Podcast: How to Choose the Right Private Equity Partner
Are you thinking of taking on a private equity partner? Here are some things to consider when evaluating potential suitors.
In this podcast, Patrick Ross, affiliate partner with Lindsay Goldberg LLC, talks about:
- Things owners should be doing now while they’re operating the business to prepare for that eventual exit;
- Conducting reverse due diligence on private equity investors;
- Finding the right investment bank to assist with the sale of your business;
- The decision of selling to a private equity firm versus a strategic buyer; and
- Use of leverage and optimal capital structures in private businesses.
About the GuestPatrick Ross is an affiliate partner with Lindsay Goldberg and former CEO of a number of private and publicly-traded industrial service and manufacturing companies in North America. With an emphasis on operating excellence and value creation, Patrick is currently looking for opportunities to deploy Lindsay Goldberg's value proposition in Canada and the western USA.
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Read the Full Transcript Here:Noah Rosenfarb: Hello everybody and welcome! It’s Noah Rosenfarb from Freedom Business Advisors the author of Exit Healthy, Wealthy and Wise. Thanks for joining us today! We’ve got Patrick Ross with us. Patrick is an affiliated partner at Lindsay Goldberg in addition to being a CEO for the last 30 years, running a bunch of different companies, having tremendous amount of experience both growing businesses, turning them around, and exiting them.
Patrick, thanks so much for coming on the show.
Patrick Ross: Thanks for calling me.
Noah Rosenfarb: Maybe, it will be helpful if you can look back on all the transaction experience that you’ve had. What would you say are some of the most important lessons you’ve learned along the way?
Patrick Ross: One important lesson I learned about 20 years ago was kind of like a marriage. It’s really easy to get engaged and get married and then you start thinking about, 'How do I get divorced or separated? And that’s a lot more complicated circumstance. It takes a lot longer than it does to just go down to Vegas and get married over the weekend. I think if we spend as much time finding our exits when we acquire a business before we make the acquisition, we’re probably better prepared. So that would be one of the lessons.
Noah Rosenfarb: Give me some more because I’m sure there’s more than that.
Patrick Ross: Sure. I would rather a bad business with good people than a good business with bad people. It sounds kind of packed but boy oh boy. I’ve seen some really bad deals. You can fix a bad business. You just can’t fix bad people. So doing your due diligence is really, really important. I would say that if you want to be successful, a partnership is a pretty hard ship to sail in, so you got to really pick your partners wisely.
I’ve noticed lots of people say, 'Hey, Pat, I’m thinking of buying this company in Toronto. They do this business. What do you think? And I would go, 'Oh my good lord. Don’t do that. Those guys are this and that market is.’ And I get this look on their face of dismay. 'Well, actually, I’ve already purchased them. I was just hoping you’d tell me it was a great idea and I’d tell you I actually did it.’ I’ve had more than a dozen people ask me for advice about potential acquisitions, looking for me to acknowledge of their great idea only to find out that they had already done it. I don’t know why they’re asking for my advice. It comes back to they didn’t do enough due diligence, and in each of those instances, the trouble that I warned them about indeed unfortunately happened for them. So do some good background stuff.
As with respect to selling your business, I have a philosophy that if you really know your business, nine times out of ten, you know who should be buying your business or who should become your partner and you can hire investment bankers and they can legitimize it. Like hockey players, they learned pretty quickly that they hired an agent to negotiate for themselves. They did a lot better in negotiating for themselves. I think CEO’s probably should hire agents and businesses have to hire agents because the agents help you take the personality, the emotion out of the transaction, and you tend to get maximum value and the best value or best partnership. But, again nine times out of ten, my experience has been I know exactly who will ultimately buy my business before I even hire the investment banker. Hopefully, I had done all the work in the three years prior to that to make it the perfect choice for that particular purchaser.
I normally identify the top two players available today, that's been my experience. I’m going to let you do some more talking, Noah. I’m exhausted.
Noah Rosenfarb: Well, you mentioned three things in that. One is prepare for the end in the beginning, do great due diligence on your team and your partners, and hire a banker when the time comes.
I’d like to kind of go into each of those three things and maybe start with, 'What are the things owners should be doing now while they’re operating the business to prepare for that eventual exit?’
Patrick Ross: Start building a data room. Have the discipline to have your data room current. Oftentimes, you’re not in control of the sales process. There’s one instance where you got a business that’s completely unsellable because you are the heart and the soul and the front man for that business. As much as it’s an asset for you, it’s a real liability for any potential buyer, because eventually, you can’t replicate yourself. If you die or get hit by a car, the goodwill and the real value of that business disappear. So try to get yourself in the circumstance where you created systems and structures that you can scale your business up because at the end of the day, anybody acquiring you is going to want the same thing.
Get a business that’s not a trap for you. That’s why you see you get to figure how to get out of the business before you get into it. Can I get all those businesses or is it just really a full-time job that offers me a lifestyle? Once you have the business, start playing work together in unity, because it gets the discipline of having a business that is sellable at any given moment, because sometimes you’ll get a call out of the blue that somebody actually wants to acquire you. If you’ve been running a business with a good structure and a good replacement program for yourself, understands the saleability, and have put together a good clean data room, you’re ready to probably transact very quickly and maximize your value. I can talk around for hours and hours, Noah.
Noah Rosenfarb: The best practice on the data room, and I find a lot of clients they get scared when I use the word like data room because it sounds pretty serious. But then I show them it’s really just you could use Dropbox if that works for the company of your size or you could use something that has permissions like NetDocuments. It’s a software where you could keep your documents so they’re at the ready in the event somebody else wants to see them, and there’s a way that you could deliver it to them. Do you have best practices that you use within your portfolio companies or would it vary by size?
Patrick Ross: Yeah, it varies by size. I think it’s not how you do it. It’s the fact that you do it. I think that’s the more important point. How many businesses that you know out there that don’t have a succession plan, don’t have a data room, don’t even know how to put together a data room, and don’t understand how private equity works? Shows like yours and website, Divestopedia, really have come long ways to educate guys which wasn’t really available ten years ago. I think it’s important just to get your head wrapped around it.
Like, if I got a small business, I probably should think about having an advisory board if it’s a privately owned business. It’s that discipline of going 'I can’t be all things to all people and I have to be ready, as ready as I can be.’ Putting together a data room as a matter of course is much less expensive than putting together a data room when you get a phone call from an investment banker and you got to have them together in two weeks.
Noah Rosenfarb: No doubt about that.
Patrick Ross: Notice I’m saying data room and you’re saying data room.
Noah Rosenfarb: Well, I’m in South Florida and you’re up north.
You also mentioned due diligence on the team, and I think that’s one of the areas that a lot of owners really face challenges. The mantra is you should be slow to hire, fast to fire, and unfortunately, it’s the reverse for most owners. So what type of diligence should they be doing on the partners they’re going to enter into business with and the teams that they’re going to be working with, what suggestions would you have?
Patrick Ross: Reference checks are a good starting point. People are not going to give you references that are bad references, but you can ask for them. Give me some references of people that have not been happy with the transaction and give me some references of people who are happy with the transaction. If a potential employer or potential acquisitor is flaunting the fact that they’re honest, they’ll give you both. There’s always a reason why deals fall through and it’s not necessarily that the guy is a bad guy. It’s just bad things went through.
The only question you ask on a reference check - I think, there are no 25, 30 or 40 questions. There’s one. 'Would you ever do business with this person again? Would you ever have this person work for you again?’ It’s a pretty straightforward thing, but you got to pick up the phone and do it. Then, you got to poke around and you can do that now because of the internet and find people that are obtusely related to the people you’re working with. Ask to speak to every CEO of every company that the product or firm has purchased, and you pick which ones you want to talk to.
I do believe again it goes back to if you’re really in your business and know the strategic importance of your business, you should know who would be the most likely an opportunistic and high paid. It’s not always up to how much money they pay you for your business. If you’re going to sell the whole thing, I think it is. But if you’re going to sell a portion of your business and partner up, it’s the type of people you’re partnering with is more important than how much money they’re going to pay you for your business because the second bite is more important than the first.
I think like hiring good executives headhunting firms can go through a whole bunch of testing process, but if you got good true people working for you and you got a good networking community and you belong to a couple of good associations, my experience again is that the success rate of hiring people that know people you know and trust is much higher than hiring people that somebody has recommended to you because you passed a bunch of tests or fits the checkboxes. So get out there and find out what’s going on with these people.
Noah Rosenfarb: How about the investment banker? I hadn’t heard that analogy before. It’s a good one that these hockey players, basketball players, they’re all using agents, so why not the owner? When people are looking at investment banking firms to represent their company and if they are as savvy as you, they might suggest that they know who their buyer might be or kind of group of buyers, how should they be interviewing those investment bankers? What should they be looking for?
Patrick Ross: I’ll answer that question by giving you a story. We used investment bank on four consecutive deals and investment banks have what we call a wall between research and sales. So hopefully, you’ve got a public business. You’ve got analysts who are examining and discussing your business’s potential and then the investment bank gets an opportunity to do a primary offer or secondary offer to help raise equity to help grow your business. That’s a publicly traded company. Those guys tend to also expect that they have had that close relationship with you from the analyst side to the capital raise side that they’ll be the guys you got to call when you want to sell your business.
I’ve been in a position where I felt compelled by virtue of the amount of relationship we had with our investment banker to hire them to sell our business. Back to my point, I had a really strong feeling of who this business is going to be sold to and it was a few hundred million dollars, a relatively significant size. The investment banker that I’ve been working with came in and was quite cavalier of both, 'You know how great we are. We don’t need to tell you how great we are. We think that group is not going to buy the business. We talked to our consultants down the states. They know those guys better than you do. They are a waste of your time, and here is what we think you should do.’ Flew in the face of how I felt about the business, and then I had a completely broad group of people, another investment bank comes out of the blue, tell me story about how they felt there was a consolidation going on that it’s in history and they knew this guy and they knew that guy and they flew up and they showed enthusiasm. They said, 'Look, we’re so confident that we could do this, this, and this. We actually won’t get paid until we’re successful. Now, if we think we have got the valuation, if we exceed that valuation, we want a percentage of that.’
Well I went from dealing with them for ten years, I had to say, 'You know what, I think you guys are taking us for granted. I’ve got some people who really, really care. I’m really glad I made that decision.’ That did a spectacular job. I’ve used them again. It comes back to every deal is new and unique and you’ve got to find an investment banker that knows you, knows your industry, knows your business, and is truly enthusiastic of helping you because they know that this transaction is going to be a slam dunk.
It’s a lot words. I’m sorry.
Noah Rosenfarb: Well, in terms of finding that right fit, would you say it’s like any hiring decision? It’s part gut, part presentation, costs and all the rest of the kind of standard checklist that people will have when they’re hiring a vendor or bringing on a new relationship. Is there a uniqueness to the investment banking hire because they are one and done, there’s not a long-term relationship there at least as it relates to the owner that’s selling?
Patrick Ross: I think it’s like anything. I’m sitting on a public company right now and we have a division we want to sell and we had a proposal by a very reputable investment banker that will help us, and I listened to my fellow board member who said, 'Well, goodness gracious. I know someone who would do that for half that. I know somebody who will do that for a third. I know half my daughters would do it for one-tenth of their fee, but I’m not quite sure that my daughter is completely aligned with the particular industry we have to be involved with.’ It comes back to looking at the deals these guys or gals have done, their reputation, and their integrity, their ability to deliver. The investment banks, I think, all have some value proposition that resonates with certain types of owners and certain types of industries. The trick is to do your due diligence and put some time and effort into it, and like choosing a spouse, you don’t always get it right, but if you put a lot of effort and time to it chances are - I happened to get it right. I’ve been married for 34 years, thank goodness.
You can do it even when you’re young and dumb. You could pick the right spouse and you can pick the right partner, but it takes effort and lots of good communication and lots of due diligence. Sometimes you get lucky but if it sounds too good to be true, it probably is and cheap is not good most of the time.
Noah Rosenfarb: You and I were talking before the show about the variety of businesses that you’ve been involved with, some earlier stage and smaller sized and then clearly a lot of them later stage and larger sized, how does that impact who’s going to help you on the way out and how do you try and find quality every level?
Patrick Ross: Well, I think quality finds you. Oftentimes if you’ve got a good reputation, you've done a job. Again, it’s a matter of picking good partners and going to the right parties and being involved, current, well read, and reading the paper and understanding who’s who in the zoo. Don’t fall for the first guy that walks through your door. It really does come back to it requires some work on the owner’s part, hard work, and reliance on a good advisory group.
An example I can give you, I moved to a small town 600 miles away from the home I was born in to run a business and I bought a house, a hundred-year-old house. I have a wife and four daughters. I talked to a real estate agent and I said, 'Do you know any contractors?’ He says, 'Yeah, my brother is a contractor. He is kind of a handyman.’ And so, I hired this handyman and he hires these drywall friend, carpet friend, bricklayer friend, and I’ve been in this town for three months getting my house ready for my wife and my four daughters. I show up one day from my hotel and had a look at it and it was an unbelievable mess. I said, 'What’s going on here?’ The guy said, 'I thought you were buying this house to flip?’ I said, 'I’m buying this house to live in?’ 'Oh, I would have done a much better job.’
So now, I do some research and I found out that I have hired the town drunk who has been in and out of jail 15 times. I would have not known any of that stuff. I took one recommendation and I hired all of his really, really bad incompetent friends. I’m seven months pregnant on this house deal. Everybody that I now got to meet in the local community who are legitimate citizens said, 'Oh my goodness, you shouldn’t have done that.’ Well, we do that in business sometimes. We make a mistake of hiring one person and the next thing you know, we’re into a really, really bad circumstance because we surrounded ourselves with a whole bunch of that person’s other bad people.
I go back to my original premise. You really, really, really work your while to do an awful lot of due diligence from hiring your accountant, to hiring your lawyer, to hiring your investment banker, to hiring your headhunting firm or anybody else.
Noah Rosenfarb: An interesting experience I had when I first moved to South Florida and I was talking with a potential client. He said, 'I run a background check on anyone that is going to be involved in managing my money.’ I said, 'Oh okay, that’s interesting. Why do you do that?’ He said, 'Because I live in South Florida.’ It kind of escaped to me that this is the land of originations of frauds. When you’re in the business of handling people’s money, they want to know who you are and what you’re doing. It was an interesting experience for me coming from the Northeast where people know your family and you’ve been around and you have a reputation. Florida is certainly more transient.
One of the questions I had for you that I thought you’d be a real expert at answering and giving some insights to is that a lot of businesses now are obviously selling to private equity firms and they’re doing that in most part because they’re a big part of the buyer pool. To a certain extent, they want that second bite and they do want to continue to stay involved in the business for a certain number of years and have an opportunity to continue to grow it. Oftentimes, there are strategic acquirers that are in the process of looking at them as well and the owner is not sure. Should I sell to 80% of private equity firm and wait around and work here another three to five years and stay involved or should I just sell out to the strategic acquirer and kind of take all my chips off the table and run? To the owners that need help figuring out a solution to that puzzle, what advice can you give to them?
Patrick Ross: Well I think it comes back to motivation. I think you’ve answered the question you just asked me.
If you’re tired, exhausted, 'I’ve done it. I’ve done what I wanted to do with his business. I just want to take my chips and go to a beach in Mexico.’ Private equity person or group wants to buy your business but they also want to buy management. It’s very seldom that a private equity group has a team of managers to dump in and take all from you. Your relationship is certainly at work. So you’re selling to a strategic.
If you go, 'Gee whiz, I got to get rid of dad if I borrow a bunch of money from the company or get the company to borrow much money to pay off dad and mom, that stops me from growing this business for the next seven years, and by that time, I’m almost dad and mom’s age and I’m thinking about retiring. Wouldn’t it be nice to have a private equity partner come in that has got access to cheaper capital and I’ve been so busy running my business in my region, I have no time to get out and see what the rest of the world looks like and these people have. I still want to be here. I just don’t want to be encumbered by a kind of debt and smell my own fumes.’ Then you go to a private equity buyer.
Is that an obtuse answer for you?
Noah Rosenfarb: I think it’s the same way I feel about the problem. For most owners, although they feel like, 'I could go one way or the other.’ I think in their heart of hearts, there’s a way they really want to go. Either they’re ready to leave their business or they want to stay in their business, because they’re think there’s more upside and they have the division to achieve something else. But it seems that there are some owners especially the multiple from the strategic may be a little bit better than the multiple from the private equity firm. There’s enough money there for them to have financial securities so there is some appeal to kind of packing it in. Then there’s appeal on the flipside of sticking around with the business with seasoned partners that know what they’re doing and that do this for a living.
In that, even still when the owners are facing, they know they’re going to do a private equity deal or they know that they’re going to do a strategic deal. What I find from the private equity side, again, how do you know who you’re going into bed with. Price isn’t the only decision criteria in selecting a partner.
Is there anything unique about that process of choosing from competing private equity firm offers that you think you could help owners create a process or some questions that they might want to implement if they’ve got a few offers from private equity firms that are close and they’ve got to pick?
Patrick Ross: Yeah. One really important question beyond what I’ve said of do your due diligence, do your due diligence, do your due diligence. I won’t beat that horse any longer. But there are a whole myriad of private equity types. I’ve seen some that have five-year funds, seven-year funds. I have seen a couple that have ten-year funds. I’ve seen very few, the one I’m involved with in the Lindsay Goldberg is a 20-year fund. That is very patient. They don’t need to exit seven years from now. They can wait a long, long time. They are there to grow the business.
One question you can ask is, 'How much of your own money do you have invested in your PE firm?’ If it’s, 'I don’t have any.’ Or 'I have $100,000, but we’re going to raise $60 million. You’re going to pay me 4% to raise that money.’ You’ve got probably something that’s a little bit less brought into the transaction than you might want them to be. Knowing that you’ve got a PE firm that’s got a lot of the partner’s own money in there, they are in alignment with you. What’s your history of stripping equity on this business? What has been your return to investors? Has it been done through financial engineering? Like, you’re going to leverage this about seven times and you’re just going to use my balance sheet to make yourself rich? Or do you have some code of ethics or code of conduct or code of approach that says, 'We’re going to take a really conservative role here and here’s kind of the range of leverage we’re willing to use and here’s the times where we will strike to payback LP’s with a bit of an equity pull? Are we going to do it through debt or are we going to do it through performance?’
Understanding how the LP gets paid back and when they get paid back and how that might encumber your business are really important questions. Oftentimes, most business owners unfortunately are not bad, but they don’t have the sophistication to know what or when to ask those questions, so that’s where it comes back full circle when an investment advisor, or probably an agent is a good person to hire to make sure you cover all of these details.
Noah Rosenfarb: It kind of dovetails into what we were talking about before we got on here, around capital structure. The kind of inefficiencies that exists in most privately held businesses in their capital structure. Probably the most common thing that outside investors do is rejig the capital structure to make it more efficient.
Maybe share some experiences where you went into a business and you were able to take a look at their capital structure and re-engineer it. What were the benefits? What were maybe some of the detriments or the downsides that you’ve seen over time?
Patrick Ross: I got involved with a business that we bought. It had $5 million capital in the bank. It had a fleet of $10 million. It was run by a former banker. They were proud of the fact that they had no debt, that they had money in the bank. They were, I think, number 24 in the marketplace. We looked at them and said, 'Look, there’s no way you’re going to be able to capture some of these big industrial projects with a $10 million rental fleet. You need at least $50 million.’ To the sales guys and said, 'Go out there and find us a couple of big projects. We want to be in the bid list of these projects.’ They’re saying, 'But we need $50 to $100 million for these things.’ The answer is, 'Don’t worry about the money. You guys worry about the business. Worry about getting sales. I’ll worry about getting you about the money.’ I have a signed p.o. from a large international exploration firm for a $200 million project. I’m pretty sure that I can find $10 million of equity and I’m pretty sure I can convince the bank to lend me $30 million on that $10 million of equity and I’m getting much closer to the $40 million, so it will get me at least started in the project.
In the mindset of most private business owners, they are proud. It’s like paying a mortgage off in Canada. We’re all proud of paying the mortgage off. In your business, you can also pay all your debt off and you never be owing to the bank but there are capital structures that still doesn’t put the bank in control of your business whilst being able to have capital available to really grow and expand your business and reward the shareholders.
Noah Rosenfarb: How have you seen interest rates fluctuate over time and impact the decisions you’ve made as a CEO or a board advisor in the various portfolio companies? Maybe share a story about when interest rates are rising or interest rates were declining, good economy or bad economy. Any impact that you felt based on either leveraging a business or de-leveraging a business.
Patrick Ross: When I got into business in 1980 and got married and looked for a house, interest rates were 20%. Inflation was a little bit rampant too. I mean interest would go 19%, 18%, 20% crazy numbers and they wiped out an awful lot of people, and I think people of my generation are still somewhat affected by those crazy interest rates from back then. The problem with low interest rates is you’d pile on a whole bunch of debt, because debts are always used in equity. That’s kind of one of the cardinal rules and then interest rates take a turn, and goodness gracious, a couple of points can be the difference of being in business and not being in business anymore.
I see a lot of private equity businesses come in, pay too much money for a company, finance it legitimately, realize that they are in the glue as the marketing structure downturn and they start eating up working capital. if they start going to sub-debt. Where they should be paying 5% or 6%, they’re paying 12%, 14%, 16%, and 17%. At the end of the day, they prolong their debt by two or three years, but ultimately they most often die.
Again, it goes back to your question about what’s an efficient capital structure. It depends on what part of a cycle you’re in, how much equity you have, how much risk you want to take it, and how good of a reputation you have with lenders, institutions, and investors. If you’ve got a great business, a great management, you can find debt or equity any time of day.
Noah Rosenfarb: One of the conversations I had recently with an owner. They’re getting about a 6% return on the equity in their company, and I suggested to them that they could borrow money from the bank at about 3.5% and then invest it in in a diversified portfolio of other businesses that they don’t control, and likely, there will be some leverage and also some diversification, and the concept is like abhorrent. Like you mentioned, people want to have no debt on their business and so to them, just knowing that they’re getting their 6% on the value of the company, that’s good enough for them.
What do you have to say to owners that have that kind of - I don’t know what the mindset is, but risk adverse, 'I’d rather be debt-free than rich.’
Patrick Ross: I just talked to somebody this morning. It’s something along those lines. Let’s say I have a twin brother and we both inherit a $100,000. I go out and buy a condominium for $100,000 and a year from now I sell it for $110,000. I made 10% of my money. My brother went out and bought ten condos for $10,000 down, rented them out, got $90,000 mortgage in each one of them, and he sold them all the next year for $110,000 each and he made $100,000 less a little bit of interest. So he made 100% on those money. It works great in a rising market. What happens if the thing went down $10,000 than up $10,000 like Florida and Arizona? If I bought one, it’s not going to kill me. I’m going to lose $10,000. If I bought ten, my $100,000 is gone and I’m in big trouble. So who’s smart and who isn’t smart?
I think it’s like is it black or is it white. Proper capital structure is somewhere in between. There is a grey there somewhere and probably two, three, or four or whatever your comfort is, but it’s having a sophistication to mitigate your exposure and have a diversified portfolio and blah, blah, blah, blah. Knowing that my grandpa bought land for $100 and I sold it for $75,000 40 years later. I'm going to own real estate all the time. Now, it costs me $4 million to buy a building to run by business in. It might make sense for me to maybe sell that building and lease it back and use that capital to grow my business and not have to take on more debt or not have to take on more equity and dilute myself in my business.
Again, I don’t think I can answer that question globally. I think it takes hiring the right advisors, spending a bit of money upfront, and listening.
Noah Rosenfarb: So how about the companies that you interact with at Lindsay Goldberg? Typically I’d assume they’ve been in business quite a while. They’ve got a well-developed team around them? Do they have most of this stuff figured out in terms of capital structure and due diligence on their team and having the right advisory board and the right investment banker or do you find that the problems are just on the different scale?’
Patrick Ross: I would say Lindsay Goldberg, you can talk to them. You can talk to me and take a look at their deck. They’ll share their performance across all their portfolio businesses. There’ll be a couple of dogs, but with these guys, there is a general theme of they got it figured out. They empower management. The term they use is granular due diligence. Once they have decided to get into something, they spend a lot of time and a lot of money upfront, making sure they’ve got as much information as they possibly can. A part of it is picking good management teams and figuring out ways to help build management teams to become even better.
But they are a very conservative group. The leverage ratio across all of their company portfolio company, debt equity is 2.4 on average which I think I haven’t done research lately, but I think it’s more like 4.5 right now. What do you think it is, Noah?
Noah Rosenfarb: Yeah probably in there. Depending on the size of the company, but yeah, probably 4 to 5.
Patrick Ross: So ultra-conservative.
Noah Rosenfarb: As you described, it’s patient capital because they’ve got a 20-year time horizon.
Patrick Ross: It’s a little bit different, but in private business Polar Capital, we led by public companies. We had liquidating their stock and capital structures were somewhat different. Obviously, we have access to not just our own equity but the public market’s equity and it’s a different style again. But every circumstance is different, I think it boils down to, boys oh boys.
The one thing that all private equity people that I’ve been exposed to admire are operators, good operators that actually have moderate understanding of finance and financial structure, and that the one thing missing in most private equity firms are people that actually had them operating the business. That’s where the friction oftentimes comes in is operators learning how to respect the financial guys and the financial guys learning how to respect the operators. There’s that equilibrium that has to play.
If the operator tries to become the financer or the financer tries to become the operator, you quickly find, in my experience, disaster. It doesn’t work very well. Seeing private equity people trying to joystick a company because they hired or kept not great management by experience has been a recipe for disaster.
Noah Rosenfarb: What else would you like to share with our audience before we say goodbye for today?
Patrick Ross: I’m not going to beat up the due diligence thing. I will do a selfish promotion for Lindsay Goldberg. Just to explain, the model that we work with at Lindsay Goldberg, we are just closing to $5 billion, so we’ve got $15 billion of capital, $5 billion available right now, but $2 billion in our last fund. We’re looking to invest $100 million to $500 million in privately owned companies and become partners from 45% to 75% and help grow and scale up and create really great enterprises. My job is to find those private owners that are looking for, not the best price, not an auction sale, but a really patient well-connected and well-directed partner.
If anybody does know this stuff, give me a call. I can tell you some great comedian jokes and find you a great American partner.
Noah Rosenfarb: What’s the best way for people to get in touch with you? As I mentioned, we’ve got a lot of advisors that listen to the show. They may have clients that fit these criteria. I would assume typically there’s a reason they’re making the phone call. What would be like the top three reasons that families reach out to Lindsay Goldberg?
Patrick Ross: I think because the money comes from families. Most of the investors at Lindsay Goldberg are actually family trusts predominantly. They are institutional stock, but there is this culture of patient capital, appreciation of family dynamics and a respect. We’ve never done a hostile take-over, we never will. We very, very seldom had had to throw anybody down the stairs. It’s because we’ve put an awful lot of time and energy into making sure we’re fine to be a dance partner. And they’ve got a great reputation. Like, I’m just giggly about being associated with them, because they got a specular reputation on the street, throughout the world frankly.
To get a hold of me, I’m involved in lots of businesses and the IT people would put up firewalls that kind of restrict half the information, so I will give you my Mac email address. It’s [email protected]. And you can phone me up at 403-528-1095. Search Patrick Ross at LinkedIn, you’ll find a bit of a CV on me.
Noah Rosenfarb: If you put the initial in it, F, it will make it Patrick F. Ross.
Patrick, thank you for the time. I really appreciate you joining us and sharing some of your great wisdom. For those of you that are listening, please share your feedback in iTunes. Post your comments up on Divestopedia or email me, [email protected]. I look forward to having you as our audience again on another show.