CHICAGO, Nov. 21, 2016 – At a recent industry event, Matthew Tingler, a Director in the Global Consumer Investment Banking group at Baird, a global, employee-owned financial services firm, moderated a panel discussion on private equity investments in the sports and fitness sector. The panel, which was a part of the Sports & Fitness Industry Association’s annual “Industry Leaders Summit”, included a CEO and former CEO from two leading companies, as well as two senior private equity investors in the sector:
- Sally McCoy – Former President and CEO of CamelBak
- Tony Armand – CEO of United Sports Brands
- Alison Minter – Managing Director at North Castle Partners
- Taylor Moore – Director at Northwest Equity Partners
During the discussion, Tingler and the panelists discussed a range of issues and topics from both the perspective of corporate leaders as well as private equity investors. A number of common themes emerged among the panelists.
Leadership, Team and Culture Fit
Tingler asked the private equity panelists what they looked for in potential acquisition targets and then posed a similar question to the corporate panelists, asking them what made a good marriage with the private equity partner. While panelists discussed a number of key criteria, a common theme around the right leadership, team and culture emerged.
Moore noted: “‘What does the team look like?’ I think if you can find a CEO like Tony or like Sally, and if you can support them, chances are you're going to be successful, because chances are they're going to pick businesses that are successful in their own right as well. I [also] think a performance oriented culture is something we really look for. I think that's fairly rare, actually.”
Minter agreed, adding: “For us, that is very much about the right partnership, relationship with a CEO… That takes into consideration mission, vision, values, and the rational, emotional, and cultural elements…What we've concluded over time, is, if we can get that right…then everything will work itself out.”
Echoing the private equity panelists’ comments about the importance of assessing the management team and the culture, Armand said: “To make sure there's a culture fit between the business and the private equity partner is huge. That's, to me, always been the number one criteria in selecting a partner. [And] it's not just for me; it's for the whole management team. That culture fit between the PE owner and the management team and the business, is critical.”
It’s Never Too Early
In opening a new line of questions to the panelists, Tingler noted that one of the most common questions he was getting at the conference was: “when is the right time to sell?” He posed that question to his panel, and while each respondent had advice on what entrepreneurs and CEOs should be considering, they all agreed that there’s no such thing as being too early to start the discussion.
Minter said: “If you go back and look at the partnership that we've built over time, and the investments we've made, I'd say more than two-thirds of those were businesses where we got to know an entrepreneur or founder well before they were ready to do a deal. [There were] many situations where two years prior we got to know someone at an event like this, through our network, and ultimately partner with that person informally, and kept that relationship going, and then made the investment when it was right for us and for them.”
Armand agreed: “It's never too early to start thinking about it, and the one recommendation I always have for entrepreneurs who are running business, who are thinking about maybe in the future partnering with a private equity firm or other outside money, is start early getting your financial house in order. That's just the most elementary thing I think I can recommend.”
Added McCoy: “Get a good banker and think long and hard about it. I [also] think it's a good idea to talk to other people who have been through it.”
Operating Partners to Drive Value
As the discussion delved further into the specifics around investments and transactions, all panelists were quick to note the increasingly importance of operating partners with respect to driving value and growth during the life of the partnership between the company and its private equity owner.
Moore: “Private equity firms cannot rely on asset pricing as their primary way to make money. They have to find ways to increase the performance of the business over their whole period. That's driven this idea of bringing external resources, such as operating partners to the table. The model that we're deploying more frequently is an idea really of a service bench, and looking at characteristics or skill sets that are typically gaps in middle market businesses: really good HR, really good strategic planning, expertise with sourcing or pricing -- things that just typically you can't get there until you're a larger business.”
Underscoring the value of operating partners, McCoy adds: “I don't want to gloss over this point for operators, because it is an important point. I did use an operating partner in a really gnarly syndicated debt refinancing, and it was super helpful…It is one more thing for you to think about as you're evaluating your partner.”
Armand offers a different perspective for corporate leaders considering private equity partnerships: “Entering into a new partnership, make sure you understand the model of the PE group that you're going to partner with. If they're heavily dependent on the operating partner model, expect that. If you're an entrepreneur who says, ‘Hey, I don't want that. I don't want people meddling in my stuff,’ then that may not be the right partner for you.”
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