• Heather Hubbard | Representation for Women in M&A
    POSTED 11.17.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we’re joined by special guest Heather Hubbard, Managing Partner of Valesco Industries, a lower-middle market firm based in Dallas, Texas. This past May, Heather was named D CEO’s Private Equity Investment Professional of the Year, and in a market like Texas, that’s no small achievement.

    “I think, coming in, we represent what we’re oftentimes looking at in portfolio companies and potential prospects. There’s a very diverse group of people working at the majority of these companies, so when we can reflect that back to them and relate to them each in their own way, I think that it gives us an advantage,” says Heather about the unique perspective of women in M&A.

    We chat about Heather’s journey from running a company to private equity, as well as:

    • What women bring to the table in M&A, specifically in private equity
    • Team dynamics with women in M&A
    • Why women are underrepresented in private equity
    • The future of Women in M&A
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there, I’m Patrick Stroth, president of Rubicon M&A Insurance Services. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. There’s a saying out there, the bigger the challenge, the bigger the opportunity for growth. It’s hard not to see the obstacles we’re all facing these days.

    But I’d like to focus our attention in today’s show on an entirely different challenge and the real opportunities out there were business owners and private equity both stand to benefit tremendously. I’m not talking about the pandemic. I’m talking about how women are seriously underrepresented in M&A today and how this situation presents an unbelievable opportunity for those who want to take on this situation. I’m thrilled to be joined by Heather Hubbard, managing partner of Valesco Industries.

    Valesco Industries is a lower middle market president pretty firm based in Dallas, Texas. Now, for my regular listeners, earlier this year I profiled Valesco’s Bud Moore. I’m returning to Velasco because this past May, Heather was named D CEOs Private Equity Investment Professional of the Year. And in a market like Texas, that’s not a small market. So this is a real big get for Heather. So who better to talk about women in M&A? Heather, welcome to the program. Thanks for joining me.

    Heather Hubbard: Thanks for having me.

    Patrick: Now, before we get into macro issues, women, M&A and all that, let’s start with you. How did you get to this point in your career?

    How Heather Got to This Point in Her Career

    Heather: You know, I definitely didn’t sit out and say I want to be a female partner of a private equity fund or an SBIC fund when I was a little girl because I obviously didn’t know what that quite meant. But what I did do when I was a little girl was take all the groceries out of the pantry of my parent’s house, set them up on the kitchen island and take one of the two cash registers that I begged my parents to buy me when I was growing up and sell all their groceries back to them.

    So from that small business that I started, which had a great gross profit margin, I started a pool cleaning business, a gift wrapping business. And I knew I always wanted to be in business. So I didn’t know what I wanted to major in, in college but I did attend a meeting of the Collegiate Entrepreneurs Society, and they were interviewing.

    At the time, there were 12 kids in the basement of Business College and interviewing a local business owner in Oklahoma City who wasn’t doing anything bright or brilliant, just had a really cool business that he was operating. I think it was a data center or something like that. But learning about how he started his business, how he signed a lease, how he hired his employees, how he managed his accounting system, how he on and on and on.

    The questions that we would ask in diligence today, we got to ask in that setting. And I realized that I was hooked. I just wanted to know everything about what he was doing and how he was making that happen and all the little details and the fact that he could control his own destiny and he could chart his own path. That set entrepreneurship and really this idea of investing in entrepreneurs into a whole different plane for me because I didn’t want to just be another employee in corporate America doing corporate finance or accounting or anything like that.

    Not that there’s anything wrong with that. I just really love the entrepreneurial spirit. And so we get to, now fast forward all those years, back those really cool entrepreneurs who have a great idea and a great vision, and we get to support their vision and we get to learn about their vision. And it’s pretty much the coolest job that I could ever imagine.

    Patrick: Yeah, one of the things that can separate us in age and perspectives is, you know, some of us that are a little bit older, we were just at the dawn of going from the big corporate America structures out there where you had one job, you stayed with that firm for your entire career to now it’s a free for all where there are all these smaller, nimble companies where you get a whole wide variety of different tasks you can do and things you can focus on.

    So you get in there, you’re in this great positive pool and you’ve got the mindset for an entrepreneur. It is a particular mindset you have to have. What brought you from, you know, running a company to going into private equity?

    What Led Heather Specifically to Private Equity?

    Heather: Well, you know, I kind of stumbled into it in a way. I had an internship with the folks at Valesco in college. And they gave me an opportunity to learn what they were doing. And at the time, we were independent sponsors. So we were doing investments on a deal by deal basis. We didn’t know what this whole fund thing was all about. And when I started, we said let’s raise a formal fund. Let’s make a legacy out of what we’re doing. And so I got to be in on the ground floor sort of starting with everything from all of our diligence lists and making sure those were right to our models to how do you raise a fund.

    How do you portray a sort of track record? How do you do anything and everything? How do you hire an intern? How do you train that intern? Obviously, people have methods on those things. But we didn’t have a Valesco method until we started to do it. And so everything that we are today, I had a finger in developing which is also really cool because I feel like an entrepreneur amongst all these entrepreneurs we get to invest in. We created our own destiny at Valesco as well.

    Patrick: Well, it’s nice because it was just growing and so you were in the ideal position coming in at the ground floor, literally. And there were all these opportunities within there and you can try a bunch of stuff and probably stub your toe but you can at least get in and get exposure to that.

    Heather: I was told many times that all the things roll downhill and I was the only one at the bottom of the hill, so,

    Patrick: That’s how it goes. Now. I’m not going to take credit for the idea of talking about the topic of women in M&A. Actually, I was inspired by one of the law firms out here in Silicon Valley, which is very active in trying to attract more female attorneys to get into the M&A practice. And so we were looking, you know, when you look at a profile of private equity firms out there, it doesn’t take a lot of time to notice that there are fewer ladies in the pictures of the team members than men.

    Now, there are studies coming out that are listing all of these benefits and value that women bring to the table when they come in. They have a whole separate skill set and perspective. And that perspective can be harnessed to do a lot of great stuff that just, for nobody’s fault, just isn’t happening right now. Now, from your perspective, what do you see the women actually bring to the table here for M&A, specifically, M&A in private equity.

    A Woman’s Touch in M&A/Private Equity

    Heather: So I think they’re, it’s interesting to ask this question because we’ve been working from home for coming on six months now. I almost forgot what the answer to this question was because when you’re in your own little world working with your own team and the situations that you’re familiar with, you stop getting that perspective of what it is to be female and what it is to be different. But we recently had the opportunity to start looking at deals again and get on the road a little bit and spend some time with folks.

    And I think there’s two things that women bring to the table. It’s perspective, which you’ve used that word over and over again, but we’re looking at things from a completely different lens. And it’s everything from we’re not really not interested in, generally speaking, talking about a football game or the baseball game or what happened in March Madness. We’re interested in other things. So we bring a different perspective on business models and product lines and what’s attractive to certain audiences and maybe how to approach diligence assignment in a slightly different way.

    Or maybe we’re interested in slightly different things and because we ask a certain line of questions, it gives us a different look or perspective on a potential target. And I also think we bring a lot of balance. We look at the world differently. It’s not universal, obviously, we’re all different human beings and we all are along a spectrum, right? But there, it’s not better, it’s not worse. It’s just different. And if we have a balance in different perspective that we’re bringing to the table, we’re investing in female entrepreneurs, minorities, different people that may not have had a fair shake. And it’s not because my male colleagues wouldn’t give them a fair shake.

    It’s just that they may not have seen a perspective that that type of investment would bring to the table or an opportunity that we may have seen. And we’ve certainly stopped a lot of bad cosmetics investments that have come across our desk. The guy said, Oh, that’s a pretty cool deal. And we’ve shot those down. So it gives good perspective because we are 50% of the population and we buy more than 50% of the products out there in the world. And so we have a unique take on that.

    Patrick: No, I mean that’s fundamental, particularly if you’re doing consumer products or whatever. You need the perspective from the target buyer, and you know who your customer is. And if you’re selling hockey equipment and the only people that are involved with that business have never played hockey before, you’re not going to be able to connect with the target audience there.

    Heather: That’s a great example, right? Because one of the things I said is so true. We represent way more than 50% of the consumer purchases, right? And yeah, one of the members of my team might have never played hockey before. But I’m a mom and a lot of the women I work with are moms. And you know what I do is I buy all the soccer equipment, I buy all, I sign up for all the gymnastics lessons. I buy a lot of the things that our family consumes and so I have a different look on that world.

    Patrick: Yeah, so he needs sporting equipment. Well, wait a minute, who’s buying it? So absolutely. Well, talk about real quick the team dynamics, because you would mention that where, we’ll get into later on reasons why there hasn’t been as much representation and we could be turning the corner. But let’s just talk about the team dynamics with women, but either in the company itself or in a deal team.

    Heather: And when you say team dynamics, you mean with females in the room?

    Patrick: Yes. Yeah.

    Heather: You know, I think that’s an interesting question because I think, again, it’s about perspective. A lot of times, it’s cultural too, right? When we get into a diligence assignment. I’m the kind of person, I want to know about the person that I’m engaging with.

    And I may not dive into, you know, tell me about sales by product line by gross profit margin by, you know, geographic mix right away, but I may ask about your family and your background and your history, and I might have different questions than the rest of my teammates and that might give me more insight or a line of questioning that might be helpful for us to understand and appreciate where that entrepreneur is coming from. And so I think I bring that to the table. My other colleagues bring, you know, maybe a different spin on the analytics to the table.

    And so I think us coming in, we represent what we’re oftentimes looking at, at portfolio companies and potential prospects. Because there’s a very diverse group of people that’s working at the majority of these companies. And so when we can reflect that back to them and relate to them each in their own way, I think that it gives us an advantage.

    Patrick: Well, on that softer approach, I’m just using that term, but that kind of human skills approach is one that is consistent with one of my absolute core beliefs about M&A. It’s not, mergers and acquisitions is not company A buying company B. It is a group of people agreeing and trusting to work with another group of people who when they come together, the ideal is that the whole is going to be much greater than the sum of its parts.

    And that’s people. And I think a perspective when people are talking about well, we’ve got great synergies and on paper, this all looks good. If you get under, you know, a couple layers down, you’re going to find out that well, maybe they have other priorities or other fears that we need to deal with. And that gives you an edge.

    Heather: Well, Patrick, Bud’s not gonna want me to tell you this, but our money is just as green as everybody else’s money. And our differentiator is 100%, related to emotional intelligence and being able to meet people where they are and to build that bond. And I can sit here and tell you all about my investment criteria, you’re probably going to ask about that. And it’s going to sound just as boring as next person’s investment criteria and exactly the same.

    And so it’s all about how we meet people where they’re at, and how we engage with them on a number of levels because we’re going to be tied at the hip. These teams, we’re three to five, seven years, at least. They’re going to be texting us on the weekends and wishing our kids happy birthday and also diving into some really hard topics. So we’ve got to meet them in a common place.

    Patrick: Let me circle around just on some stats here when you talk about your money’s as green as everybody else’s, and so forth. But let’s talk about just specifically with women. And this is from Venture Capital Magazine just recently, startups with one female founder hired two and a half times as many women as compared with male-founded startups. And exclusively female-founded startups hire six times as many women.

    So you’re going to have diversity right there if you’ve got female-founded companies. Now, companies with female founders generate, get this, 35% larger ROI compared with male-founded startups. Okay, this is a meritocracy, okay? and it is all about the bottom line and performance and execution. And when I hear that, that catches your attention real fast. And this is what’s real contrarian into that. And again, same survey from Venture Capital.

    Despite their success, a study shows that 40% of female-founded companies will not meet their fundraising goals this year. Okay, there’s the disconnect. There is great opportunity, if you’re getting a higher ROI, you’ve got more built-in diversity with a firm already this organic. Why not take another look at it? And so the thing that is just, it’s almost hiding in plain sight, which is why I think it’s a tremendous opportunity out there. Now, when you and I talked, Heather, you know, there was this lack of women in M&A. And I just want to get into the reasons because it’s not that they’re being held out.

    I think quite frankly, they just may not be aware of the opportunities that are there. And unfortunately, you could have some situations where maybe they’re not being encouraged or they may be actively being discouraged by people, you know, in authority, in education or whatever. You know, let’s talk about that real fast. And, you know, what do you see, what steps can be taken, what confirms do to say, you know, to people that weren’t even thinking about private equity or finance that, hey, door’s wide open and here’s some great stuff?

    Educating People About Existing Opportunities

    Heather: I think it’s a great question and it absolutely starts with kids that are my daughter’s age at six years old, teaching her about budgeting and business and getting her interested in those types of worlds. It goes to high school. Don’t let a girl think that she can’t be anything. We were talking about that the other day. I never thought I couldn’t do anything that I wanted to do. So I just kept going. So in high school, you know, getting that opportunity in college, educating about what the opportunities are that are out there.

    I was one of probably three females in my entrepreneurship major at all. Even in the finance classes, there weren’t very many females represented. When we go to hire, unfortunately, the pool of candidates is very low on women. My team knows that I’m going to ask how many female applicants we get for that job. And they go out and they hunt for those female applicants because they know that I’m going to want them to interview and just at least give that woman a fair shake at the opportunity.

    But they struggle to get the candidates that they need. And it’s not because those women don’t want those jobs it’s because they never were told they could. They were never told that they could major in finance or entrepreneurship or accounting. They were never told that this was an option. So it’s about education of the opportunity in the world and what we do, but it’s also about encouraging women to get into business because I think we can, we can knock it out of the park.

    Patrick: And when we talked before, it wasn’t just women working with other women, you’re enhancing teams that are mixed, men and women. And all of a sudden, and we can see this where suddenly if you’ve got a different person in your group, everybody seems to up their game a little bit. There’s less complacency.

    Heather: Absolutely. And you’re having to figure out how you relate to different people because you’re just inherently different, right? So if that starts internally with us, then how much better are we going to be if one of my male associates has to relate to me every day, he’s going to be way better at relating to that female CFO at our portfolio companies. We see a lot more, you know, CFOs and accountants that are females than we do in the finance profession.

    So, you know, there’s, we’re everywhere. We’re out there. We’re doing jobs at portfolio companies. You know, we’re heads to purchasing and heads of inventory management and heads of marketing. And so to think that a diverse team at bar level wouldn’t be the goal or the gold standard is just misguided because we’ve got to pair with those diverse teams that are popping up everywhere else.

    Patrick: Let’s look in the crystal ball real quick. And again, from your perspective, because you’re actively doing recruiting out there. I know the law firms are actively recruiting. If you want to look for a model or an analogy, look in the healthcare industry. Virtually everybody in management and upper management in larger institutions are all women.

    Now, presidents, vice presidents all the way through. The old days, 50 years ago, it was all-male because all the men were doctors. And you’re seeing now women are now outnumbering men in medical care, not only on treatment but in management. So it is there. But what do you see for the future for women in M&A?

    Heather: I think it starts with people like me. And we have a great responsibility to encourage that education and encourage the hiring of a diverse pool of candidates. And it’s not just women. It’s, you know, ethnic minorities, it’s people from different backgrounds, right?

    We benefit greatly from having people who grew up in rural communities on our team, and urban communities. And I think that difference right there is huge. So just keeping an eye out for those differentiators and people’s backgrounds and really getting to know their backgrounds so that you, you know, we’re investing in America. We’re a small business investment company. So our team has to be a reflection of that and it starts at the top.

    Patrick: I’m personally looking forward to just once the whole pandemic issue passes, and I will really appreciate this more as that human contact again. And I cannot wait to be out there. This has been nice technologically for me being able to reach out and meet people like you remotely like this. So we’re not forced to travel.

    But I think we’re all really going to appreciate being around other people. And I think that the more you can bring to the table, it’s only going to be a net benefit for everybody. Well, let’s not leave our audience hanging out there, okay Heather? Why don’t you tell us, give us your profile of what your ideal client is looking like right now. What are you looking for?

    Valesco’s Ideal Client Profile

    Heather: Well, I told you I wouldn’t bore you with our investment criteria. And I can leave that to the end. But we’re actually looking for entrepreneurs. I think that’s the first and foremost. we’re looking for people who have great ideas, great vision, and they started an awesome company based on a really cool product line or idea. And they’re looking to take their business. That, I don’t know, you’d rate it on a scale from one to 10, you’d rate it a seven, right? Great idea, great product line. Great start on marketing and sales and business development. You know, a solid accounting team, but they need that something to push them to the next level.

    They need somebody to invest in their growth. They need somebody to partner with them to understand them to really relate to them. So we’re looking for those really interesting and unique entrepreneurs, first and foremost. We’re looking for businesses in the three to $15 million EBITDA range in the ten to $100 million revenue range. We hope they’re not distressed when we make our investment in them. We want them to be kind of growth-oriented, really all over the US because we are a small business investment company. And we’re investing in minority and control equity positions.

    So that means that we can pair with entrepreneurs in a variety of different circumstances, whether they want to retain control and they want to really grow this thing and knock the socks off of it, great. We can be a solution for that. If they’re looking to exit and pass the business down to their management team or their family members, we can facilitate that. We can come in and a traditional sense as well and facilitate a buyout if that’s really what’s of interest, but we’re looking to be a good solid solution and partner for that entrepreneur to do whatever he or she is looking to do in the next phase of their life.

    Patrick: Bud’s comments about your investments have been real community-oriented, where you’re looking not just to enhance a portfolio company, you want to enhance the community that that company serves. And I think that’s broader and that really resonated particularly when we first talked was pre-pandemic. What do you see trend-wise in terms of business now for you guys? Is the activity picking up?

    Heather: It is. Thank goodness. We’re so excited. We’ve been really busy through this time just trying to make sure that we set our businesses that we are invested in right now up for success on the backside of all of the things that are happening in the world. But we are seeing the activity pick up. Our business development team, I have to give them a shout out because they are doing excellent work and the fruits of their labor definitely showing up in the activity. We’re interested in making investments this year. We’re engaged in that process. And we will be making investments next year as well. And we’re not slowing down.

    Patrick: Great. Well, Heather, how can our listeners find you?

    Heather: Sure. Well, we are launching a new website, which I’m pretty excited about. So that should be online soon. We have a lot of cool interactive videos to show people who we are. We like to highlight our team, which is really great kind of bringing this whole conversation full circle. We have a video out there that talks about our team and our culture and how we partner with people and how we partner with each other as well as all the things you’d want to know about why you should choose us, but our website is, and you can find us there and maybe check back a couple of times because we’ll have new updates.

    Patrick: Heather, thank you very much for joining us today and I encourage anybody that wants to learn more about just this whole subject, heather is truly an inspirational person to speak with. And it’s been a great time talking to you. Heather, thanks again.

    Heather: Great chatting with you.

  • How Business Development Has Changed in Private Equity 
    POSTED 11.10.20 M&A

    As with so many areas of our lives, COVID-19 has had a huge impact on business development among Private Equity firms. The “old ways” of finding and connecting with potential acquisitions and deals are disappearing, a trend that was already happening but was sped up by the travel and other restrictions brought about by coronavirus.

    As Mark Gartner, head of investment development at lower middle market-focused Private Equity firm ClearLight Partners LLC, put it in a recent article, “Creative Destruction: How Private Equity BD May Change Forever”:

    “The pandemic is stress testing everything, and COVID-19 may finally kill several BD strategies already in decline.”

    “I believe that the best originators in the lower middle market will start to approach the private equity game through the lens of a lead generator with the content and lead capture techniques to match.”

    Gone are the days of constantly traveling for in-person meetings with investment bankers, M&A advisors, and other reps for target companies. To be honest, all the information you glean from these meetings could be handled in a phone call.

    An inability to travel, says Gartner, has hastened the decline of what he calls “high volume, low value city visits.” But that doesn’t mean all travel is out, says Gartner, who still sees a need for visits that emphasize quality over quantity and activities that produce real relationship development.

    Also, out the window: BD pros collecting as many CIMs (confidential information memorandums) as possible to fill their PE firm’s funnel. The idea is that the more “books” they have, the more winning deals will come out of it.

    Gartner recommends PE firms instead have their BD team analyze potential deals based on what he calls an “angle matrix” and concentrate on deals that they have a higher probability of closing because they have the right angle, which could be “process dynamics, executive resources to bring to the table, prior experience/investments in a related space, a previously developed investment thesis, and geographic proximity.”

    What other changes are on the horizon? A PE firm has a great story… the trick is now to get the word out through different channels.

    There are several more strategies that have been building for some time that are now experiencing faster adoption due to the pandemic, says Gartner.


    Generalist PE firms may think that casting a wider net will result in catching more deals. A better strategy is to pick a small group of sectors to get really good at. Soon, you’ll build a brand – and reputation – associated with those industries and, as Gartner says, “relevant deal flow will start to find you.”

    If you’re worried that concentrating on a limited number of industries could backfire if those sectors go into decline, Gartner recommends this strategy:

    “Pick sectors that are specific enough to be memorable, but that are broad enough to offer room for pivots if need be.”

    Thesis Development

    An investment thesis is, of course, a PE firm’s plan to make an acquired business more valuable within a few years. It essentially lays out the reasons to do a deal.

    Gartner maintains that today this tool is more important than ever. As he puts it:

    “Investors that put in the work to get off of their heels and proactively call their shots by developing investment theses have advantages over more reactive investors. I’m always amazed by how much incremental deal flow arrives when I market very specific sectors of interest to intermediaries and other deal referral sources.”

    This strategy goes along with the move from being generalist to specialist.

    Digital Marketing for Lead Generation

    It’s amazing how difficult some PE firms make it for business owners and dealmakers to contact them. And how little they take advantage of the online tools that are available for reaching out to potential targets and their reps… and turning them into leads.

    Creating valuable content written for business owners is key to creating engagement. This could be articles and blog posts… even a podcast… to get the word out about a PE firm and what makes it different than others out there.

    Also, says Gartner, make sure the firm’s website is clear and easy to navigate, with contact information clearly visible. For website design, he recommends looking at management consulting websites.

    Own Your Local Market

    In the time of COVID, Gartner says there’s never been a better time to leverage the geographic proximity of a PE firm to potential acquisitions. Staying local means no travel and, whether or not it is true, feels safer.

    To market locally does require a different approach. These are some avenues Gartner recommends:

    “Membership in YPO or Vistage, providing regular content / interviews for the local business journal, sending personalized invitations to business owners to luncheons / events, and partnering with law / accounting firms to deliver value-added in-person content.”

    Where We Go From Here

    Business development for PE firms is changing forever. But by being nimble and quick to adapt to the new reality, savvy firms can differentiate themselves from competitors and nab the better deals.

    For more on this and other topics from Mark Gartner of ClearLight Partners LLC, be sure to listen to my interview with him from my podcast, M&A Masters.

  • Adam Cook | How M&A Can Create Value for Shareholders as Well as Customers
    POSTED 11.3.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we speak with Adam Cook, managing partner and Chief Investment Officer of Culper Capital Partners. Based in Norwood, New Jersey, Culper Capital Partners invests debt and equity in middle-market companies that seek true partnership solutions that go well beyond the capital deployed. Culper Capital Partners is also a newly minted private equity firm, which is indicative of the growing body of private equity out there.

    “At Culper, we’re investing in middle-market businesses. We focus on things that we can see and touch. We will make debt investments where we’re riding along with a BDC or a traditional lending company, but we really focus in on the platform equity side where we’re putting our own money to work, along with our business partners, to find bespoke opportunities where it’s well beyond the capital deployed,” says Adam.

    We chat about what led Adam to a career in private equity, as well as:

    • Why private equity is often viewed cynically
    • Incentivizing those involved in an M&A deal from a cultural and a value perspective
    • Culper’s ideal profile for an investment target
    • How COVID could affect M&A moving into 2021
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today, I’m joined by Adam Cook, managing partner and Chief Investment Officer of Culper Capital Partners.

    Based in Norwood, New Jersey, Culper Capital Partners invests debt and equity in middle-market companies that seek true partnership solutions that go well beyond the capital deployed. So I don’t want to steal Adam’s thunder here. I’m very glad to have him because Culper Capital Partners is a newly-minted private equity firm which is illustrative of the growing body of private equity out there. There is a real healthy market when new firms are emerging. And that’s good. So, Adam, it’s a pleasure to have you. Thank you for joining me today.

    Adam Cook: Thank you so much, Patrick. It’s a pleasure to be with you this afternoon.

    Patrick: Now, before we get into your firm, let’s set the table. Tell us what led you to this part, this point in your career.

    What Led Adam to a Career in Private Equity

    Adam: So, you know, in 1997 or 1998, I remember myself licking customer confirmation envelopes while I was working at an audit firm. And a few folks kind of scurried into the room and went into one of the manager’s offices and then came out about 25 minutes later and grabbed a few of us and said, hey, we’ve got kind of a new assignment for you. And while I can’t talk about the details of the deal, back then it was a very large transaction.

    And they had me working on a part of a team that was basically analyzing what is the present value of an underfunded pension plan would have to be funded at closing as fall day, a rabbis trust, that would have to be created. So I was automatic. I was kind of thrown in out of nowhere into this new universe of M&A, albeit a very specific portion. And I’m not sure how long that transaction went on but I was hooked ever since that time. So stayed in audit for a very short period of my career and then went into M&A and really never looked back.

    Patrick: And so you caught the bug.

    Adam: I call it the bug. Not that there’s anything wrong with audit, but it sure beats licking customer envelopes.

    Patrick: I would consider mergers and acquisitions is probably the most exciting business event out there. I’m sure there are people that really love the IPO world but I think for the larger business community because it happens to so many more people is such a milestone that that’s the big event out there.

    Adam: Yeah, and I’ve been very lucky throughout my career not only to, you know, kind of witness the value that M&A can create, not only for shareholders but also for customers, you know, bringing kind of a smaller target, you know, up to speed from a professional perspective and, you know, different revenue channels and products.

    Giving employees new opportunities, you know, with more opportunities as part of a, you know, larger-scale organizations, but also spent a bunch of time early in my career and throughout the latter part of my M&A career before we’ll get into what we’re going to talk about today in terms of how M&A, you know, shaped a lot of, you know, part of what I’m doing. But also on protecting the downside when a company is in trouble or there is an issue with a business, but it’s got true value.

    There might have been, you know, nothing that management did while the company is in trouble. It could be, you know, a, you know, a catastrophic event, it could be that their products were tied to some commodity that was spiking for a longer period of time and, you know, their product costs were out of control, you know, for macro issues, or it could be management.

    But M&A often serves as a function as well, not only to preserve the true value of a company, but to preserve, you know, jobs that would otherwise go away if consolidation didn’t take place. So, you know, and that portion of my career was certainly rewarding to see what the process could do for, you know, not only the creation of value, but at the employee level. I think sometimes there’s a misnomer that with M&A jobs go away. I saw quite the opposite in terms of kind of the aggregate amount of employment, M&A, allowing, you know, that employment to continue in distressed situations.

    Patrick: Yeah, I can’t agree with you more. I think there’s a cynical view of private equity. It’s summed up in four words, buy low and sell high. The way you bring things down is, the traditional view is well, you’re letting people go, so you’re cutting costs, you’re bringing cost synergies together. That’s not necessarily it. I mean, there are a lot of companies that are well-run, well-managed, but they get to a point, one author called it no man’s land where the management in place can only get so big.

    And then they need another skill set to go to the next level. And you’re not too small to run unnoticed. You get to a size where you got to take another level, another step up, otherwise you’re gonna have a problem. And who better than somebody that’s done that time and time and time again successfully, you know, to hold your hand and bring you there?

    Adam: Yeah. We’ll talk, it’s a good point. We’ll talk about the Glebar story later in the podcast. But when I bought Glebar, and I was also, I was kind of owner-operator in that situation, it wasn’t slash costs. It was quite the opposite, right? Move to a world-class facility, spend millions on capital equipment and building out, you know, that world-class base not only to have a place where our customers could come in and kind of fit the bill for that, but, you know, a nice safe place where our employees could work and feel proud. You know, doubled headcount, right?

    So I think we are certainly very growth-orientated at Culpers. Sure, if there’s waste, you know, I think that you’re robbing the entire company and all the employees that are there, regardless of what that waste is. But, you know, our mantra is to redeploy that waste into, you know, turn that scrap into gold, if you will.

    Patrick: Yeah. Well, you can’t save your way to prosperity is the way I always look at that. Tell us about Culper Capital Partners. And I always like asking people like you just where did you come up with the name? To give us an insight on just the angle you came and tell us a little bit about this organization.

    About Culper Capital Partners

    Adam: So for Culper, we’re investing in, you know, middle-market businesses. We’ll focus on things that we can see and touch. We will make, you know, debt investments where we’re riding along with, you know, whether it’s a BDC or, you know, traditional lending companies where we’ll take, you know, more passive, you know, pieces of debt.

    But really focused in on the platform equity side where we’re putting our own money to work along with our business partners to find bespoke opportunities where, you know, it’s well beyond the capital deployed. If someone’s just looking for capital at a platform investment, we’re probably not the right partner. We are going to be more of, we’re not going to work at the company. So not be management, but we’re going to be more owner-operator than, you know, just strategic advisor. So what does that, you know, what does that mean?

    That means, you know, our team, you know, focused really on industrials. solutions, medical device, health care services, where we could put our M&A experience to work like traditional private equity to find add-on opportunities that will bring arbitrage and create additional revenue channels to sell through our market channel. You know, arbitrage, if you will, product synergies. We are going to evaluate whether the ERP systems are up to date.

    Often in lower middle-market companies, there’s so much low hanging fruit, you know, in that investment and albeit it takes a lot of time. We’re going to build a sales organization to create sales organizations that are measured, tracked, held accountable, are not just looking to maintain existing customer relationships, but to go out and get new ones, to foster new opportunities within your existing customer base as well, to consultative sell so that your customer is getting everything, maximum value out of what you’re providing, right?

    That ROI. So eventually, you know, their products are bought and not sold, right? So I think, you know, kind of our mantra is really, I would say, on average, we’re going to spend about, you know, 40 hours a week collectively as a group where we can add that expertise into an environment where we found a great company with great people and really good leaders, but that we can help professionalize it.

    You know, from a sales perspective, from an infrastructure perspective, you know, to, you know, really have, you know, employees kind of feel like they can grow as enterprise value grows and truly partner with them. Not that there’s anything wrong with the traditional private equity model. But just for us, I think we’re gonna look at two to three portfolio companies at any given point in time.

    I would extremely doubt if it would be more than that from a, if we’re the lead, and really focus on putting those resources in place. We just brought on a medical device expert that’s been in the industry for, you know, 25 to 30 years in leadership positions. He was actually a customer of mine when I was the CEO of Glebar, you know, because we’re, you know, kind of heavily involved in looking at opportunities in the medical device space, right? So we really want to be able to bring much more than that, you know, that check to the table.

    Patrick: It’s got to be real attractive for prospective targets out there, the management where you’re going to make them best of breed. You’re going to get them out there and have them excellent. I think they saying I heard, I’m stealing from somebody else, but nobody wants to buy or subscribe to the second-best software security system out there.

    They want the best. And that’s what you’re specifically offering out there is bringing them to the level, they probably are at a high level already, otherwise, you wouldn’t have an appetite for them. But to get to be that best of breed and stay there comfortably and move at that higher platform, it’s very, very exciting. There’s a great value opportunity that you guys are offering. You mentioned Glebar before. Why don’t you share that experience if that’s a case study that you could share with me?

    Adam’s Experience as Owner/Operator at Glebar

    Adam: Sure. So Glebar, not just because I owned it and ran it, but is truly a gem of a company. When I learned about the company. I said, Wow, what amazing technology. I’m not sure if these folks realize what they really have here. But to be respectful of the old owner, because he made a lot of money. It was run, you know, a bit like a small delegate, you know, versus a world-class organization. While they had such talented people, including the old owner, he’s one of the smartest engineers I’ve ever met to date and he’s 85 years old. And that’s an understatement. They didn’t know the definition of sales.

    It was, you know, if you build it, they will come, if you will. It was, well, this is the way we do things. And it was a whole lot of talking and not a whole lot of listening to the customer. And it was an engineering company. And that’s great. It still remains that intimate engineering company today. But what we really did was kind of turn that into a sales organization where go out and see your customers and consult with them. Become their partner, to where, you know, again, I use the term a lot, where your products are bought, not sold.

    That’s really the value proposition that your customers should demand of you. And we really turned that into a sales organization over time. We also really focused in on the customer and employee experience, right? We moved from, you know, two and a half, if you will, old facilities that were kind of, you know, beaten down, we had to walk parts across the street in the winter storm to, what we considered, you know, it was more indicative of the products that Glebar sold.

    The world-class facility, you know, where employees would feel good about going to, you know, it had world-class filtration, you know, everything was always kept up to from, you know, from a safety perspective, and they were really given the opportunity to thrive. So on day one, you know, we kind of decided, hey, we’re moving, and we did that. We also needed to, you know, play the part, if you will, in terms of, hey, if we’re going to have a fortune 500 customer base and then that level below that, not that we didn’t have smaller customers, but we need to practice what we preach here.

    So instead of telling the customer Hey, you can’t go back there. We’ve got some top-secret thing going on. You know, I think that, you know, we spent a ton of money on, you know, not only new capital equipment of our own, but really mapping out the facility logistically and having it be lean and safe and something where you could be efficient. But where our customers should say, yeah, we should really, you know, not just do business with someone. I don’t even like the word customer. They have to become a trusted partner.

    And I think that’s a, you know, real part of what we did. I think the biggest thing that we did, and certainly, we’re gonna do this at our portfolio companies here at Culper, you have to incentivize people. Not that people aren’t going to work hard for their paycheck. They are, but you need to align them with what you’re trying to do, not only from a dollars and cents perspective, you know, but also from a cultural perspective, a safety perspective, a, you know, an overall value perspective.

    I always often use the phrase, you know, if you’re not adding value anymore and you’re still sitting at your desk, go for a run or whatever you like to do. If you still come back to your desk that day and you don’t have any value, go home. If you don’t have any value to add that day, right? And that’s not because I was trying to be negative, it was a positive thing, right? Meaning, you know, we celebrated failures at Glebar, right? Because if you can’t celebrate failures, you’re never going to be able to take those risks to win. And I think with aligning employee incentives, you know, with where you’re trying to go, is uber important.

    I think the most gratification I got when we sold Glebar to our client, and I still maintain a minority position, was seeing the faces of key employees that participated in that transaction with the look of shock on their face, you know, when you told them, you know, what they were going to see, you know, receive in proceeds. So I think alignment, and not only alignment with your employees, but everyone. Your suppliers and seeing value in everything that you, you know, that you do in that ecosystem of that company that you own.

    Patrick: I’m very pleased that we’re having this on recording. And I’m going to encourage everybody to have a real listen to this. Those steps that you took are absolutely fantastic and very, very thorough. And took a little bit of faith or quite a bit of faith, I can imagine, because these weren’t small capital outlays to get the physical plant put together and everything else lined up.

    But it was great because you can tell clearly that you had it in your heart at your core, that this is the direction we’re going to go. We’re not going to worry about short term outcomes. We’ve got, you know, a long term goal here and I just cannot vision anything not embracing that approach.

    Adam: And I, you know, it’s fun, it’s a different parallel but, you know, I coach jr football and what I tell all the kids all the time is we have a philosophy here and it’s no different in anything else you’re trying to achieve in life, whether it’s business or, you know, being a good partner to your spouse. We’re raising your children but it’s effort, attitude that, you know, that I can attitude, and then the toughness. That doesn’t mean being, you know, brash or abrasive but being able to fight through the, you know, tough times knowing that the sun will come out.

    Patrick: Resilient. Absolutely. Yeah, you’ve got to be there. I mean, absolute words to live by, Adam, tell us what’s your ideal profile for a target now? What are you guys looking for?

    Culper’s Profile for an Investment Target

    Adam: Yeah, I mean, I think it’s a founder-owned business or a second-generation business that truly has a differentiating product, whether it’s manufactured or distributed is that they’re in the second inning, right? So think 20 million bucks a revenue, 4 million of EBDA, but that founder slash owner is saying, Hey, I recognize I’m in the second inning. I’ve done an unbelievable job with this business.

    But not only do I need money, but I need more than that, right? I need someone, you know, and when I say someone, a group of folks who could kind of come in, you know, and build for the future. To say, Wow, I’m listening to these ideas and they make a whole lot of sense. And, you know, I’m gonna roll X percent of my business and you know what, the next time we sell it, if we do sell it, my minority position, it looks like it’s going to be worth more than the entire enterprise value next time. That’s the type of partner I want that is willing to listen.

    And we have to be willing to listen too. I remember at Glebar, I had a 30-day plan 60, 90, 180, 365, three-year five-year and I went in. You know, I sat there and interviewed every single employee. I actually went to my first customer visit in Ireland and after we landed after a nine-hour flight, went directly to a company and actually pointed to a poster and said, Hey, what’s that? I said, that’s what you do, sir. I had no idea what even the picture was. Talk about humbling.

    Alright, so you have to be willing to listen. So those plans that I had put together after I went on those customer visits, did a lot of listening not only to customers but our employees and suppliers alike. Three months later, pretty much 75% of those plans that I put together had materially changed, right? So I, you know, I think that there really needs to be, you know, that openness there. And hey, look, you know, I think Glebar, for example, I got it from the second inning to the bottom of the fourth.

    And I think the next fire and that bottom of the fourth from, and this is not being boastful, but I think was pretty impressive. It’s an unbelievable company today that our clients going to do phenomenal with. But, you know, my belief as well is that, you know, you should only own a business as long as you are going to continue to drive that value. And you know what, there probably comes another point where, you know, I removed myself as CEO, you know, last June because I said to myself, okay, now is the time to bring in that professional CEO, okay?

    Which I did from Stryker, a gentleman from Stryker, but then in addition to that, we really needed to start focusing in on M&A which was my background and we went out and did an add on. That is, you know, really impactful for the business. Had we not done that, had I not recognized that that was time, we probably wouldn’t have been able to go out and get that deal done.

    There’ll come a point, you know, because we were a change agent in Glebar when we came in where we said, hey, look, we need a new fresh set of eyes. This thing now is a potential for it to go from, we got it from, you know, C to F, well, somebody else needs to come in now with a whole new, you know, thought process and, you know, disciplines, if you will, to get it from F to S. And I really do believe that. So we’ll never stand in the way of a company’s growth or their potential.

    Patrick: Outstanding. If you could, share with me your experience with rep and warranty insurance. Good, bad or indifferent if applicable?

    Adam: You know, so as I was thinking about this podcast and thinking of rep and warranty insurance, I thought back to approximately about 15 years ago, I forgot where I was and what I was doing, but I was talking about a rather large deal. And, you know, hearing more about rep, warranty insurance and back then, it was for really large transactions. And I remember I wrote a one-page article, I forgot where it was published, but M&A insurance with a big, you know, exclamation point. I probably still have it at home.

    It was probably very, very generic and, you know, probably didn’t get a lot of reads. But, you know, now it’s completely changed the landscape of transactions. I mean, we’re working on a deal now with enterprise value of, you know, 30 to 40 million and rep and warranty insurance is available. So, to me, why is it important to the seller? I think that, you know, it obviously limits the amount of, you know, escrow baskets that they have to, you know, put up for a year or more, so that’s great.

    They get to, you know, they get to extrapolate more cash upfront without having their money hung up in an escrow account, earning little to nothing, and get to go ahead and invest that. I think for the seller, certainly, you know, it provides risk mitigation. But I think more importantly than that, for the seller, I think it further illustrates, you know, that you’ve got to do your diligence, right. So the insurance provider is not going to underwrite the transaction unless you really dive deep in the areas that they’re going to give you protection for.

    So I think it’s really focused buyers, if you will, I should say, to really dive deep because the insurance companies require it. Not that they didn’t dive deep before but I think it’s further risk mitigation as it relates and correlates to purchase price. So I think it’s changed, you know, discipline a bit, and I think it clearly, you know, helps the seller in terms of, you know, that cash, you know, that cash being available. But, you know, that offers a level of protection to the buyer that otherwise wouldn’t be available, especially the lower middle market, folks.

    Patrick: Now, since that first piece you wrote 15 years ago, there’s been a lot of change. It’s almost as much change as online businesses. I mean, night and day. I think it did not get a lot of traction because the cost was very big in the early days. And also the coverage was very, very narrow. For example, in Silicon Valley, you couldn’t get past first base on rep and warranty because it excluded intellectual property reps.

    So it accelerates the process. And I think it, particularly when you’re trying to attract management over from the target over, avoiding hammering them into the ground over terms because you have a lot more leverage is really a good long term strategy. And you were talking about all the great things that you do for quality of life and trying to get people all on board with you. It starts, it can start there with management, and it’s just one way that eases it through.

    And I think what I’m very happy about for us is that it was a product that was reserved for the larger middle-market deals north of 100 million dollars transaction value. And there are so many owners and founders that don’t get to 100 million but they get to 20 and 30 million and they could really benefit from this. And that’s the one thing has happened in the last about 16 months is that a number of insurance carriers come in and they’re targeting those sub $50 million transaction value deals.

    They’re coming in with really competitive rates, their broad coverage, just as broad as larger deals. And the eligibility standards are easier. Now, Adam, as we’re in this period of the year, COVID-19 is still around, we were stumbling in trying to get our legs under us to open up a little more full and we’re having some roadblocks here. How do you see from your perspective, either COVID or non-COVID on the future M&A for, let’s say, you know, through the end of 2020 into 2021.

    M&A Primes for a Big Comeback

    Adam: Look, I mean, I think in the intermediate term, M&A is going to come back in a big way. I think, you know, M&A is obviously been hot for so long. But, you know, let’s face it, there’s going to be businesses that are struggling to come out of COVID on the other side, particularly lower middle market businesses where I think consolidation is going to be more important than ever before to save a lot of these businesses.

    So the intermediate-term, I think, you know, we see a volume, you know, that, you know, that matches 19 or even higher, okay? I think that in the short term, I think it was Blackstone, I saw someone reference the other day about M&A is, you know, gonna continue to slow until people could shake hands again. I believe that.

    You know, we’re the lead investor. I’m not doing a deal unless I could look someone in the eye. And I think that’s extremely important. So I think in the short term, people gonna have to get creative. You’re gonna have to travel safely, to be able to go, you know, walk the floor, see how the culture is at the company. How do employees look when they’re working?

    You know, all of these things are really, really important that go well beyond just the dollars and cents that you can see in a spreadsheet doing diligence or on a Zoom call where you can’t, you know, read body language. So I think people are going to have to adapt. I think sellers are going to have to understand that warp speed closings, you know, in 30 to 60 days, they’re probably not going to happen. Maybe for add ons, but, you know, service providers are going to need more time.

    They’re going to have to be able to get there and coordinate travel safely. You know, so that kind of new normal is going to exist until, you know, COVID is under control, in my opinion. But in the intermediate and long term, I think it comes back. You know, it comes back in a very, very big way. And I think it’s going to be a necessary tool to save a lot of these companies that at no fault of their own or in, you know, are in, you know, painful positions.

    Patrick: I can’t tell you how much I appreciate all you’ve shared with us today because it’s been very, very helpful. I’m going to encourage our listeners, I think they’re going to do it because you’re, it was enjoyable enough listening to this the first time to repeat this. Adam, how can our listeners find you?

    Adam: Best way to find us is to go to I think there’s, you know, it tells our story there. It tells a little bit about who we are and what our approach is and, you know, Culper’s tied basically to the Revolutionary War. And that’s really the story is kind of, we want to, not that it has any tie the Revolutionary War, but we want to revolutionize the way that, you know, the meaning of private equity and why, you know, why deals get done, you know, beyond just, you know, multiple on invested capital or rate of return. Not that that’s not important, it is but there’s much more to it.

    Patrick: Well, focusing on the basics of business is surprising how it can be revolutionary, particularly when you’ve got an engineering-centric thought process now. So I really encourage folks to go and check out Culper Capital. Adam, thank you very much. And it was a pleasure speaking with you. Thanks again.

    Adam: Thank you, Patrick. Appreciate the opportunity, sir.