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Jessica Ginsberg | Building Trust in the Niche Manufacturing Market
POSTED 1.26.21 M&A Masters Podcast

On this week’s episode of M&A Masters, we speak with Jessica Ginsberg, Director of Business Development for LFM Capital. Leaders for Manufacturing Capital, or LFM, is a Nashville-based private equity firm founded by operators and engineers, investing in manufacturing companies in the US and Canada. Jessica manages business development and investment sourcing activities, and brings over 13 years of experience in the private equity, investment, and commercial banking sectors in a variety of roles in addition to earning a BS in Finance and Accounting from Georgetown University.

“It’s a more complicated logistical process to get a deal done virtually, so I think you have to take a deep breath and just remember that there are a lot of parties involved that have different comfort levels. And, during these wild times, it might take another couple weeks to get a deal closed, but just remember what the finish line is and work hard to get there”, says Jessica.

We chat about experiencing the manufacturing renaissance, as well as:

  • Offering creative solutions for small business owners
  • Honoring the expectations of manufacturing owners
  • Overcoming obstacles to building trust online
  • Virtual manufacturing meetings and remote decision making
  • And more

Listen now…

Mentioned in this episode:

Transcript

Patrick Stroth: Hello, there I am 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. 

Today, I’m joined by Jessica Ginsberg, Director of Business Development for LFM Capital. LFM Capital is a Nashville based private equity firm, founded by operators and engineers and they’re investing in manufacturing companies in the US and Canada. And I would say, from the perspective of somebody out of Silicon Valley, our attention is usually focused on the gig economy and service sectors and so forth. And after talking to Jessica, as we’re leading up to this, this conversation today, I wasn’t aware that we are undergoing a real renaissance in manufacturing in the US and so was very, very excited to have Jessica, who, whose firm looks at just that sector that is now on this upswing, even though we didn’t see it. So, Jessica, it’s great to have you. Thanks for joining me today.

Jessica Ginsberg: Thanks so much for having me.

Patrick: Now, before we get into manufacturing and LFM Capital, let’s set the table with our audience and, you know, give us a picture of you. What brought you to this part in your career?

Jessica: Sure, sure. So I grew up in St. Louis, left St. Louis for college, went to Georgetown for undergrad where I was a finance and accounting double major, and then went into investment banking. So I spent a couple years doing leveraged finance at Bank of America, I spent a lot of time working on the debt side of private equity deals. So after after a few years of that, I jumped over to the private equity side, and, and spent some time you know, really deep in the weeds looking at deals and understanding what private equity investors look for in investments. 

After doing that, for a couple years, I took a little bit of a turn and spent about five years in public markets, I worked for an investment management firm where I invested in small cap growth stocks, mostly in in technology. So so you know, probably some of your some of your neighbors out there in Silicon Valley, ended up moving to Nashville because of a job opportunity my husband had and was lucky enough to connect with the team at LFM. LFM had launched in late 2014. So they had been, you know, up and running for about nine months when I joined. 

And they were really looking for someone who understood private equity, understood, you know, our investment philosophy, but could also really get out and network and build relationships, and really educate and inform the market about what we were looking for. So I head up business development, I make sure that our funnel is full and that our deal teams and operating professionals always have enough exciting and interesting deal opportunities to dig into.

Patrick: Now with LFM Capital, I love asking about the story of private equity firms, because unlike boring organizations like law firms or insurance firms that named themselves after the founders, okay, we have LFM Capital. So, you know, start off by telling us how the founders come up with the name, does it mean anything. And then let’s talk about what what their focus is.

Jessica: Sure. LFM actually stands for Leaders for Manufacturing, which is the former name of a grad school program at MIT in Boston, that three out of four of our partners and two of our founding partners attended. The program was attended by Steve, Dan and Chris on my team and it was founded in the 80s at a time when US manufacturing was under a lot of pressure from abroad. And major US manufacturing companies like Boeing, GM, and HP and others were looking for ways to attract top talent to the industry. So they partnered with MIT to create this LFM program. 

It was a partnership between MIT’s engineering and business school and top us manufacturing companies. So you know, we identify really strongly with the the program’s mission. You know, manufacturing is a critical piece of the United States economic landscape. We believe the future of a successful manufacturing industry is really carried on the back of small companies that provide the foundation and infrastructure for our critical supply chains. So that program is now called MIT leaders for global operations, they have sort of broadened the scope. 

It is intentionally very small, about 48 students graduate per year, very close knit and and, you know, highly influential alumni basis at companies, you know, like Amazon, you know, and Boeing and many others. So LFM, is now really proud to be one of only 25 industry partners to the program, which means that we have phenomenal access to talent and just, you know, the brightest minds in manufacturing and operations, both right when they come out of this program, and much further along in their careers.

Patrick: And you’ve selected, they’ve selected because they know, manufacturing, so forth, but they’ve also made a conscious decision to focus their their practices, their efforts on the lower middle market. Tell me about that. And why they’re at that front, versus middle market, you know, how did that come about?

Jessica: Sure. So, you know, we believe that, you know, LFM, as a firm can can add a lot of value based on the operating experience of our partners, where we’ve been, who we know what we know. And so by taking, you know, companies at the small end of the market that are, maybe they’re less sophisticated in systems, you know, these are areas that where we had a ton of practical experience, maybe it’s, you know, implementation of a new VRP system, or, you know, thinking about management teams, you know, there are a lot of small businesses in this country that don’t have succession plans in place, and you have, you know, founder owners with, you know, generations that, that have no interest in the business. 

And so, you know, we’re able to attract really top talent to these, these businesses as a result of our networks from the MIT program, and otherwise, and so if we think gives us a real leg up and the type of value that that we can add. So, you know, we really like the idea of, you know, taking these small companies and really helping grow them to to the next level.

Patrick: Well I believe, just as you that there’s just a vast number, a huge number of companies in this lower middle market space, that are really getting underserved. And it’s tough, because they don’t know where to go to move to the next level. And in some cases, they default to an institution or larger player out there, just because I mean, familiarity, and it is a challenge for them. 

Because, you know, if they’re going to organizations that are larger, unfortunately, they’re going to get overlooked. They’re going to get underserved. And they’re going to get over overcharged. And so that’s when we really want to highlight organizations like LFM, that are committed to that space, because I think that you can bring to bear a lot of the the items that are missing, they can get them to that next step. 

And, you know, one of the things that after speaking with you before when we met was you talked about that mindset that you have for manufacturing, because there are mindsets and capabilities and aptitudes for technology and for other disciplines out there. But manufacturing has really changed over the last 10 years where it was seeing outsourcing overseas. It’s now coming back. And you know, now that we’re having this, as you mentioned, the manufacturing renaissance, describe the manufacturing mindset out there and and how LFM is able to really connect with that mindset.

Jessica: Sure. So I guess I would start with our founding partners and their operational backgrounds and really the culture that that sort of embodies. Steve Cook, who founded our firm, as I mentioned, went through that MIT program. And then after the program, he spent 10 years working for Dell. So he was head of supply chain, head of engineering, and then ran Dell’s, entire consumer business, both manufacturing and sales. One of our other partners, Dan Shockley spent years and years at Caterpillar, running various businesses and then ran the ditch which company big construction utility equipment company. And so in many ways, you know, as we go out and talk to business owners, we can tell a story of you know, we’ve been in your shoes, we understand the challenges that you’re facing, and, you know, we we can help, you know, we can really add value your based on our experience. 

Also, you know, being, you know, having been operators, you know, we understand how important legacy is with within a company. And, you know, when an owner decides to sell a business that is often you know, his or her baby, just because they’re selling and maybe transitioning out of the business doesn’t mean that they care any less about the employees and the future of the business. And so, you know, because we look feel smell more like operators. 

You know, that’s, that’s a story that I think resonates, you know, really well we’re gonna, we’re going to build on the legacy that the prior owner, you know, spent spent their life work building, and we’re really going to take care of these people develop these people elevate these people, as opposed to, you know, a strategic buyer that might come in and say, I’m buying the business and I’m closing the shop, you know, we would never do that. So. So that’s kind of the backdrop. 

And then I think, you know, we we take, you know, philosophies like five s, sort set, shine, standardized sustain, you know, we look for Lean principles in our companies and, and work to work to improve those, but in a way, that is, you know, I would say, not a heavy handed micromanaging sort of a way. But, you know, when you think about Lean and implementing Lean, a big part of it is, is not coming in and pushing me in on a business, but really letting the business, you know, answer some of those questions and figure out the answers and then execute on those answers. 

And so we subscribe to that. And even even as a firm here at LFM, you know, we do we have Lean exercises around our office, when we moved into new office space, we, we find that our space, and you know, we labeled our kitchen and did things that, you know, our, our portfolio companies do, do as well. So, definitely part of the mindset here.

Patrick: You know, if a target company, ideal target company’s out there, is it really that simple, where you guys are showing up, and maybe they’ve been visiting with, you know, other other firms or financial buyers out there, and they’ve got the suit and tie. And you guys probably come in there with, you know, just your your shirt sleeves, and you start talking like operators. Is it that simple?

Jessica: So, so it’s not that simple. But I do you think that that helps, I think our ability to bid to come into a business, whether it’s, you know, virtually over Zoom, like it has been over the last couple months, or, you know, to walk into a facility and be able to really talk shop and understand the process, understand the business know, where the products are going. You know, so many of the companies, we look at our manufacturers have kind of these b2b products, you know, a component that goes into a machine that’s used to make something else, and walking in the door and understanding immediately, you know, that one plus one equals two and how to connect those dots and one get where the end markets are, I think is really appreciated by by management teams. 

So I think that, you know, the partners, our partners, certainly respect that expertise, and it does set us apart, you know, from from other buyers, we certainly have, you know, I would say a more down to earth approach, as you said, I mean, it’s, it’s jeans and pickup trucks, you know, around here, which I think is certainly different, you know, than our peers, but I think, you know, I think, you know, we we look for niches, product companies, highly engineered products, companies that have differentiated stories. And I think that, you know, sometimes when you find it, you find it, and you just, you just know, and there’s kind of that immediate chemistry, you know, between the people, you know, the sellers and and LFM and our partners and it works really well.

Patrick: One of the examples where LFM actually came to our attention was your one of the organizations that was able to successfully navigate an M&A transaction through COVID. And so clearly, there was a connection, you were able to get there, get across the goal line on this with, you know, a lot less contact. 

And I think it’s also as opposed to purchasing a financial company or a tech company or online company, with manufacturing, you have to walk the floor, you have to physically be there. You guys successfully bridge that which I think puts you in a great position. I mean, if you can do things successfully, in COVID and pandemic, imagine when everything’s lifted, I mean, you’re gonna really execute on a much higher level. Talk about the the recent deal you guys had and as a as a case study for LFM for other people out there.

Jessica: Sure. So I think that so the deal you’re talking about is Diamabrush, which is a company we closed a little over a month ago, and Diamabrush manufacturers, diamond coated blades and abrasives that are used in concrete floor polishing, you know, concrete floor environments for both maintenance and polishing. So, really neat business, it sort of fits our mold. Exactly niche and markets, niche products, it’s highly differentiated and, and, you know, above all of that, there are multiple growth levers, I mean, there’s so many different ways to grow this business and take it to the next level. And that’s really exciting for us. 

But you know, the the, if this was a process with an intermediary with a banker, launched a process in late February, it felt very normal. We submitted an initial period in early March, you know, the next step would have been to go go on a management meeting in mid to late March that was scheduled on the calendar, then COVID, hit the world closed. And, you know, we were told that we were going to do this virtual manager meeting over Zoom. And I think at first, you know, our team was was a little bit nervous, you know, how can you How can you be as effective? And how can you learn as How can you learn everything you need to learn if you’re, you know, sitting in front of your computer, but I think that, you know, we were able to be very flexible, we were able to pivot, and kind of, okay, wrap our heads around what this process is going to look like, and, and then I think we were really able to use our expertise to our to our benefit, you know, really understand the products, one of the partners on our team had actually used these products, or seen these products, kind of in the real world. And, and I think that helped a lot. 

So, so we attended a virtual management meeting, got a really good feel for the business continued to do due diligence, sort of, you know, from our desks, and ultimately submitted an LOI without having ever been on site, which is something you know, we had never done never, you know, it had never crossed our minds that we would have to do that. We did commit to, to traveling in the first three weeks of diligence, which was, you know, kind of late May timeframe. 

So it was, I would say, on the early side for when people were starting to travel again, but I think, again, it, it speaks to our flexibility, and our, you know, I guess our ability to, to do what it takes, you know, and, you know, kind of take take a very measured risk reward approach, and had learned enough about the company were excited enough about it, that it was well worth jumping on a plane, or in one case, driving a lot of hours over a over a very short time period, to to meet the team. 

And then after that, I would just say it, you know, it takes patience, I mean, it, it’s a more complicated logistical process to get a deal done primarily, you know, virtually, and so I think you have to kind of take a deep breath, and just remember that there are a lot of parties involved that have different, you know, comfort levels. And during these, these wild times, it might take another couple weeks to get a deal closed. But if you just remember kind of what the what the finish line is, and work work hard to get there.

Patrick: It’s just a real testament to the personality and the culture of LFM. Because you’re able to convey that commitment and convey that interest. Virtually, and manage to, you know, earn the trust of of your target. And, and even when you’ve got these obstacles in the way you guys found a way, and that’s real credible.

Jessica: Yeah, well, and, you know, we actually felt like, Okay, if we can, if we can stand out on a computer screen, you know, then we can really stand out. And so we actually felt really good about kind of continuing to move forward in the process. You know, and again, maybe it’s, you know, you need, you need five, five groups in suits and ties, and then the sixth is, you know, feels a little bit a little bit more comfortable. And something about that just works.

Patrick: So that’s a real key that I observed as not being an M&A firm. You know, as long as the one thing is, on the outside people think of mergers and acquisitions is Company A buys Company B. What it really in fact is, is a group of people, agrees and chooses to combine forces with another group of people. 

And the outcome is one plus one equals six. That’s ideally what happens so you can’t get around the human element, even if you’re doing it virtually. Jessica, tell me what experience good, bad or indifferent you and LFM Capital have had with Reps and Warranties insurance because it’s a tool that was not very accessible for the lower middle market a couple years ago, and now is is being widely used? I’m just curious what your experience has been?

Jessica: Sure. So I would say I’m not as close to the process. As I, as you know, some of our deal team members are, but I would just echo what what you said, which is the event A few years ago, it was very rare that we would we would even consider, you know, reps and warranty, but now it feels like just about every single deal. You know, we do use it. And, you know, while it does add, you know, another layer to diligence, I think, you know, in general, it’s never held up the close held up close or anything like that, it’s like, you know, my guess is that, you know, use continues to rise.

Patrick: Yeah, I think that the price point of it even a year or two ago, the benefits outweigh the costs, even when the costs were well over $200,000. For now, though, in the lower middle market, you can get these policies for under $200K, in some cases, way under. And I think that, particularly if you’re a savvy buyer, you build the cost in with the seller, the seller will gladly pay for it. So it’s virtually a product that is free, literally for the policyholder, which we think is is really nice. Yeah. Now, as we record this, we’re just past presidential election, it could be a long time until it’s actually decided, but until then, you know, in the wake of your success with the deal put, you know, in the pandemic, you know, and from your perspective, as your focus on manufacturing, what trends do you see for M&A in 2021?

Jessica: Sure, so I am, I’m very optimistic about 2021, I think a lot of deals were sort of paused, put on the back burner as the pandemic hit. And I think that, you know, a lot of those deals will come back, you know, at the end of the day, we do have, you know, an aging population of business owners and pandemic or not, you know, red or blue, you know, they are going to keep getting older, day by day, and these are problems that aren’t going to go away. 

So I do think that there are situations like that, I also think that the pandemic has really, you know, emphasized just the, the very small amount of control any of us have, in so many ways. And so I think that, you know, there are business owners out there that are saying, you know, gosh, I thought that, you know, if I if I showed up to work, and I did everything the way that I was supposed to, and I grew my business that, you know, I can have, you know, the the exit of my dreams. 

And while, you know, we hope that that is still the case, if something like you know, COVID-19 can can hit and completely derail you know, everyone’s plans, I think the thought of being able to, to achieve an exit and not, you know, wake up in what, you know, may very well have been a nightmare ever again, is is very attractive. So, you know, I do think it’s going to take a little time post election, you know, let’s kind of let things shake out and people can wrap their heads around how, you know, tax policy may or may not change in the near future. But I think that I think that we will, we will see a a nice uptick in deal flow, and things should look good.

Patrick: Despite whatever happens with the election. And right now at this stage, we have no idea. But one thing is irreversible, I don’t believe manufacturing is going to go back out as well.

Jessica: Yes, I think I think that’s exactly right. I think that, you know, what the pandemic did, given, given so many companies, you know, everywhere have global supply chains, and the pandemic led to so much disruption that I think being able to source, you know, all of your components, inventory, etc. From here, you know, in the US has become a key priority when maybe it once was not. I also think there are certain trends in manufacturing like robotics and automation that, you know, have been growing and have been front of mind for a lot of companies and all of a sudden, it’s, you know, maybe maybe we better get going on this. And so I think there are some definite sub sectors within manufacturing and industrials that are going to that are going to really pick up steam as a result of the last several months.

Patrick: Yeah, and I think the other thing was manufacturing is on top of the game more user friendly and so forth. It’s actually going to be safer going forward as with the robotics and the automation too.

Jessica: Yes, absolutely. 

Patrick: We have a lot of that look forward to all this has really been great. Jessica, thank you so much for sharing with us. How can our audience members find you and LFM capital?

Jessica: Sure, so LFM we are at LFMcapital.com. Encourage anyone to to check out our website which is brand new, by the way. And I am Jessica@LFMcapital.com. So feel free to reach out.

Patrick: Jessica, thank you so much and best of luck with everything going forward in 2021.

Jessica: Thank you, you too. Thanks for having me on.