Podcast: How Do Private Equity Firms Work With Operating Partners?
A strong management team and a clear strategy for the future is essential for private equity value creation.
About the Guest
Ron Sansom is a Managing Partner at The Riverside Company. Ron is Co-Fund Manager of the Riverside Micro-Cap Fund. He also leads the fund’s Operating team, which includes operating partners and centralized finance organization. The firm partners with strong management teams and enhances its investments through acquisitions and organic growth. Since its founding in 1988, Riverside has invested in more than 260 transactions with a total enterprise value of more than $5.4 billion.
Read the Full Transcript:
Privcap: What first attracted The Riverside Company to the opportunity to invest in AIA Corporation?
Ron Sansom, The Riverside Company: Franchising is one of our specialties. We like franchising businesses in general. We're always out looking for franchising business in various different sectors and it just so turned out that one of our origination team members called this parent company in the U.K. to see if they wanted to sell one of their small franchising units and that's how we got to know the company. The chairman was thinking about that as well and the CEO that he brought in to run this small unit, actually to turn it around, he had asked him if he wanted to buy the company and the CEO is named David Woods, he said, yeah I'd love to but I'll need a partner, I'll need some financing. They ended up coming over to the U.S., we met with them and a deal was formed from there.
The company hadn't sold any franchises over several years because of some issues that they had internally, the company was unprofitable and brought a CEO in to turn it around. It had begun to make some money and so all of those factors drew us in that we thought it would be a good investment.
We thought David was very sharp, kind of little bit of a legend in the promotional products industry. We liked the way he talked, we liked his strategy and from there, we thought we could work very closely with them.
Within Riverside, we're fairly active in terms of chairman. These are small companies, so this is not something where we sit back from 100,000 feet. We tend to get fairly active in the businesses. David and I established a very good relationship.
We kind of established what we call our operating rhythm with the firm. We have monthly operating reviews. We have a quarterly board meeting, annual strategic plan updates and annual talent review, a budgeting process. All of these sorts of things, I led with the company. That’s how we work when we work with our micro gap businesses.
David was looking for some marketing people on the board so we added one. We also put in our wizard, as we call them when they’re with Riverside, someone who knows the franchising market exceptionally well.
He's been with us for many years as a wizard and we established him on the board and he really helped us design a marketing strategy moving forward. Secondly, we had to solve this technical franchising issue, which we did. After a couple months of work to get through that we're able then to start selling franchises again.
Thirdly, the business really needed a new enterprise system.
The owners or the franchisees were struggling with our system and that's really the key of what AIA does, is provide a portal, if you will, for them to input orders and ship orders and work with our providers and that sort of thing. We got that set up, spent a lot of money, about 2 million dollars getting that system up and running, but it's now one of the best in the industry in proprietary systems.
Then, we got the sales machine going. In the beginning, it was primarily an inbound effort, we would generate leads and deal with those leads on an inbound situation. We changed that and started doing an outbound calling effort. After visiting one of our other franchise companies that Riverside owned and establishing their system into the AIA system, that's really how we generated value through the ownership of AIA. The results were great, we grew system-wide sales at a double-digit clip through our ownership except for that dip period we had in the great financial recession. The exit was wonderful. We exited this company in the third quarter of this year.
We got lucky there with the management team, a really strong management and leadership team. It’s one of the few cases where we really didn't change anyone out. David Woods was the CEO, Tom Lehr was the CFO they stayed through the whole ownership and the whole period. They are really great folks, even on the senior leadership team. Everyone there was in pretty good shape. We upgraded a bit along the way but we just got lucky with a really good leadership team, good strategy and it worked out well for everybody.