, you bet. So my name is Scott Milberg. I've been the CEO of AmerCare Royal since 2019. that was after starting my career in the food service disposable space back in 2001. So I was actually with Royal paper products, which was a 3rd generation family founded business.

We were a manufacturer, converter and importer of a wide variety of products. Food service disposable products. We service the entire country founded in 1949, actually. And so we were acquired by HCI in 2016 as part of the platform investment, which has evolved into AmerCare Royal today. AmerCare Royal. We are a leading supplier of critical disposable products.

And supply chain solutions, and we service an enormous 43 billion dollar food service industry throughout North America. We have a combination of domestic manufacturing as well as global sourcing capabilities that we provide packaging and supply chain solutions to all of our customers. We're focused on supply continuity.

We're focused on managing costs and removing risk and really building a partnership with our critical customers.

[00:02:48] Sean Mooney: That's interesting, Scott. I'm curious here where you part of the family or did the family bring you in or did HCI bring you in? How did you become part of the story here?

[00:02:57] Scott Milberg: Yeah, I was part of the family, that started the business, started in Coatesville, Pennsylvania with a. Paper coaster, actually. And so a grandfather who came from Germany came here, recognized an opportunity to put coasters on the counters and bars and diners in the U. S. And at that time, the food service distribution business hadn't really emerged and hadn't evolved.

There weren't redistributors. There weren't broad liners. And we started to sell coasters and paper products up and down the streets here in the Northeast. And that evolved into uh, What was royal paper, which I led as president through 2010 to 2015.

[00:03:35] Doug McCormick: I could just comment, all of these partnerships, all of these journeys are so unique.

And just a couple of comments on the unique aspects of AmerCare Royal. We've been in this partnership for an abnormally long time, almost a decade. But through that time, we've seen just tremendous transformation on a couple levels. So the business that we started with 2014 was about 40 million of top line revenue. Today, it's over 900 million approaching a billion. So kind of tremendous, kind of growth trajectory, but also it's been fun to watch, Scott's own journey, right? So Scott was. young and up and coming executive who had tremendous kind of functional knowledge and depth given he'd grown up in the industry and to watch him kind of evolve his leadership skills and Develop as the organization's developed.

It's been a real fun Part of the journey that we've had a chance to kind of navigate together

[00:04:25] Sean Mooney: I love that story and it's really interesting just you know kind of personally as I kind of Think about your experience. grew up in a third generation family business. And that was a small little company that started in Cleveland, Ohio.

And then it evolved literally across the globe. And so it's a great way to grow up. I'm guessing if your experience was anything like mine, I always was given the hardest job that was ever given to anyone and have all sorts of stories about them. I think giving plant level bonuses when they kind of messed with me as a kid.

[00:04:56] Scott Milberg: Yeah, it's been a ride for sure.

[00:04:58] Sean Mooney: That's great. We'll dig more into kind of this journey of value creation and have, but I think it might help to give a little bit of some background on this episode. And so for our listeners, I think, you know, we've already discussed quite a bit on the best, but never final podcast here about how and why value creation is so important in the private equity world.

And. A little while ago, Doug and I were catching up and talking about this study that we kind of looked at together about the Inc 5, 000, where when we pulled back the cover, it showed this really strong role by private equity and these kind of small and mid sized businesses growing into quite substantial companies like AmerCare Royal has become. And maybe just to share the cliff notes on this study is we were looking at this and Doug and I were peering into this. It was interesting because we saw 11 percent of the 5, 000 companies were P backed. Those companies on average 480 percent over 3 years. And what was really striking to me is not only were they growing, but maybe 11 percent of the companies were PE backed, but, they accounted for 64 percent of the jobs that were added during that three year period, which is striking.

And then we looked at the data that we had within BluWave, working with a large number of the private equity industry, business builders, 77 percent of our projects last year were related to value creation and nearly one in two projects were related to human capital. So this all made sense.

And so Doug and I were talking about, it'd be really interesting. To talk about private equity's, role, and value creation, not only through the lens of PE, but also through the lens of a CEO who's, along this kind of common journey. And so maybe that as setting the stage. I'd love to kind of get into it.

And Doug, I'd be curious, one of the things that, we talk about all the time is this value creation concept. And I think 5, 000 shows a lot about how private equity approaches this. How is this kind of shown out in your portfolio companies? Do you have companies in 5, 000?

[00:07:05] Doug McCormick: Yeah, Sean, first of all, I think, just , the genesis of our discussion, I think is interesting to just kind of put a point on, which is. As private equities matured, driving value has become more commensurate with driving growth because the market's becoming increasingly competitive.

It's harder to find value. And so, I think private equity firms have figured out a variety of tools to accelerate growth. I think that's interesting, not only from an asset class perspective, but it's interesting from a public policy perspective as we think about the implications for employment and just good corporate, economic policy.

I'm very focused on the study because, we have been the beneficiaries of, several awards. So, in 2023, we had four portfolio companies. That qualified for the Inc. 5000's growing companies over the last 3 years. We've been award recipient 11 times. So, kind of really good.

Traction relative to the metrics that 5, 000 uses, in our most recent submission, which was 2023. I mentioned we had 4 award winners. One is MSI Express, which is a manufacturer in the food equipment space. It does co packing and co manufacturing of actual foods. We had one business that was a technical service business called Tech 24.

It does food service equipment repair. And then we have two distribution businesses. One was AmerCare, Royal, and the other is, CHS, Consolidated Hotel Supplies. So anyways, pretty disparate group of businesses that I just mentioned, but I think the common, thread across all four of those is, we partnered or purchased from a founder or family.

So it was, direct purchase from an entrepreneur who had big visions. The second thing is they're all consolidation strategies, right? So we picked, really fragmented markets in North America where we could dramatically scale the business, not just through organic growth, but through acquisition growth.

[00:08:54] Sean Mooney: That makes a ton of sense maybe dig into this we'll get into the how and the why little bit more here, Doug. But does your firm HCI think about value creation in general, specifically as it relates to kind of this topic.

[00:09:09] Doug McCormick: Yes. And again, there's whole bunch of different unique strategies as you think about value creation, holistically, at a very high level, we try to have a pretty standard engagement model.

And we're essentially trying, if you think about the goal very simplistically, it's drive transformational growth where we can build not only a bigger business, but a better business. And as I mentioned, the market's got so competitive, what you do with the asset, I think ends up being the primary driver of returns.

And so our playbook is we pick fragmented industries where we can execute this consolidation strategy, but the value goes far and beyond simply just M& A while you're executing that strategy, you're growing the team, you're growing the organizational capabilities because you've just introduced all kinds of complexity with a bigger business.

And along the way, you're also giving the team more tools to win or a better mandate to win. And that comes through organic capabilities, and the businesses we buy, you know, every time Scott consummates an acquisition, he seeds his product portfolio with a new geography, or a new product set that he can provide to his existing customers.

And I would say the last thing is we try to stay, disciplined and steady and committed along the way. None of these strategies work out exactly as you pencil them out on paper. And so I think the ability, to kind of stay the course and remaining committed to the end state the course of, growing pains is an important part of the journey.

[00:10:34] Sean Mooney: We're really, as part of this conversation, kind of starting at the high level. and Scott, I'd love to get your perspective as we drill down here, but maybe before we get there, just addressing kind of one of the interesting takeaways that I saw from the study.

if you want to find a study. You'll find link to the study in the episode notes. One of the things that was so striking from the analysis that we did was this whole concept of jobs and job creation and job additions.

Doug, I'd be curious, why have your companies and YSP in general been such a big job creator, not only in the Inc. 5000, but also, broadly across the economy?

[00:11:12] Doug McCormick: As I mentioned earlier, as things have got increasingly competitive, I think growth is required to deliver the returns that we're all seeking for.

So that's essentially our mandate, from our investors. And I think, the private equity market brings a couple key resources to these consolidation plays. They bring access to capital, right? I think that's an important one. So we can essentially accelerate the rate of investment in the businesses we purchase, and that rate of investment can be deployed organically or acquisition in either case, kind of translating to growth.

I think we can compliment the team with M& A capabilities and business capabilities. And so in the early days, Scott and his team didn't have an in house M&A team. So we provided that support as they thought about navigating acquisitions. over time they've internalized, many of those skill sets.

I would be remiss if I didn't say, One of the powerful attributes of the private equity model is this alignment of incentives. It's alignment of incentives between our investors and HCI, and then it's alignment of incentives, between, our investors Scott and his team.

So we're all incented for that, transformational growth and the value that, resides from that. And, while it's easy to say all of those things in a very high level, general way, I think AmerCare is a great example of that journey, we've added significant human capital, both at the senior level and the employee level, in Scott's journey from 40 to 900 plus.

[00:12:40] Sean Mooney: A 40 to 900 plus just kind of makes my head explode is, in managing a company that has around, close to 50 people, I don't even know like you've made that journey, but maybe Scott, let's bring in, can you talk about, what are the nature of these jobs that you're building here?

[00:12:54] Scott Milberg: Yeah. So look, just to kind of frame the concept of job creation, right. I think the growth aspirations are really what has been a game changer from a single entity to where we are today. Right. When the expectation of single digit growth is good enough, you don't have to make the investments.

You don't have a vision of what the business could become. A lot of times debt is a bad thing and you don't realize that, leveraging the business through a little bit of debt can allow us to accelerate that growth. And I think, a P sponsor helps us recognize that. And so when you have that expectation for exponential growth, you have to have the bodies and the jobs and the roles and the people support that.

I want to say that we now have close to 850 employees across the organization. We have dedicated staff, full time employees overseas, in China, in , Turkey and South America, we are focused on, everybody from the shop floor all the way up to not just the C suite, but, two, three, four levels down in order to really drive and deliver on our initiatives.

We used to joke some of the early board meetings. It was like, I would say you guys need to make an investment into an analyst, right? And I would look at Doug and I'm like, we have an analyst. We have 1. What do we need a 2nd analyst for? Right? And at that point, like an 85 or 120 million business.

And today, Doug often says you want to skate where the puck is going, right? We want to build the business for tomorrow and not for what we have today. And now we have analysts just as an example, but there's analysts embedded in almost each function of the business, right? And there's functions within the organization today that just didn't even exist before.

Whether that's in supply chain, manufacturing operations, human resources, technology finance. I mean, the organization and the organizational design, the number of people, the level of skill that we've hired, the sustainability of those jobs is really what has transformed us and makes our growth possible.

[00:14:56] Doug McCormick: I want to like, be intellectually honest that as you think about AmerCare's growth and growth and employment, some of it has been acquisition related, right? Where we've acquired the same way we acquire customers. We've acquired employees. And so we've grown our employee base that way.

But, this specific example, just to point out, Scott mentioned we have about 800 employees today. I think we've grown our employee base over 400 organically. and it's also important to point out, kind of the types of skill sets that we've added. In addition to growing the headcount, I know for a fact we've added over 30 senior managers.

And in many cases, these positions didn't exist, right? A CIO chief information technology officer, right? Like that would have been a position that the business didn't have. And so chief commercial officer is a position the business didn't have. So we really added capabilities, by functional capacity, as well as his headcount.

[00:15:47] Scott Milberg: Yeah, I want to say there's probably around 80 new positions, right? Lots of investment in management, but net new positions that didn't exist in the organization. I want to say there's almost 80 new roles that have been created to meet the needs of the business.

[00:16:00] Doug McCormick: Hey, Scott, just to be clear, that's 80 roles, not individuals, right? So, like, a role could have 30 people in it?

[00:16:05] Scott Milberg: Correct.

[00:16:06] Sean Mooney: As you're thinking about, the journey that you've been on with HCI, if you go back to the Wayback Machine, before you had kind of the fuel in the tank to kind of really throttle down on what you've achieved, could you even had all those type of roles?

[00:16:20] Scott Milberg: No, I mean, demand wasn't there, right?

Like, the expectation for growth, the initiatives that we were focused on as, in the way back machine, they didn't demand or they didn't require. These positions or these skill sets. So it really just speaks to kind of not only what we're doing today, but the type of business that we're trying to build for the future.

Right. being proactive and getting ahead of what we think are the next set of risk or the next set of opportunities make what we're doing sustainable.

[00:16:51] Doug McCormick: I think this also speaks to kind of the broader private equity model, right? like, the reality is this business has performed way better and grown way bigger than we would have ever anticipated in any.

Right. Model or thesis or forecast that we put together. But you know, early on, we knew it's a 40 billion market and it's relatively fragmented with some really nice kind of organic growth trends. And so some of the game, I think from a private equity investment professional is, you feed your winners and you starve your losers.

And so this one's just been way more kind of productive in terms of our ability to deploy capital effectively. Really grow that business and you can play a little bit of game of incrementalism right like, we did a deal we learn from it we did a few more deals we learn more and so we didn't have a real clear path of where we were going other than it was a really big sandbox to play in with a really attractive business model.

[00:17:43] Sean Mooney: This episode is brought to you today by HCI Equity Partners, a lower middle market private equity firm focused on partnering with family and founder owned manufacturing service and distribution companies.

ICV Partners, an innovative private equity firm. Supporting management teams of leading companies at the lower end of the middle market and BluWave, the business builders network connecting the most proactive business builders in the world with the best of the best service providers for critical variable on point and on time due diligence and value creation needs.

Now back to the episode.

Turn the page in a second because I want to get scott's perspective on this whole kind of value creation business building perspectives you think specifically and kind of your core philosophies. But maybe before we go there, one of the things I think is interesting as I'm reflecting on Scott and Doug are saying is this whole concept of the types of jobs that you're creating, it's.

Everything from the entry level jobs, the shop floor jobs, the doer jobs, the mid level jobs, the upper level jobs. It's kind of this microcosm of the economy, all in one business here that you're building as you kind of grow company. Is that a fair kind of perspective?

[00:18:59] Scott Milberg: Yeah, I think it is fair and doesn't happen all at once.

Right. I mean, I think that some ways we're kind of building from the bottom up because we're trying to build capacity to satisfy demand and other areas, we're building from the top down or because we've made an acquisition and it requires a new capability and it requires leadership and vision to then come in and build out their team, right.

To build out the middle level of the employee base. So I don't think it's. Always starting in one place, right? But it fills out from the bottom to the top or the top to the bottom and everything in between. And you end up with a really robust workforce that understands, the vision of what we're trying to build.

and it's connected to how we're doing it, how we're getting there.

[00:19:42] Doug McCormick: I also think there's a really interesting kind of corollary of, I would argue, regardless of where you are in the organization, the employment prospects for that individual are better in a growth oriented company than a non growth oriented company, right?

And it's, how fun is the job? It's the cultural aspects. It's also the economic opportunities and the professional development opportunities, right? So in a growing business, we've had a chance. Yeah. To allow people to progress and migrate into new roles with greater responsibilities.

And so there is this virtual cycle of if we can create that growth engine, not only is it a great economic outcome, we're not creating jobs for people. We're creating, professional opportunities and growth for people as well.

[00:20:25] Scott Milberg: I think the development is critical .And I think like you said, we're not creating jobs or creating careers, right?

I mean, it's a longterm investment in our people.

[00:20:33] Sean Mooney: And I love that, right? All things being equal, if you're a growing company, not only you grow on the top line, but you're creating opportunity for, careers. And maybe that's a nice segue to digging into Scott, your perspectives and philosophies on business building.

And so as you've gone along this journey with Doug and team, What have been the focus areas that maybe you've thought about how you really exponentially scale a company, which it's got to be a tremendous source of pride, but to me, it's mind boggling taking a company from 400 to 900 as you have.

And so I'd love to hear more about the philosophy.

[00:21:09] Doug McCormick: Don't downplay it. 40 to 900.

[00:21:12] Sean Mooney: 40 37, but that's now my head's

[00:21:19] Scott Milberg: and it should be closer to a billion by the end of the year. But look, think a fitting kind of transition because, this isn't about. Just me, right? Like we're talking about jobs and we're talking about people.

And I think that's the critical piece to the puzzle and the foundation of what we've done. It's about the investment in people to build the teams and to build the capabilities that would allow us to sustain and even accelerate growth.

this is an area that, quite frankly, coming from where I came from in my career, I didn't appreciate the level of investment and kind of forward thinking that was required in order to scale the business.

And it's a great example of where, in this case, HCI was a good partner, right? And they talked about what an org needs to have and what the design of the org needs to be able to support. If that vision is to really get the business to a billion dollars so I think, understanding and accelerating investments in people was kind of one of the first of what I'll call four pillars, right?

in terms of creating value, as we've been on this journey, I think the second pillar I would say is just, you know, Broadly speaking, it's integration, right? But it's not just. It systems integration, it's about people, it's about culture, obviously. Right. But it's really about the functional areas and the value within each 1 of them that is created through integration.

When you have. Six companies or nine companies now that you've put together, but you're operating as six independent supply chain organizations. It's really hard to capture or create value, right? Even when you don't have one common platform or one reporting system, or you don't have visibility to the spend across all these organizations.

So driving integration across supply chain, across warehouse operations, across sourcing, across manufacturing, those have been kind of critical value creating levers that support this pillar of integration. 3rd, I think, once you have the people and you have the integration, then you can do some of the work, some of the fun stuff, right?

Some of the transformational initiatives that really create value, not just for stakeholders, but also for our customers. So expanding those capabilities through having the right people, through having the right integration points allows us to create more value to the customer ultimately and accelerates growth and it also helps us reduce costs, right?

And so we're in a business where distribution business, where we're either making or sourcing variety of disposable products, anywhere between 70 and 80 percent of our costs is in our product cost. So anything we can do to reduce product or operational costs, not at the cost of jobs, but to actually reduce the cost of goods can create significant value, especially when you're doing it at scale, right?

So as we continue to grow and get to the level where, you're moving millions of boxes, right? Pennies and cents matter. They add up. The fourth pillar, which is really, around M and a, and that's been a huge part of our growth, right. And I think when we look at the very start of our engagement with HCI, we recognize that it was a ridiculously fragmented supply base and that our market was really ripe for consolidation. There had not been a huge consolidation play that we recognize that our customers appreciate the value of the bundle and what we provide.

And so, Bringing what HCI brought to the table in terms of leveraging our access to capital markets to drive that consolidation model has been a huge accelerator, and has allowed us to, take share in the market.

[00:24:53] Sean Mooney: What you said there makes a lot of sense. And as I reflect on the industry at large, Or the business world anyways, I always think about through this concept of expected value, and maybe there's a couple approaches to growth and the VC model, and this is by no means something that I'm saying is bad about the industry, but they're going to go fast as they can in hopes of getting to orbit, and then some small percentage will make it into orbit. What I heard you talk about was a very kind of methodical approach to growing quickly. Thank you. Get the people in place, get the capabilities, the processes, and then you can optimize this going along so it's more of like a jetliner getting up to 35, 000 feet at a fast pace, but not trying to do a moon shot. Is that a fair?

[00:25:38] Scott Milberg: Yeah, I think that is. I mean, I think can't build a house on a weak foundation. And I think creating that foundation is critical. And I think that, it often takes more time and more money than we want. But, I think if we stay committed to the long term opportunity in the business, like Doug mentioned earlier, we've been able to, deliver those results.

[00:25:57] Sean Mooney: I think it makes a ton of sense and kind of bring in this back to kind of expected value. As you said, it may have taken a little longer, a little more money, but if you multiply The outcome that you've achieved times the probability of success. It seems to have delivered a much more certain outcome than maybe had you taken other approaches.

[00:26:17] Scott Milberg: You got to ask Doug. He's the ultimate scorekeeper, but I would agree with you. Yeah. Listen. I think that there's lots of ups and downs. Things don't always happen the way we expect. but ultimately we're getting to a better result than we had anticipated.

[00:26:31] Sean Mooney: Doug, what are your thoughts on that?

[00:26:33] Doug McCormick: So I think, Scott's being humble there. I think, these guys have done a great job on delivering on the promise and the opportunity that we, all kind of saw when we joined hands to embark on the journey. I think as I reflect on how Scott has thought about the four pillars, , I'll take the, converse way to say that.

I think 2 of those pillars are the way that consolidation strategies can really get messed up. If we say, hey, boy, this just sounds too easy. Just put a bunch of businesses together create a big business. But I think this integration work is really hard. And if you do it well, it allows you to both play defense and offense.

I would argue that, acquisitions you do that are not integrated, you have an Achilles heel cause you really don't know what's going on. And it's hard to kind of, play defense. And at the same time, we're buying these businesses because we think there's some kind of synergy, whether it's the opportunity to buy better or the opportunity to sell better or cross sell or price differently.

And it's really hard to get at those opportunities unless you have good data, good information and good integration. So, like, Scott's business is a distribution business, and that's a core competency, all the things related to distribution. But at the same time, I think M& A integration, new organizational onboarding has become a core competency and must be. And then the second one I think is, he always talks about customer focus, and you got to be customer centric on this stuff and make sure that the business you're buying, you can get your head around having conviction that it allows you to better service the customer, whether it be with new capabilities or a better cost position.

I think you stick to those two things in these consolidation strategies and you do those well, assuming that the markets behave as you expect, et cetera. I think that goes a long way to ensuring success.

[00:28:18] Sean Mooney: It's interesting as I'm listening to you all speak, there's a couple of things that jump out to me.

One, you're using the word and a lot versus, or, so you're taking this comprehensive approach. It's not, we're going to do one or the other. We're going to do acquisitions and we're going to use data and we're going to add people and we're going to build sustainable. Jobs that lead to careers.

It's not one thing. It's a multiple number of things that are all working together in symphony. And I think that's really important for any business builder to think about. You got to build a system that's comprehensive, integrated, and doing multiple things that work well together versus just hitting one button.

One thing, Scott, that I didn't hear you talk a lot about that. I think a lot of people maybe perceive, from like 1980s movies is this idea that we're going to get there by cutting costs. I heard you were going to optimize costs and you're going to be efficient. But I didn't hear like, Oh, the path to Rome is like, we're just going to cut, cut, cut.

How does that play into the way that you think about building your business?

[00:29:18] Scott Milberg: Well, look, I think that, we're growth company, we're growth oriented company. And I think, we've got a growth oriented sponsor and HCI. And I think that, we think about reducing cost.

Differently than, cutting cost in terms of bodies or jobs or roles. We focus on, like you said, more optimizing our cost. And making sure that you're thinking about people, we think about, do we have the right people in the right roles? And we often try to utilize the people that have helped build the business and maybe in different capacities in different places to help generate upside revenue opportunity versus kind of cutting costs, eliminating office space.

It's a cliche, right? But it takes money to make money. And I think we got to invest. Especially at this stage of our journey, to support what our goals are in terms of, exponential growth. So we're going to continue to invest in people, process and systems, and that doesn't always correlate directly with cutting costs.

Right? Ultimately, we get to a lower cost point, a lower cost of goods, a lower cost to serve. but it's through the investments that we're making, which come at an expense more so than, at a pure removal of cost.

[00:30:33] Doug McCormick: I want to be like intellectually honest on this one. So if we thought that, any of our investments was overstaffed or, was at a scale that was inconsistent with, revenue base, we would take costs out.

And if that meant, employees, we would, make that business decision as well. Having said that, I guess two observations. This game of cost management, especially pertains to employees, in my mind is a direct reflection of the quality of the end state opportunity and the rate of growth, right?

And you find yourself in markets like Scott's competing in, and the market is always growing at a rate where you're always trying to keep up. And so you're investing today for things that you're not going to really take advantage of for almost another six or 12 months. And then the last thing I'd say is just about the lower middle market, private equity business.

I mentioned earlier that the four businesses that, we were recognized as in 5, 000, growth winners, if you will. We're all, purchased in partnership or purchased from a family. My experience has been, Scott's family had less ambitious growth aspirations that allowed them to run the business a bit more efficiently and more leanly.

And so the reality is we often feel like the businesses we're buying day one are understaffed, relative to where we're headed. So, we rarely find situations where entrepreneurs have overstaffed their business because they're paying themselves out of the profits at the end of the year.

And, they're focused on the bottom line.

[00:31:55] Scott Milberg: I think that's a great point.

[00:31:57] Sean Mooney: And I think those are all very spot on observations and perspectives. And one of the things is I think about. A previously investing in family owned businesses, there's usually J curve because you're going to enable the fuel to make those investments that maybe are harder to make in the precursor state, or you couldn't even make them.

And then as businesses get going, as I always think about, the first half of my career was an industrial private equity, and so I love this concept of lean and six Sigma. And so it's this idea that, The noble thing is not to get overweight because that doesn't accomplish anything. And that's throws off the whole system.

The noble thing in terms of building a company is to be, lean where you need to be lean and pre investing in other areas, what that ultimately enables you to do is create cashflow that enables you to reinvest, that enables you to add more jobs in the right places that enables you to grow faster.

And so it's all kind of this integrated flywheel that I'm kind of hearing you guys say here. Is that a fair kind of takeaway?

[00:32:55] Doug McCormick: Yeah, think it is, Sean. I would say just one reaction to the way you described it. I think it's hard for organizations to invest in certain parts of the business and disinvest in other parts of the business.

And we find as, if you're transforming a business, that's gonna happen. Certain parts of the business are no longer a priority or required and other parts you've got to really invest in. And so you got to avoid this concept of like, share the pain or share the opportunity and concentrate your bets on, where the choke point of growth is.

[00:33:25] Scott Milberg: And I think, listen, this is not a steady state model, what we're doing, whether that's because it's a consolidation play or not, but. We're going to stay nimble and we're going to react to a dynamic market and we're going to react to the dynamics of our customers. And so to Doug's point, I mean, I think we're constantly challenged to pivot and to change what we're doing.

We have to be able to throttle up and down or move left and right as defined by the needs of the market and by the customer.

[00:33:50] Sean Mooney: There was this kind of line, all roads lead to Rome, and there was this concept that everyone thinks it's a straight line is the fastest way there. And often, like, as you're going through journeys and, building companies, it's really more of a twisting and turning road.

And it may seem like you're taking the long way, but you're going around the mountain passes and you're going through the rivers, and ultimately get there a lot faster, but it's never straight. There's always dips and turns and twists. But ultimately you get there. So, one of the things maybe that we can talk about next, Scott is with all of this in mind, how has this approach really enabled you to serve your customers, your stakeholders in your markets and it kind of different in better ways.

[00:34:34] Scott Milberg: for us, there's a ton of value that we create, for our customers through our size, through our scale, right. Our ability to service fast growing concepts or national brands. Throughout North America into Canada. A lot of that value has come through the consolidation and the growth that we've delivered.

I think that there's a tremendous amount of flexibility that our model has also brought to our customers or value creation through our flexibility, right? Customers often want to move from one substrate to another substrate. Depending on what's going on in the world, they want to the lowest cost product, they don't care where it comes from to something that is near short or on short, there's always a focus on breath of line, right?

I mean, so being able to go to our customer base and say, Hey, we can provide the best of both worlds. We can make, we can source, we have it. Onshore, we have it offshore. We can service throughout North America, regardless of where you're located and we can provide that same level of consistency, through best in class people, best in class capabilities.

Those are big value creators for our customers and ultimately it differentiates us in the marketplace our competitors. And all those things are perceived as Being a value add supplier, right? it allows us to help our customers reduce risk and ultimately reduce cost. So, the model has proven to be very successful, right?

I mean, we're growing at almost two times industry rates. And we continue to think that, We're competing for a 27 billion dollar addressable market. We're sitting here just shy at a billion dollars in North America. So there's a tremendous amount of opportunity still to deliver that value proposition to our customers, which are investment thesis and the consolidation thesis has created.

[00:36:28] Sean Mooney: Can you talk about how you work with HCI and Doug and his team to kind of get to the future state that you're marching towards?

Maybe what are some of the best practices that you say, okay, here's how you can be successful as a CEO working with a private equity firm?

[00:36:44] Scott Milberg: think you've got to make an investment in time on the front end, right? Make sure that you're aligned, with your sponsor from a vision and values perspective around where you want to take the organization and how you think you can get there.

think you have to recognize that not. All PE sponsors are, are the same. And, this is a partnership. You got to view it as a partnership and you got to choose wisely to make sure that you're building a business with somebody that you can relate to, and that will challenge you in a way that's constructive and will allow you to grow, allow you to invest give you the runway you need to operate. One of the things that I appreciate the most about HCI is that high expectations challenge how we're operating, but they don't proclaim to be operators of the business, right? know where they can be additive and have done a really nice job kind of, turning on and turning off their support.

And as Doug mentioned earlier in the conversation, I think as we've grown our capabilities internally, HCI has Remove themselves from some of those areas, right? I used to joke and say, Hey, if HCI is in our office, it means we screwed something up, and then HCI would joke back and say, Hey, we've had you for nine years.

If you don't know how to run this business by now, then we're doing something wrong. Right. But that's kind of like the healthy banter. I think people who want to work in private equity and they want it to be a positive experience. You gotta look for that, right? It's gotta be somebody you respect and appreciate.

But at the same time, they feel the same way about you and the team that you're building.

[00:38:13] Sean Mooney: Doug, what would you add to that?

[00:38:15] Doug McCormick: Listen, all sounds so easy and obvious, but it's hard in practice. Is the relationship or the partnership, right?

I think a lot of times people get into the deal mode where they expect to sell their business, and they think that, the exit is the finale. And in some ways it is, and in some ways it's like the beginning of the race, right? And so just make sure you're thinking about both chapters, of the book here.

It's, I gotta get, I'm selling the business and then there's the afterlife. And, different relationships of all differently, but this concept of trust and the ability to have really open and candid conversations about what's good and what's bad and how we're going to work together through the journey, I think, is important.

I think the other thing is, if you said to me, what are the attributes that make someone like Scott and his position successful, I think it's been interesting to watch him evolve from, what I'll call a functional expert to a leader or general manager, right? And as he evolved over time, he's had increasing roles responsibility where he's much more focused on managing his managers than he is solving specific problems of customers or the business.

And those skillsets are very different. Right. So I think just acknowledging that the difference in the skill sets and what you're playing to. And then I think for all of us, like, I put myself in this category. I put Scott in this category. I think you got to be willing to be and want to be a perpetual learner, right?

Because this is always like, we did better this year than last year. And, you know, How are we going to up our game again the following year? And so is this, kind of insatiable curiosity and the pride you get from the banter back and forth, right? Like we give each other a hard time, which is fun, but it's also our way to push each other to new and better things.

[00:39:55] Sean Mooney: I love both of your perspectives there and it shows the alignment and Scott, you kind of hit the nail on the head when you said you're kind of in a relationship or a partnership with your sponsor. And in your case has gone on almost close to a decade.

[00:40:09] Scott Milberg: Yeah. And listen, I've had the ability have the support to go bring in and build a team around me that has worked for several decades of private equity sponsors, and I know through them that not all sponsors are created equally and the relationship is not always as transparent, is probably the right word. And I think that it's taken one of my. Biggest challenges has been convincing the team of sharks that we've brought in to help lead the organization to trust that this isn't a gotcha culture that we've created with HCI.

And it's truly collaborative and it's been helpful and it hasn't always gone well. I mean, we've had bad years and we've had challenges and we've placed bets that have worked out great. And we've placed bets that have, struck out. But, There's more chips on the table now than there were

[00:40:57] Sean Mooney: kind of a metaphor for life, right?

It's never straight up into the right. It's more of a, in your case, it's like a 45 degree sign curve, everyone's case. But if you're. Open for up in the right in a straight line, you're going to be greatly disappointed and probably not going to be able to overcome the ups and downs in between.

So think that's a great way to think about things. And maybe with that in mind, let's talk about like what you're seeing going forward so what are some of the things that you're thinking about as a business leader now about the challenges and opportunities and how you're hoping to kind of navigate this to continue to kind of plow through and your value creation path?

[00:41:36] Scott Milberg: Look, I think some of challenges we face today are the same challenges, and this becomes frustrating, but some of the same challenges we faced, 4 or 5 years ago. And it's because these challenges kind of recycle when we're highly acquisitive. Right? And so I think leveraging the capabilities, our core competencies across these new acquisitions and doing it.

In a way where it doesn't, shatter some of the culture or the backbone of some of the companies that we're acquiring. That's a big challenge, right? and I think that if we get that right, everything moves a lot faster and we're able to leverage the foundation that we invested in, right?

The people, the foundation, the integration, all those initiatives that have created value and ultimately get to the next acquisition target. but managing. The change associated with leveraging those capabilities is incredibly challenging. At least from, micro level,

[00:42:30] Sean Mooney: it's human nature. Change is scary. I think everyone tries to resist it. What are some of the kind of the ways that you help inspire the team to get past that 1st phase of fear? And repivoting it into kind of opportunity and excitement.

[00:42:45] Scott Milberg: It starts with culture and a culture of transparency and an openness around where we're trying to go.

And I think you got to define end state of what we're trying to achieve and engage and include as many parts or people or everyone in the organization. In that process. I think no matter how much you communicate, you're still under communicating and no matter how clear you think you are being around who you want to become or how you're going to get there, there's always new people in the organization.

There's always another company that hadn't heard it before. And so there's this need to constantly re communicate and re enforce kind of that desired end state. And I think. Explaining how everyone in the business can play a part and play a role in achieving that is really critical to create that buy in

[00:43:34] Doug McCormick: I think of the ways that Scott has done a good job of helping the organization navigate changes. Bringing seasoned team members into the fold who have been there, done it before and seen it. And that does two things. One, it brings new insights and perspective to the table to navigate the challenge, whatever it is.

And secondly, people level set and they see the quality of the people you're bringing in and it gives them comfort and confidence to kind of navigate that change with the organization. And then just in terms of like things I'm focused on, that Scott mentioned in the coming year, I think that this business has a unique opportunity, to really cement itself with its customers as a strategic partner, as opposed to a supplier.

And what I mean by that is, we've just navigated several years of supply chain disruption, given the pandemic and pre pandemic, I think everybody took, cost and supply chain continuity as kind of a givens, that, you were going to get your product is going to be on time.

And the only thing you really differentiating was cost. And I think, because of the supply chain complexity and the disruption that everybody's experienced, there truly is an opportunity to be more collaborative and share information with your customer in a way that you can offer more value. And so I think we got to exploit that opportunity while people are focused on it.

Five years from now, if there's been no, volatility, people forget those lessons than they were expensive and hard learned and so I think taking advantage of that, in the ability to really differentiate ourselves in the marketplace. I think it's important.

[00:45:00] Sean Mooney: I think it's really interesting just listening as a spectator in this conversation.

One of the things that's kind of striking me is we've talked about a lot of things that kind of keep on coming up again and again. It's people's process. It's integrated approach. It's serving your customers in more fulsome ways, and I'm hearing this again and again and again from both of you. It shows, this alignment that you all have that isn't easy, and I'm sure it takes investment, but you can tell it's there because we've talked about similar things throughout this entire conversation, and it shows that's how it's done well from an opportunity to look at and work with large part of the P. E. World and then having been at my prior self.

At the risk of flattering both of you, it's impressive and I hope it's a source of pride because I'm sure it came with a lot of work and effort to get there.

[00:45:51] Doug McCormick: Yeah, certainly a lot of pride in, watching what Scott and his team have accomplished and a lot of fun.

And that's, what keeps you coming back.

[00:45:59] Sean Mooney: And the only other thing I'll say Scott, on one of your points that I really latched on to that I've learned, having been most of my career, a private equity investor now. The founder and CEO of a company is this concept that you've mentioned.

I don't know who I took this term from, but like we all have to be chief repeaters. Because like, you just have to say things again and again and again, and then you're so excited when you see it in the wild come back to you, you're like, Oh, wow, that worked. So that's been something I'm still trying to figure out.

So it, really resonated to me. I was like, yeah, he's right. I just figured that out.

[00:46:28] Scott Milberg: I say to Doug all the time. I said, man, don't you get tired of repeating yourself? But keeps saying, he keeps saying it because we gotta retain it.

It helps to keep hearing it.

[00:46:36] Sean Mooney: All right. Well, this has been a really wonderful, enlightening, for me, educational conversation in terms of kind of showing the way the world works here, maybe behind the scenes from what everyone doesn't necessarily get a chance to see every day.

[00:46:51] Doug McCormick: Awesome, Sean.

[00:46:52] Scott Milberg: appreciate it.

[00:46:53] Sean Mooney: Thanks, Doug. Thanks, Scott.

[00:47:01] Doug McCormick: Special thanks to HCI Equity Partners, a lower middle market private equity firm focused on driving transformational growth through consolidation strategies. by partnering with family and founder owned manufacturing services and distribution companies. Learn more at hciequity. com. ICV Partners, an innovative private equity firm supporting management teams of leading companies at the lower end of the market.

Learn more at icvpartners. com. And finally, BluWave, the business builders network connecting the most proactive business builders in the world. with the best of the best service providers for critical, variable, on point, and on time due diligence and value creation needs. Learn more about BluWave at BluWave.

net. For further information on HCI, ICV, and BluWave, and relevant topics discussed during the episode, please see the episode notes or links.

[00:47:59] Sean Mooney: The views and opinions expressed in this program are those of the individuals presenting, and do not necessarily reflect the views or positions of the program. Of any other persons or entities, including those referenced herein.

Join Doug McCormick from Oridian Capital Partners, Lloyd Metz from ICV Partners, and Sean Mooney from BluWave as they explore timely private equity topics and offer their seasoned perspectives on crucial areas of focus within the industry. Gain valuable insights from these industry experts in this engaging podcast tailored for PE professionals.