PE Webinar: Sourcing Strategies from ‘Best in Class’ Originators
Featured Speakers:
Nadim Malik, Founder and CEO, Sutton Place StrategiesGlenn Oken, Managing Director, Mangrove EquityCarlos Soto, Principal-Head of Business Development, Comvest PartnersDemetrios Dounis, Partner, The Compass Group
Moderator: David M. Toll, Publisher, Private Equity Career News
Deal SourcingPlaybook
Who What
WhenWhere
Why
2019
2020
Sponsor Leaderboards for 2019
Sutton Place Strategies | 757 Third Ave New York, NY 10017
Closed 6+ New Platforms1
Audax Group
Thoma Bravo
Vista Equity Partners
H.I.G. Capital
ABRY Partners
Court Square Capital
Genstar Capital
Jordan Company, The
Kinderhook Industries
New Mountain Capital
Wynnchurch Capital
Exited 5+ Platforms2
Carlyle Group
Golden Gate Capital
Providence Equity Partners
Audax Group
Riverside Company, The
Vector Capital
Warburg Pincus
Who do sponsors buy from?
56%
27%
12% 4%
58%
29%
10% 3%
59%
27%
11% 2%
56%
31%
11% 2%0%
10%
20%
30%
40%
50%
60%
70%
Private Company Private Equity Carveouts Other
# o
f N
ew S
po
nso
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latf
orm
s
New Platform Acquisitions by Seller Type1
2016 2017 2018 2019 YTD
45%
56%53%
48%52% 50%
61%
42%
0%
10%
20%
30%
40%
50%
60%
70%
Equity Investor Corporate Investor
# o
f Sp
on
sor
Exit
s
Platform Exits by Buyer Type2
2016 2017 2018 2019 YTD
Since 2016, the share of new sponsor platforms that were private companies is consistently between 56-59%.
In 2019, over 60% of sponsor exits were secondary buyouts (SBO), as compared to 2016 when SBOs accounted for less than half.
Footnotes:1: New North American platforms with private equity buyers, all industries, 10+ MM EV2: New North American platforms with private equity sellers, all industries, 10+ MM EV
Sutton Place Strategies | 757 Third Ave New York, NY 10017
What industries are sponsors buying & selling?
There appears to still be an appetite for new platforms in asset heavy industries.
Asset light industries are most prevalent among exits.
2019 - Top Industries for New Platformsby deal size (MM EV) 1
Lower Market 10-49
Mid Market 50-499
Upper Market
500+Industrial - Misc. equipment and products 2nd 1st 2nd
IT - software 1st 2nd 1st
Materials - chemicals, minerals, plastics and misc. 3rd 3rd
Transportation - transportation and logistics services 4th
Healthcare - specialty clinics and centers 5th
Services - data and information 4th - Tie
Hospitality - restaurants 4th - Tie
Industrial - services 3rd - Tie
Services - marketing and related 3rd - Tie
Services - facilities maintenance and landscaping 5th
2019 - Top Industries for Sponsor Exitsby deal size (MM EV) 2
Lower Market 10-49
Mid Market 50-499
Upper Market
500+Industrial - Misc. equipment and products 1st - Tie 1st 2nd
IT - software 1st - Tie 2nd 1st
Materials - chemicals, minerals, plastics and misc. 3rd 3rd
IT - services 4th
Services - misc., asset light 4th - Tie 5th
IT - FinTech 4th - Tie
Services - waste and recycling 4th - Tie
Services - marketing and related 3rd
Services - data and information 4th - Tie
In 2019, Industrial Equipment and IT Software dominated, taking 1st and 2nd place across all size ranges for both new platforms and exits.
Footnotes:1: New North American platforms with private equity buyers, all industries, 10+ MM EV2: New North American platforms with private equity sellers, all industries, 10+ MM EV
Sutton Place Strategies | 757 Third Ave New York, NY 10017
When did they close?
Q2 has seen the # of deals closed increase steadily YoY since 2016.
Q4 is predictably the busiest, breaking through 400 new sponsor platforms in 2018 for the first time.
Footnotes:1: New North American platforms with private equity buyers, all industries, 10+ MM EV
216
281295
323321308
322
346
319 319 319
407
268
342
303
227
0
50
100
150
200
250
300
350
400
450
Q1 Q2 Q3 Q4
# o
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New Platform Acquisitions by Quarter
2016 2017 2018 2019 YTD
^^ Final Q4 2019 #’s still pending
Sutton Place Strategies | 757 Third Ave New York, NY 10017
Where are the advisors?
Footnotes:1: All North American transactions with private equity buyers, all industries, 10+ MM EV
City StateNew York NY
Chicago IL
San Francisco CA
Boston MA
Richmond VA
Los Angeles CA
Houston TX
Dallas TX
Milwaukee WI
Atlanta GA
Charlotte NC
Seattle WA
Minneapolis MN
Denver CO
McLean VA
Tampa FL
Baltimore MD
Washington DC
St. Petersburg FL
Nashville TN
Toronto ON
Heat map showing # of active professionals by branch office location, not HQ
Top locations sorted by # of active professionals
Travel Planning - prioritize cities with advisors you don’t know, that are actively closing relevant deals
Sutton Place Strategies | 757 Third Ave New York, NY 10017
Why source like someone you’re not?
Tailor your deal origination to your firm’s investment strategy.Below are four advisor league tables listing the top advisors in
2019 for their respective screen criteria.
The Buy & BuildSica Fletcher
Marsh, Berry & Company
Raymond James
Generational Equity
Provident Healthcare Partners
Stifel, Nicolaus & Co.
Bailey Southwell & Co.
Piper Jaffray & Co.
SF&P Advisors
Woodbridge International
1st Institutional CapitalGenerational Equity
Raymond James
Capstone Headwaters
William Blair & Co.
Houlihan Lokey
KPMG Corporate Finance
Cascadia Capital
Harris Williams
Jefferies & Co.
Lincoln International
Piper Jaffray & Co.
Special SituationsAlvarez & Marsal
Houlihan Lokey
AlixPartners
FTI Capital Advisors
BRG Capital Advisors
Moelis & Company
SSG Capital Advisors
Evercore Partners
Guggenheim Partners
Piper Jaffray & Co.
Screen CriteriaDeal Size: 10-49 MM EV onlyDeal Type: Addons onlyInvestor Type: Sponsor onlySeller Type: All
Screen CriteriaDeal Size: 10-999 MM EV onlyDeal Type: Buyouts onlyInvestor Type: Sponsor onlySeller Type: Private Company only
Screen CriteriaDeal Size: 10+ MM EVDeal Type: Distressed onlyInvestor Type: Sponsors & StrategicsSeller Type: All
Screen CriteriaDeal Size: 10-499 MM EV onlyDeal Type: Financings (no change of control)Investor Type: Sponsors & StrategicsSeller Type: All
Minority DealsRaymond James
Evercore Partners
J.P. Morgan Chase
Robert W. Baird
Bank of America Merrill Lynch
Capstone Headwaters
DC Advisory Partners
FocalPoint Partners
Goldman Sachs
Peakstone Group
Sutton Place Strategies | 757 Third Ave New York, NY 10017
• Competitor Analysis → identify sponsors closing the most deals relevant to your strategy, isolate their top advisor relationships, and track their activity via SPS Alerts.
• Sponsor Sourcing → track portfolios of specific PE firms, family offices, etc., for Ideal Harvest Potential, eg: platforms sub-250 MM EV, held more than 4.5 years.
• Top Missed Cities → travel to cities with professionals consistently closing relevant deals, that you don’t currently know. Use the SPS Mobile App when on the road.
• Conference Eval → run the attendee list against your SPS Target to determine who’s worth your valuable meeting time, with transaction history for each relationship.
New Best Practices for 2020
Presentation Materials Disclaimer & Usage
Sutton Place Strategies | 757 Third Ave New York, NY 10017
Sutton Place Strategies, LLC (SPS) analysis and reports have been prepared for informational and marketing purposes only and are not intended to be used as a complete source of information on any particular company or trend in the industry. SPS accepts no liability in contract, negligence or otherwise for any error or omission in the information, data, or analysis provided by SPS. SPS does not make any representations, warranties or covenants of any kind, express or implied, and shall have no responsibility or liability for the business or other decisions based upon the use of SPS’s reports or the results obtained from the use of information and reports provided by SPS, or the analysis or interpretation of content or data used in connection with, resulting from or derived from the use of information or reports provided by SPS.
All materials in this presentation remain the intellectual property of Sutton Place Strategies. SPS grants a limited, personal, non-exclusive, non-transferable, revocable license to access, display, and use such reports and downloadable content for non-commercial purposes only. Any republication of Sutton Place Strategies’ reports or downloadable content must include proper citation to SPS or be explicitly approved in writing by Sutton Place Strategies’ authorized personnel prior to republication. All rights not specifically granted herein shall be reserved to SPS.
Mangrove Equity Partners’ Approach to Deal Sourcing in an Increasingly
Competitive Market
A Chat With Glenn Oken
January 2020
Glenn’s Background› Started in PE in 1989 before PE was
much of an industry.› Six Funds with Florida Capital
Partners.› Three funds with Mangrove Equity
Partners.› All lower middle market (“LMM”)
focused; companies with EBITDA between $2mm and $8mm.
› LMM is a challenge given massive universe of intermediaries covering LMM, but an opportunity for outsized risk adjusted returns.
› Goal is to be top of mind with 10,000+ potential deal sources in the face of increasing competition.
Response to Hyper-competition› With 3,000 PE firms in market, plus family offices and independent
sponsors in the hunt, market has become efficient.› While many of us are increasing pricing modestly, those of us who are
more risk adverse have finite flexibility regarding price (do not want to be bleeding edge on pricing).
› Must counter through: – Dedicated resources – Processes – Systems – Frequent, quality communication lifting up differentiators (what
can/will we do that not many others can/will do).
Resources
› Different firms may find that different approaches work for them, but our approach since 1989 has been to have a dedicated sourcing team vs. an eat what you kill model.
› Must hire the right service-oriented human beings who genuinely care about other people, as personal relationships and remaining top of mind are key.
› A steel trap memory is a plus (at this point, mine is more of a colander).
› We review 2,000 deals per annum, requiring systems and procedures to ensure that no inbound communication or deliverable is missed, and each step of a deal’s iterative process is completed in timely fashion.
Service Orientation/Relationships
› We have always regarded deal sources as our lifeblood and as our customers.
› Timeliness of response and detailed feedback to help sources understand why the rejection (not always easy news) and to educate and steer them towards what we will pursue.
› Referrals to other funds if we know of a proper match.› Get to know them personally (seek to understand, then to be
understood), capturing every interaction and deal submission in CRM. Listen for what excites them when they talk about a passion (it helps to have tried every activity oneself and to have read broadly).
› Seek excuses to be helpful and to be remembered.
Allocation of Resources
› Once one has dedicated resources (both human and infrastructure/process related) how does one allocate time and effort?
› Activities competing for time allocation may include out-bound calling effort (facilitated by ranking of deal sources), conferences, city visits, “publication” of deal announcements, white papers, etc.
› Measure what works and find your balance. For us, having visited most key contacts in person, outbound calls are key and most efficient.
Systems/Data/Processes
› Build and Feed a CRM, and capture all that will enhance relationships and help to manage time and effort.
› Set up disciplines to scour for any inbound correspondence or deliverables that may fall between cracks.
› Use services such as Sutton Place Strategies to determine what deals meeting criteria are being missed, and to pick up additional sources, and to learn of sources who may need additional attention and indoctrination.
› Use deal clearing houses such as Axial, if deal size criterion makes these deals and sources a potential fit.
› Use of artificial intelligence driven efforts or services to find sources or companies.
› Direct deal efforts?
Differentiators
› Given hypercompetitive market, key on what your firm does that most competitors cannot do or will not do.
› Let culture be a differentiator if reality (let intermediaries and owners discover it and feel through dialog).
› Deep industry experience or a respected operator in target industry could be a differentiator, as might longer hold period, or nifty tricks you may have up the sleeve.
› Track why you win or lose deals and see what differentiators (other than price) are allowing competitors to win.
Mangrove invested half of our carry in a four-partner internal operating team that allows us to: Be meaningfully active and well qualified to roll up the sleeves and
materially help to build enduring value. Help to survive speed bumps and reduce risk. Pursue more complex situations, even select turnarounds. Relate uncommonly well to target company owners/operators,
engineer to engineer or operator to operator.
Example
Communication
› Whether a phone chat or an email announcing a deal, our job is to not bore them to death (get to the personal stuff eventually on the phone call and have something to say in a deal announcement). No white noise! It may be better to do fewer mailings than to dilute your message.
› Develop a standard look so that all materials stand out as your brand. This will also speed up production of pieces so you can get them out.
› Be mindful of spacing out announcement to an ideal pace.
What’s Next?
› Given hyper-competition in market, we may need some new tricks in order to deploy.
› Some have added minority deals.› Some are pursuing CEO led dedicated deal searches within specific
industries.› Some are sourcing directly with the help of AI to find targets.› In the supply/demand dichotomy, when (not if) a recession hits, the
numerator (number of available deals) will be reduced while the denominator (number of people chasing those deals) will not decline. Bottom line, we will need to be working hard and smart to compete effectively.
Annual General MeetingMarch 15, 2019
Comvest PartnersSPS PE Webinar: Sourcing Strategies
January 2020
Disclaimer
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IMPORTANT INFORMATION
Certain information contained in this presentation constitutes “forward-looking statements” that can be identified by the use of forward-looking terminology such as “targeted,” “may,” “will,” “should,” “expect,”“anticipate,” “estimate,” “intend,” “continue,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Furthermore, any projections or other estimates in this presentation,including estimates of returns or performance, are “forward-looking statements” and are based upon certain assumptions that may change. Due to various risks and uncertainties, actual events, results orperformance of a fund may differ materially from those reflected or contemplated in such forward-looking statements. Moreover, actual events are difficult to project and often depend upon factors that arebeyond the control of the general partner and its affiliates. Neither the delivery of this presentation at any time nor any sale hereunder shall under any circumstances create an implication that the informationcontained herein is correct as of any time after the earlier of the relevant date specified herein or the date of this presentation. Any material change in the economic environment, including a slow-down ineconomic growth and/or changes in interest rates or foreign exchange rates, could have a negative impact on the performance and/or valuation of the portfolio companies. A fund’s performance can be affected bydeterioration in public markets and by market events which, among other things, can impact the public market comparable earnings multiples used to value privately held portfolio companies and investors’ risk-free rate of return. Movements in foreign exchange rates may adversely affect the value of investments in portfolio companies and a fund’s performance. The value of publicly traded securities may be volatileand difficult to sell as a block, even following a realization through listing. The impact of market and other economic events may also affect a fund’s ability to raise funding to support its investment objective andthe level of profitability achieved on realizations of investments.
The information contained in this presentation will be superseded by, and is qualified in its entirety by reference to, the Private Placement Memorandum (the “PPM”), which contains important information aboutthe investment objective, terms and conditions of an investment in the applicable fund, tax information and risk disclosures that should be read carefully prior to any investment in such fund, and the agreement ofthe limited partnership of such fund as may be amended (the “LPA”). No person has been authorized to make any statement concerning any fund other than as is set forth in the PPM, the LPA and thesubscription documents and any representation or information not contained therein may not be relied upon. This presentation contains confidential and proprietary information and trade secrets, disclosure ofwhich could cause substantial, irreparable harm to Comvest Partners (“Comvest”) and its affiliates. By accepting this presentation, each recipient agrees not to disclose it to anyone who is not an employee,officer, director or representative of the recipient requiring access to the information in connection with their assigned responsibilities, and to use the information solely for the informational purposes intended.No portion of the presentation may be reproduced or distributed in any format without the express written approval of Comvest. Neither Comvest nor any of its affiliates makes any representation or warranty,express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein should be relied upon as a promise or representation as to future performance of anyComvest fund or any other entity. Statements contained herein are made as of the date on the front cover hereto unless stated otherwise herein. Past performance of entities managed by Comvest or its affiliates isnot necessarily indicative of future results and there can be no assurance that any Comvest fund or any investment made by a Comvest fund will achieve results comparable to those referred to in this presentation.
References in this presentation to “Operations Team” refer to Operating Advisory Group, LLC (or “OAG”), an independent consulting firm. OAG is a separate company owned by its employees and engaged byComvest and its portfolio companies. For further information, please refer to Part 2A of the Comvest Advisors, LLC Form ADV, available on the Investment Adviser Public Disclosure website
Comvest Partners
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HISTORY
FOCUS
TEAM
EXPERIENCE
• Managing committed capital funds since 2000• $4.7 billion capital invested• $3.7 billion of assets under management
• Focus on entrepreneurial, family-owned and non-institutionally controlled businesses• Value creation through operational improvements• Core industries of healthcare, consumer & retail, business & financial services, and industrials
• ~100 employees across West Palm Beach (headquarters), Chicago, New York and Los Angeles• 54 investment professionals and in-house deal sourcing team• Extensive executive partner and operating partner networks• Operations Team (“OAG”) – Consulting firm supporting Comvest’s portfolio companies(1)
20-year history providing equity and debt capital to middle market companies to drive growth and create long-term value
• Team has extensive experience across private equity, management consulting and company operations to drive returns in a competitive market
• Senior investment team has an average of 23 years of industry experience
Note: Past performance not necessarily indicative of future results. References to returns here reflect performance across multiple funds. See “Important Information” for important qualifiers. (1) References in this presentation to “Operations Team” refer to Operating Advisory Group, LLC (or “OAG”), an independent consulting firm. OAG is a separate company owned by its employees and engaged by Comvest and its portfoliocompanies. For further information, please refer to Part 2A of the Comvest Advisors, LLC Form ADV, available on the Investment Adviser Public Disclosure website.
PRIVATE EQUITY DIRECT LENDING
FINANCIAL PROFILE
• Control and Non-Control Equity• $25M - $500M of Enterprise Value• $4M+ EBITDA• $10M - $125M Investment• Will pursue larger transactions with LP co-investment
• Non-Sponsored or Sponsored• $25M+ of Enterprise Value• $25M - $200M Investment• $5M+ EBITDA• Senior Secured, Unitranche, Second lien & Mezz
TRANSACTION TYPES
Founder and Family Transition of Ownership • Corporate Divestitures • Buyouts from Institutional Owners • Complex Transactions and Turnarounds • Public-to-Private • Leveraged Recapitalizations
CONSUMER & RETAIL
BUSINESS SERVICES
HEALTHCARE SERVICES INDUSTRIALS OPPORTUNISTIC
• Apparel & Footwear• Consumer Services• E-Commerce• Food & Beverage• Household & Personal
Care Products• Specialty Retail &
Restaurants
• BPO• Facility Services• HR Services• Information Services• IT Managed Services• Marketing Services• Security Services
• Behavioral Health• Managed Care• Managed Services• Outsourced Physician
Services• Physician Practice
Management• Veterinary
• A&D• Building Products• Chemicals• Environmental Services• Industrial Services• Industrial Technology• Paper & Packaging• Transportation &
Logistics• Utility Products &
Services
• Specialty Finance• Education• Payments• Technology, Media
& Telecom
Relevant Sector Expertise
Tailored capital solutions for growing mid-market companies
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Comvest approach to sourcing
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Dedicated team of 6 professionals, firmwide “everyone sources” cultureo Cover more groundo Efficiency in processes
Comvest BD team responsible for sourcing and qualifying investments and managing the deal process up to the IOI stage
Coverage of over 2,000+ intermediaries and corporate sellers across North Americao Geographic and tiered coverageo If we’re there, we want to see you
Data driven approach to sourcing o CRM sets the foundationo Accountability - KPIs, QBRso Third party data services (Note: don’t forget to mention SPS )
Business Development: Rise of The Professional
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Challenges PE funds are looking to solve
Huge universe of intermediaries and companies to cover
Differentiation in an overcrowded market
Getting qualified out of a deal before you see it
Role of the BD Professional
Build the FUNNEL!
Find the best platform investments and create value across the portfolio
Build and maintain a broad network of relationships
Position the firm to win
Success is all about consistency around the fundamentals
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The best plan is having a plan… and sticking to ito Be efficient with your timeo Data drives accountability
Be in market all the time with a consistent and repeatable processo Out of sight out of mind…o “Sorry. We weren’t aware that you had experience with [insert the exact type
of deal you wanted to see]” o We tell stories
Build valuable relationships - this is not easy!o Define the terms of the relationshipo Be “real”o Add value
Deal interactions are relationship building and marketing opportunitieso Acknowledge a new deal o Screen and provide feedbacko Close the loop
Final thoughts
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A wide funnel is a result of a well executed business development strategy
Data is your enemy friend
Life is short, play golf!
Be nice
Send deals to [email protected]
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Sutton Place Strategies WebinarJanuary 30, 2020
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Who is Compass?
• Compass Diversified Holdings (NYSE: CODI) acquires, operates and selectively divest middle-market consumer and niche industrial businesses
• Permanent capital structure provides a competitive advantage versus traditional private equity
• Approximately $3 billion of assets under management• Most recent platform acquisitions:
– Foam Fabricators ($248 million purchase price)– Velocity Outdoors ($152 million purchase price)
• Sought After Partner in the middle-market space - why? – Patient capital– Invest in people, processes and culture– No financing contingencies
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Who is Compass? (cont’d)
• How we think about the exit process?– Longer hold periods / off the “private equity feris wheel”– Flexible– Never need to be a seller at the wrong time– Fund dynamics don’t drive investment decision process
• How we partner with management– Compensation– Equity co-invest and options– Manage at the board level– No operating partner– Proud of our management team and founder references
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Sourcing Strategy
– No silver bullet
– Data driven / process driven approach • CRM • third party data
– Relationships with intermediaries
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Sourcing Strategy (cont’d)
• Network with industry executives, former CEOs, COOs who bring us opportunities as well as partner with us to evaluate opportunities
• Participation in PE/Investment Community related conferences (ACG, Heavy Hitters, industry trade shows)
• Dialogue with lawyers, lenders other service providers for opportunity for non-auctioned deals
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Who is Clean Earth?
• What we liked at time of underwriting:– Moat. Complicated regulatory environment. Permits– M&A. Roll-up strategy– Macro. Growing list of substances designated as hazardous– Experienced team / culture– Resilient business model – Previous work done in the space
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Add-on Strategy (cont’d)
• Add-on strategy thesis:– Timing / Opportunity in the market?– Why focus on Haz and Soil?– Regional density?– Synergies?
• Execution:– All 7 deals sourced outside of traditional broad auction process– 6 out of 7 structured as asset deals– Average entry at 6.8x (pre-synergies), effective multiple ~4.3x (post-synergies)– Fully integrated (branding, HR, regulatory, systems) with margin increases for
each acquisition to date– Build scale and enter new geographies / cross sell– Built Robust pipeline of targets for further mining
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Add-on Strategy (cont’d)
• We consciously went into the deal market and attempted met with every banker, broker, sell side advisor and buyside advisor who had done a deal in the environmental space– Attended Environmental trade shows– Built out a strong network of intermediary relationship– Pay buyside fees for success
• Add-ons completed: Rationale:– AES (2014) RCRA Part B– Phoenix Soil (2016) Soil; expansion– EWS (2016) RCRA Part B– AERC (2017) RCRA Part B– MKC (2018) RCRA Part B – DART (2018) RCRA Part B – ESMI (2018) Soil; expansion
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Add-on Strategy (cont’d)
• Results of bolt on strategy:– Fundamentally changed the profile of the business – 40-45% of EBITDA from Hazardous waste segment (with momentum for more)
• When we acquired the business it was approximately 15%– Hazardous waste is correlated to basic economic activity: operations,
production and maintenance – Diversified end markets – Favorable pricing trends
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Add-on Strategy (cont’d)
• Financial outcome:– ~$220 million gain upon sale to strategic buyer– Second biggest dollar gain in the history of Compass– Received M&A Advisors Private Equity Deal of the year Award
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Thank You!
Demetrios P. DounisPartner
The Compass Group301 Riverside AvenueWestport, CT 06880
Email: [email protected]: 203-221-1703 ext 1109
