Tapping into Private Equity in 2018

February 5, 2018

January CFE Event Recap

The Private Equity Industry ended 2017 with close to $556 billion in “dry powder” available for investment in privately held companies. Business owners can tap into this capital by getting to know what private equity funds look for in target investments, and executing on strategies to enable their companies adopt these characteristics. It’s worth the while: Private equity firms bring resources that can help companies double or triple in size, or more, over their investment period. Private equity firms increasingly offer non-control options to ownership as well, allowing founders and operators to share heavily in the rewards of co-ownership as their company grows.

Ten-year veteran of The Riverside Company, Cheryl Strom, spoke about the industry, her firm (which closed on more than 45 investments in 2017), and why accessing outside capital can lead to breakthroughs for business owners. As Regional Director, Cheryl works with deal sources throughout the Midwest to originate new investments for three North American funds.

Prior to arriving at Riverside in 2006, she worked in the Debt Capital Markets group of National City (now PNC), structuring and originating senior debt facilities >$50 million. Cheryl received her M.B.A. from the Weatherhead School of Management at Case Western Reserve University; and her B.A. from John Carroll University.

With over $6 billion in assets under management, The Riverside Company is one of the largest and oldest global private equity firms. Riverside makes control and non-control investments in companies with enterprise values under $400 million. Since its founding in 1988, Riverside has invested in more than 490 transactions and currently has a portfolio that includes more than 80 companies worldwide. The firm’s specializations include healthcare, education and training, specialty manufacturing & distribution, business services, software and technology, consumer brands, and franchising.

The event was hosted by Ben Calkins of The Calkins Law Firm, Ltd. The moderator was David Brown of Red Hawk Associates. Ben and David are co-founders of the Center for Free Enterprise.

Thank You to Our Sponsors:

JP Morgan Private Bank: a leading provider of wealth management solutions and advice, and an important segment of JPMorgan Chase, the largest US bank and the 6th largest bank in the world. For more information about JP Morgan Private Bank’s services, please contact Greg KeeganVice President, Investment Specialist, Ken Greaney (216/781-2392) Vice President, Banker or John Arrowsmith, Managing Director, Investment Specialist.

The Calkins Law Firm is a premier boutique law firm that specializes in business law and focuses on business transactions and business disputes. Please contact Ben Calkins (440/796-4592).

Red Hawk Associates provides investment banking services to lower middle market businesses with a focus on founder or family owned firms. Please contact David Brown (216/464-8714).

 

 

Ms Strom is responsible for finding, assessing and evaluating investment opportunities for Riverside. In order to accomplish that objective, she needs to develop and maintain strong relationships with investment intermediaries in the markets she covers across the Midwest. The best opportunities – those that fit Riverside’s investment criteria – are brought before Riverside’s “MOM” (meeting of the minds) every Monday. The MOM committee is essentially an investment committee.

Riverside works hard to convince business owners that it has more than money to invest. If Riverside pursues an opportunity and makes the investment, Riverside has a team of operations experts whose job it is to help the acquired business succeed and grow.

Riverside also invests in add on acquisitions for these businesses. They pay special attention to the smaller end of the middle market, a space that has historically been relatively overlooked for private equity investing.

In 2017, Riverside considered 300 businesses for investment, narrowing it down to 196 businesses to visit. Of those, they closed 51 investments. Of these, 11 were initial investments and 40 were follow-ups on investments for businesses invested in previously.

Private equity is a competitive space, with $650 Billion available for private equity investing in the US alone. This explains why Riverside works so hard to convince sellers that it is the buyer of choice for their businesses and brings much more to the table than just money.

In light of the competitive market, the average purchase price multiple paid by Riverside in 2017 was more than 11 times EBITDA.

Ms. Strom indicated that Riverside has never had problems finding investors and raising money, primarily because of Riverside’s strong track record of generating returns for its investors.

Looking ahead, Ms. Strom anticipates that the private equity space will continue to be a popular area for investors and that businesses will continue to trade at high multiples given the availability of credit and the competitive marketplace.

Of course, Ms. Strom and Riverside will continue to work hard to identify suitable opportunities and to convince the sellers that Riverside is in a position to close the transaction at a competitive price and brings a lot more to the closing table than money.

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