I recently spoke to Bill Welch with E&A Companies. With some minor edits, the text below captures our conversation.

Bill Welch

Introduction

E&A Companies is not a private equity firm. We consider ourselves primarily as business operators. Our Founder and Chairman started the business 40 years ago to acquire, actively operate and grow businesses. We don’t have any outside investors. We have no limited partners. The money we invest in a business (along with conservative bank leverage) is one hundred percent the personal liquidity of our two Partners – Alan Hubbard and Devin Anderson.

I recently spoke to Kristy DelMuto with the private equity firm LLR Partners. With some minor edits, the text below captures our conversation surrounding LLR’s Collaborate initiative.

Tell us about LLR Partners…

LLR is a lower middle market private equity firm, based in Philadelphia. We primarily invest in growth technology or tech-enabled service businesses operating in the education, healthcare, financial technology, industrial technology, security and software industries with revenue between $10 – $100 million. We make equity investments between $15 and $100 million.

At the core, we look for growth companies with strong management teams who want to partner with us to create value over the long-term.

I recently spoke to Ian Wooden with the investment bank IJW in Montreal, Canada. With some minor edits, the text below captures our conversation surrounding middle market investment banking, cross border M&A and recent trends he sees in the M&A industry.

Introduction – Mike Lorelli

Most of my career has been with PepsiCo where I was blessed to have been given the fortune to be a Division President twice. After which, I’ve been in the private equity space for 17 years. The dance card today is very interesting, colorful and rewarding. I’m an Operating Partner with Falconhead Capital, a small mid-market private equity firm in New York. I sit on four boards and I’ve got my coaching practice which goes under the heading of Faster Landings. At Faster Landings, we do two things – we coach senior executives in transition, and we also coach senior executives who are trying to land board seats.

When a company sells to a PE firm and the owner and/or C-suite is asked to stay on, how does the landscape change for these leaders?

The landscape changes for virtually everybody in the company. It begins with the timeline, which significantly shortens. Tomorrow now means this afternoon. Next year now means next week. Keep in mind, private equity executives are driven by three measures: internal rate of return, cash-on-cash return and hold period where less is more. Two of these measures are essentially time driven, hence the incredible immediacy to everything.

About Your Firm…

LCC Asia Pacific is an independent investment banking firm operating out of Sydney and Brisbane in Australia. LCC was founded in 2004. The Firm provides both strategic consulting and investment banking services to both public & private corporate clients in the mid- to upper mid-market ($50 million and $1 billion in enterprise value), principally in the following sectors:

• Engineering, Contracting & Complex Services
• Oil Field, Energy & Infrastructure Services
• Renewables, Water, Environmental & Waste Services
• Industrials including Industrial Technology & “Smart Manufacturing”
• Mining & Resources
• ICT & Logistics

Describe the corporate market in Australia and Asia

While the U.S and Europe tend to have a broader number of companies in the mid-market, Australia and Asia markets typically look like an “hour-glass”. A market map would illustrate many smaller companies at the bottom, a number of larger companies at the top and lower concentration in the middle. Mid-market companies in Australia and Asia tend to get acquired when they demonstrate a number of key positive factors – hence the lower number of constituents.

Across Australasia pension funds tend to invest in mid-caps as they become “Stock Index Relevant”. You can then see valuations of many mid-caps become “full” in time from such index related investment inflows, and as a strategy, identifying those that are likely to be on this trajectory and acquiring them before they hit high valuations can be highly effective.

I recently spoke with Nate Nead with InvestmentBank.com. Below are some excerpts from our conversation.

About Your Firm…

InvestmentBank.com is a technology-enabled investment bank. We increase the quantity and quality of deal flow by using web-based tools and marketing. We work on lower middle market deals with enterprise values between $10 – $50 million–sometimes less for a particularly interesting deal.

What do you mean by “tech-enabled”?

In one sense, we are tech-enabled as an investment bank for our own internal marketing purposes. On the other hand, we work with investment banks to get broader distribution for sell-side mandates.

Investment banking, especially deal sourcing, is very much relationship driven. When investment bankers work on a deal, they become so focused on the transaction, they are not nurturing their pipeline. As the deal closes, they immediately go back to hunting mode for new opportunities. We employ technology to ensure we have a good, steady deal origination platform. We may not always have the best quality of deals, but we have the quantity. You can always find the diamonds in the rough when you have the quantity. “If you get 20 potential deals in a day, 21 of them are garbage so you have to kiss a lot of frogs.”

In recent years, there has been heightened interests from private equity firms in the lower middle market. In this market segment, companies are predominantly family/founder owned and privately held. With that, comes a variety of opportunities and challenges for a private equity owner.

Differences between lower mid-market and more mature businesses…

As you said, the lower middle market is largely comprised of smaller, family-owned businesses. We have a great deal of respect and admiration for the entrepreneurs who founded and built a company from scratch. A key difference in this segment of the market is that a business owner is often looking for a partner in the truest sense of that word – someone they can trust to bring into their business, someone who brings skills and perspectives they may not have, and someone who will carry on the legacy and reputation of their company. Larger middle market companies have often been owned one or more times by outside investors, and the “pride of ownership” may not be as present as when the company was smaller.

A common theme we see in smaller companies is that they are often managed to support a lifestyle, rather than to build long-term equity value. One approach isn’t necessarily better than the other, but the mentality and mode of operation can produce quite different results.

Companies that consistently generate $1 million+ in annual earnings can provide a nice lifestyle for an owner and their family, however, taking current income versus investing in future growth has consequences. As private equity investors we are tasked with providing a meaningful return on capital for our limited partners. Given the relatively short window of time we have to meet return expectations (typical hold period of 5 to 7 years), we usually must grow an investment two to three times its original revenues to accomplish our goals. This requires us to pro-actively manage risks while addressing the typical impediments to growth – the market, people, capital, and product/service offerings to successfully meet our investment objectives.

Each company is different, but many investments have similar issues centered around strategy and people – having the right person in place to properly execute mission critical activities. It’s less about the rate of change at the start and more about maintaining a steady cadence of continuous improvement throughout our involvement as investors.

What do you find missing from owner/founders that prevents them from scaling the business further (i.e. risk appetite, balance sheet, skills)?

I recently spoke with Terry Fick, Managing Director with the investment bank Corporate Finance Associates (CFA). Below are some interesting excerpts from our conversation (italics text are Terry’s words).

Michael Parham, the founder of a boutique sell-side M&A and investment firm, Sheridan Mezzanine, LLC, focuses on Energy, Industrial, Retail, and Consumer Products in the US, Canada and Northern Europe. With 25+ years of investment banking experience, Michael offers advice on how to build value through patience, preparation and integrity.

We recently interviewed Dante Fichera, the owner and operator of Independent Investment Bankers Corp. (IIB), a registered broker-dealer and FINRA/SIPC member that supports investment banking professionals engaged in mergers & acquisitions and capital raising activities. As a broker dealer, Dante shared his firm’s strategy to help investment bankers succeed and his thoughts on the overall outlook for M&A.