Every month, we will feature an active member of the ACG New York community in a brief interview. Reflecting industry insight and personal perspective, this feature will introduce industry leaders and offer advice on the tools you need to succeed in the ever-changing middle market.
1. Quick basics– role/firm/focus/how long have you been an ACG member?
Founding Partner, Origination, The Riverside Company. Responsible for coordinating the Originating Functions for North America and the exit process. AGC member since 2002.
2. What do you think are the biggest obstacles in the middle market today?
Pricing is clearly a defining issue for all PE firms. With such lofty multiples required to purchase a company, the selection process must be even more disciplined than in the past. There must be a cogent strategy to grow the acquired company’s revenue and EBITDA. And with the likelihood that future multiples may decline, the modeling must anticipate a lower exit multiple. The amount of free cash in the market for investing has been a major factor in creating this new “bubble” and it is not sustainable. This, compounded by so many new “first time” PE fund entrants, makes the successful acquisition extremely challenging.
3. How has ACG helped you in your career?
ACG has helped create a solid networking base upon which I can leverage to seek out new opportunities off the beaten path, while maintaining traditional sources for acquisitions. ACG has provided multiple opportunities to grow our list of professional financial advisors, capital providers, and process improvement consultants. And the sharing of information and risk factors among my colleagues in the industry, including competitors, has been invaluable to creating a successful platform for Riverside.
4. Can you tell us about your greatest success story/ proudest achievement?
One of my most fortunate opportunities was a limited auction sourced via a sell-side banker I met at an ACG event. Fortunately I had the conviction during the review process to continue to dig after the opportunity was rejected during the investment committee. After much discussion there was agreement to revisit the proposal and speak to the CEO of the target company. The additional work done prior to the call with outside sources provided enough information to justify a first visit.
The enthusiasm post-visit created the impetus to be successful in buying the company. Five years later we completed one of our most successful exits. Years later Riverside had the opportunity to pursue the company again, with the same CEO. Contacts I had with a competing PE firm allowed our firms to jointly pursue the company. Our knowledge of management and belief that our improved processes could again make a great return won the day. We applied newer best practices we had learned over the years to help again grow the company. This company was truly the gift that kept on giving.
My greatest achievement has been the opportunity to hire extremely strong professionals who jointly have helped create from scratch a coordinated team to deliver fully vetted opportunities every week for the firm to consider for acquisition.
5. What changes do you foresee happening in the middle market in the next 3-5 years?
I expect a downturn of some magnitude within the next two years. The cause could be a number of factors, financial or exogenous. Unfortunately I am not prescient enough to divine the future as to what will trigger this downturn. The significant number of competitors with dry powder in the market will continue to grow till such time. And the lofty high multiples for those purchases during this fund vintage period will affect many negatively. It is a great time to sell for those with assets ready for realization.