BDO Private Equity PErspectives Podcast

On BDO’s latest Private Equity PErspectives podcast episode , Brett Hickey, founder and CEO of Star Mountain Capital, and Engin Okaya, executive managing director at Prudential Private Capital, joined host Todd Kinney to discuss:

• AI and other emerging technologies: How PE firms and their portcos can strategically leverage new and impactful tools to gain a competitive edge.
• The increasing focus on portco talent: Why strategic recruitment and retention efforts remain a top priority for PE firms and their portco leaders.
• PE’s evolving approach to value creation: How PE firms are creatively optimizing their portcos while navigating challenging headwinds.

On BDO’s newest Private Equity PErspectives podcast episode, Mike Hoffmann, partner at Thoma Bravo, sat down with host Todd Kinney to share his outlook on the current software deal space. They discuss:

• Thoma Bravo’s method: How the firm creates opportunities and measures results, and why they take a management-centric approach when evaluating potential partners.
• The high-growth nature of software: Unpacking the secular tailwinds, focus on digital transformation and emerging technologies, and the IT and security skills gaps feeding growth in the software space.
• Talent management: Why talent is everything in software, and how companies that prioritize attracting and retaining top talent can drive innovation, enhance operational efficiency, and gain a competitive advantage.

Listen here: Talking Software Deal Trends with Thoma Bravo

On BDO’s latest Private Equity PErspectives podcast episode, Laurens Goff, co-founder and managing partner at Stone-Goff Partners, and Todd Squilanti, managing director at InTandem Capital Partners, join host Todd Kinney to discuss:

• The changing PE landscape: How, after several busy years of acquisitions, PE firms’ deal acquisition and value creation strategies are evolving.
• The importance of add-on deals: Why add-ons are advantageous but challenging.
• Attracting and retaining talent: How to drive motivation among portfolio company staff and ensure they are equipped and rewarded for their role in value creation.

Listen here: Merger Integration Considerations for Driving Value.

On BDO’s new PE PErspectives podcast episode , Mike Weinberg, Managing Partner of Levine Leichtman Capital Partners, and Jeff Roth, Founding Partner of Bruin Capital, join host Todd Kinney to discuss:

• Deal-acquisition and value creation strategies: How the changing market has evolved the way fund managers are investing (or not)
• Key challenges facing portfolio company CFOs: How CFOs are managing inflation and high interest rates while navigating skillset gaps
• Talent management concerns: How fund managers are working with portfolio company leaders to ensure the right talent is in place to execute value creation plans

Listen here: Partnering with Portfolio Company CFOs to Navigate Talent and Workforce Challenges.

On BDO’s new Private Equity PErspectives podcast episode, Nick Santhanam, CEO of Fernweh Group, and Scott Spielvogel, co-founder and managing partner of One Rock Capital Partners, join host Todd Kinney to discuss:

• Investment strategies: How the changing market has evolved the way fund managers are investing (or not)
• Impact of current economy: How inflation and higher interest rates are affecting the approach to value creation and financing
• Influence of social and environmental concerns: How the pressures of social equity and climate-related demand are influencing human capital and investment decision making

Transcript:

TODD

Hello, and welcome to BDO's Private Equity PErspectives podcast, where we explore the trends impacting private equity today. I'm Todd Kinney, national relationship director in BDO's private equity practice and I’m based here in New York City.

Joining me today on the show, we have Nick Santhanam, CEO of Fernweh Group, and Scott Spielvogel, Co-Founder and Managing Partner of One Rock Capital Partners.

We're going to cover a lot today, including investment strategies, the current market, how they're responding to economic volatility, talent changes, and value creation.

Just a quick reminder that the remarks and opinions of our guests do not necessarily represent BDO's views.

So with that, Nick, you were formerly at McKinsey where you led the global industrials practice, but you also have a Master's in chemical engineering and an MBA from Wharton. So perhaps you can kick things off by sharing your journey to Fernweh and what your firm invests in within the industrial and industrial tech sectors.

NICK

Thank you, Todd. Thanks for having me. And it's a great question. I'm sure you were wondering, and I'm pretty sure a lot of the listeners are wondering, chemical engineering, manufacturing to consulting to private equity—did I hear it right? Did these guys pull this off? Is it even possible? And the short answer is, we did pull this off.

Fernweh is not a private equity firm. We are an investment company. But we adopt slightly a different model where we believe combining operational domain expertise, transformational expertise, creates alpha. We believe growth is the oxygen in everything we do, and so we go in and adopt what's called an EIOM model, Engaged Investor Operator Model, and we only go into the space, even within the industry of space, which we really understand well. And we go in, and we leverage our expertise to drive growth, and that's where we go and focus on creating value. So that is our background. That's how we got started.

And the reason we got started is myself and a bunch of my colleagues who launched Fernweh a couple of years are ex-McKinsey guys, former clients of mine. And we found that there's a lot of value to be created when we put these ingredients together. And selfishly, we said, "Hey, we can do this at McKinsey, or we can do this for ourselves. Why not do this for ourselves?" Sorry, long answer to your short question, Todd.

TODD

Well, thanks, Nick. And I'll give a special shout-out to my M&A tax guru colleague, Stephen Sonenshine who connected us. He promised me you'd be a great guest. So, no pressure, Nick.

NICK

The pressure only builds on more, Todd.

TODD

All right. So, Scott, you've been in the private equity space for a couple of decades, and you co-founded One Rock Capital Partners and are a managing partner there. So perhaps you can talk a bit about your path and the types of investments One Rock makes. I can certainly see your industry focus makes for an eclectic portfolio.

SCOTT

Yeah. Thanks, Todd. And thanks for having me on the program. So One Rock is a buyout firm. We're investing across four sectors of what we like to call the real economy: chemicals, manufacturing, food and beverage products, and then business and environmental services. That's what we focus on exclusively. And within those areas, we focus on the ugly, complex deals where we can buy a company at a really sharp price. The idea is that we buy it cheaply, we fix the problems that come along with those companies, and then sell the company in a more fully priced valuation.

About half of our deals—just to give you a sense of the kinds of things that we like to take on—about half of our deals since inception have been complex corporate carve-outs. We've been around since 2010. My partner, Tony Lee, and myself are the two co-founders. We're longtime friends, we were rugby teammates in college going back to the early '90s, so we've known each other quite a long time now. And before forming One Rock, Tony and I worked together at a firm called Ripplewood Holdings, and we had the opportunity to spin out together, and over the years, we've been lucky enough to have many Ripplewood alums join our team.

Today, we're about $5 billion in AUM. We have offices in New York, L.A., and London. We have a team of roughly 90 people, and that includes 24 full-time operating partners who have either industry expertise or functional expertise who work with us to add value to the businesses that we buy, helping fix the problems that we inherit with the businesses that we buy, which enables us to sell a cleaner business once we're done with that improvement process.

TODD

Gotcha. Well, thanks. Very impressive background, to say the least, and I’m thrilled to have you on the podcast, as well.

So I’d like to set the context a bit for our conversation, in terms of how you see the landscape changing. You both participate in the industrial space, as you've mentioned. What would you say has been the most significant change in the last few years? And I guess the second part of that, how does this extrapolate to the greater macroeconomic forces we've been experiencing?

Nick, why don't you kick us off here?

NICK

Thanks, Todd. As I mentioned, I was at McKinsey for another 20 years, and when we were there, we wrote a book called The Titanium Economy, and it focused exclusively on the industrial sector. And we said, "Look, this is a sector, which is misunderstood, undervalued, and unappreciated." And I genuinely believe all those elements are true. And none of that has changed in the last two decades. And I think in the last few years since COVID, it's probably changed a little bit, but this is a great sector which creates a lot of value and, as Scott said, they make real products, creates a lot of value for all its stakeholders, not only shareholders, but it's never got the limelight.

I mean, as jokingly, one of my CEOs say, "We are in the basement while the party happens in the penthouse." And I think the only real change is in the last few years, people are like, "Huh, I do know these guys in the basement." Because usually, you only know the people in the party. But I do think that awareness is going up. But as I look at the sector, it is a resilient sector. It's an unbelievably value-adding sector, and it's going to continue to be important. And I don't think that has changed. I don't think that will change. And especially in the last few years—and again, it is not a political debate whether onshoring is coming back or—you are going to find more manufacturing, more industrial production in the U.S. And I think the sector is going to become even more important.

Scott, you've been doing this for quite a longer time than I have, would you agree? What do you think?

SCOTT

Oh, I totally agree, Nick. I think those of us that have focused on the industrial sector for a long period of time, it's been the unsexy area for investing. The sexier areas have been tech and healthcare and some of the higher growth areas. But the one thing that you noted, which we felt very acutely is that supply chain uncertainty has caused quite significant changes in the way industrial companies operate on a worldwide basis. And for all the challenges that those disruptions have created, in many ways, we've seen it via tailwind for some of our portfolio companies. Our manufacturing plants operate primarily in North America and Europe, and we have businesses that are primarily serving the North American and European markets. And it used to be the case many years ago that a very common private equity playbook would be to buy a business that is operating in the West. And try to figure out a strategy that involves somehow moving the manufacturing to places like China. And we started to see that tide turn around 7 years ago with the increasing geopolitical tension between China and the Western world. We also saw wages start to rise in China, sort of narrowing the gap that provided that arbitrage, historically. And then supply chains started to disrupt when we saw that the ports were backed up on the West Coast of the U.S. several years ago.

And then, to your point, Nick, obviously during COVID, there was widespread supply chain challenges worldwide. And although supply chains are much healthier today than they were during the height of COVID, there are ongoing uncertainties like what's happening in Eastern Europe given the Russia-Ukraine situation. And all of a sudden, the ability to manufacture in the West, providing supply chain certainty for your customers, is at a premium.

And so some of our companies have been the beneficiary of being that local solution for customers looking to shorten their supply chains. And it's provided opportunities for us as we look to grow the top line of our portfolio companies that sometimes requires additional CapEx for more capacity. But if our customers are motiva

On BDO’s new Private Equity PErspectives podcast episode, Michael LeTourneau, finance resource partner at Court Square Capital Partners, and Steve Siwinski, senior finance leader at Accel-KKR, join host Todd Kinney to discuss why PE CFOs need a “money-making gene” and “love of controlled chaos.” Tune in to hear their insights on:

• Talent challenges: How the current labor market headwinds play into fund and portfolio strategies, and what solutions they’re deploying
• The first 100 days: What’s most important now in the first 100 days of owning an asset
• Scaling the approach: How scaling your approach is top of mind for LPs today, and how to do it

On BDO’s new Private Equity PErspectives podcast episode, Patrick Whitehead, Executive Director at Morgan Stanley Capital Partners, and Katie Lankalis, Vice President at LLR partners, speak to host Todd Kinney about:

• Private credit: Why we’ve seen growth in the private credit market and where it’s headed next
• Due diligence: How due diligence timelines continue to evolve, following a few extremely high-pressure years
• Creative deal structures: Why minority investments and all-equity deals are getting more attention in a down market

Also hear from BDO’s Mark Houston on the refinancing market and how companies can successfully refinance in this challenging financing environment.

On BDO’s new Private Equity PErspectives podcast episode, Matt Smith, Principal at Graycliff Partners, and Dave Affinito, Partner at Victor Capital Partners, speak to host Todd Kinney about:

• Deal origination: Why “hustle ensures consistency and consistency ensures quality”
• Supply chain: The importance of diversifying suppliers to build resilience
• Regulatory oversight: How partnerships can respond to increased tax reporting scrutiny by deploying technology solutions
• Planning an exit: What questions to expect from the right buyer

Also hear from Jeff Bilsky and Blake Stevens on partnership taxation issues and BDO’s Partnership Capital Account Solution.

On the latest episode of BDO’s Private Equity PErspectives podcast, host Todd Kinney speaks with Justin Wender, Managing Partner at Stella Point Capital, and Rob Bosco, Managing Director of Stone-Goff Partners on how a recession could impact private equity and what they’re seeing in the GP-led secondaries market.

Listen to the podcast to learn:

• Why valuations for private equity, especially in the middle market, are not seeing the same declines as valuations in the public markets
• Why we are seeing more GP-led secondary transactions and why that is expected to continue
• The importance of investing in companies that are providing real value to their customers
• How technology can create efficiencies in the transaction process
• Why technology-driven services businesses may provide some resilience in an evolving economy

Investment banking products and services within the United States are offered exclusively through BDO Capital Advisors, LLC, a separate legal entity and affiliated company of BDO USA, LLP, a Delaware limited liability partnership and national professional services firm. For more information, visit www.bdocap.com. Certain services may not be available to attest clients under the rules and regulations of public accounting. BDO Capital Advisors, LLC Member FINRA/SIPC.

On the latest episode of BDO’s Private Equity PErspectives podcast, host Todd Kinney speaks with Alice Birnbaum, Head of Business Development at BBH Capital Partners and Stephen Connor, Head of Business Development at Hamilton Robinson Capital Partners. Alice and Stephen discuss their firm’s approach to deal origination and how their investment strategies differ for their different focus industries.

Listen to the podcast to learn:

• Strategies for targeting deals with owner-operated and family-owned businesses
• How centers of influence, such as investment banks, accounting firms and law firms can be great sources for deal origination
• How technology overlays the deal origination process
• How a lot of committed, but uncalled capital can boost the private equity market in the near term, even as the economy evolves
• Why businesses looking for a private equity buyer need to prove the next 5 years will be the best ever for their business
• Why deal flow in the manufacturing and B2B space is predicted to be strong moving forward
• Why the mandate to do control and non-control deals can provide flexibility in a changing market