As private equity firms prepare to invest in a particular company, one of the most important barometers of future success is the strength, quality and integrity of the management team set in place. Managers who have lived in their respective industries for a significant period of time offer firms a great resource to place their bets on. These experienced individuals have a strong commitment to their business, a vision for growth opportunities and the desire to take their business to the next level.
During a recent panel discussion, select groups of private equity firms that have made recent investments in food and beverage companies gave their views on the middle-market food and beverage industry. The panelists included:
In an excerpt from Private Equity Craves Specialty Food Companies, the panelists discuss what they feel are the most important characteristics to seek when identifying an effective management team for a portfolio company.
AUA: It’s a healthy mix between the right talent and a cultural fit. We want young women and men who are professional, smart, understand the business and enjoy what they’re doing, while adding value by some metrics. People we enjoy working with, someone we think fits our culture and - just as important a consideration is that we fit into theirs. We need to be confident we have the right management in place who is driven to have success in a four – six year hold period as we grow a business together.
Baker Tilly Capital: What’s the typical size of one of your platform companies?
AUA: Anywhere from $5 million to $30 million of earnings before interest, tax, depreciation and amortization (EBITDA) and revenue of $50 million plus. We’re trying to keep the fairway really $7 million to $15 million in EBITDA. We’ll go as low as $5 million and as high as $30 million, but try to keep it in that $7 million to $15 million of EBITDA range.
Baker Tilly Capital: Are you having a hard time finding management? I was speaking with a colleague about a smaller food deal and they said one of the challenges is finding management when they need to be replaced. They got a pretty good purchase price on the buy, probably because some of the fixing is easily identifiable in the first two years, but it didn’t come with an entrenched CEO. One of the challenges is finding a CEO who wants to work on a $20 million revenue food company even though it has a pretty good upside. Is that a challenge for you to recruit somebody in?
AUA: I don’t know about a $20 million revenue business, but I will say we’ve been lucky in this regard that we haven’t had much trouble filling the key C-suite positions – I think it’s partly due to our heritage/background and the connections we already have in the industry. We also have 10 operating executives, women and men that have deep, deep roots in each of our industry verticals. We’ve been fortunate - so far - in that the teams we have picked and implemented at our companies have performed very well. But I say so far, since I can see how it could be a challenge. Candidly I haven’t tried to fill a position for a $20 million revenue company – that is a little bit small and I don’t know what the comp package would look like for a business of that size.
Baker Tilly Capital: Did you fill that bench specifically with that human capital resource in mind?
AUA: Yes, our operating executives are all women and men that one of the partners has known for at least 10 years. Most of my ties to the operators on the bench have 20-plus years and some even 30 years’ experience. We built an operating board to help us source deals, diligence deals, and more importantly to get dropped into companies or help us find people – within their deep industry networks - to go into our portfolio companies.
Benford: The only thing I would add is that we’re looking for a leader that knows the business well and would be a great partner over the long-run. If they have a handful of ideas on growth, that’s great too. We’re really looking for someone that knows the business and is committed. Saco has a really strong CEO, but he’s also supported by a terrific, hardworking and committed team of people. That’s important to us, it’s not just the president. A great team like that, like what we have at Saco, says a lot about the leader. They usually go hand-in-hand. The whole management equation is really important to us.
Keystone: Our partnership model is management centric at its core. We at Keystone are not experts in natural food manufacturing, nor are we transportation engineers, healthcare compliance experts, or supply chain software developers, even though we are invested in and have had success in each of these areas. Our success is attributable in large part to our exceptional managers that have lived and breathed their business for decades and have an intuition and business-sense that is unrivaled. For owners looking for a true partner to help take their businesses to the next level, we look for leaders that have great passion for their business, a clear vision for future growth and potential, and a genuine interest in joining forces to build a bigger, better, more sustainable business. For owners who are looking to transition away from the day to day operations of the business, we look to identify, elevate and incentivize the next generation of leaders and ensure a smooth transition and continuation of legacy, culture and brand. In all cases, we look for leadership teams that have a deep bench of talent, a good rapport with employees, and a strong sense for ethics. At the end of the day, all we have is our reputation – we strive to find businesses and leaders that we are proud to call our partners.
Riverside: Experience and relationships. In my CEOs in particular, I look for the ability to lead high performance teams, whether he or she has good commercial acumen and a track record of being results oriented.
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