Bob Fitzsimmons has left his managing partner post with The Riverside Company, in order to form a new small-market LBO firm with fellow Riverside alums William Connell and Jeffrey Goodrich. The firm is called High Road Capital Partners (website here), and already is scoping out its first deals.
1. Why did you decide to leave The Riverside Company, and form a new firm?
I had spent 12 years with Riverside and been through four funds, but really just got to the point where I felt I’d rather run my own show. The reason I’m forming this type of firm is that the smaller-markets are largely inefficient with lots of opportunities. There are over 3,000 small-market transactions per year — not all necessarily LBOs, but M&A in general.
2. The High Road investment strategy sounds very similar to what Riverside does. Is that accurate?
There are a fair number of similarities. We both think that leadership of smaller companies is a very important investment criteria. But we’ll obviously be a smaller shop, so will tend to be highly selective and perhaps a bit more opportunistic…
3. Will you be targeting specific industries within those 3,000 annual transactions, or does being “opportunistic” cut access sector?
I’m fond of saying that there are many different paths to investment success. The one we’ll follow is not industry-specific, but instead will be to buy good companies of a smaller size and find a way to grow them to the next level. This is what we did at Riverside.
4. Speaking of smaller size, your PR material notes that small-market LBO funds have outperformed larger ones over a 20-year period, but that seems to have been reversed over the past five years. How will you convince LPs to back High Road, when there are groups like Blackstone still raising cash?
I think it’s probably more than past 18 months than the past five years… Mega-funds have produced great IRRs recently, but with fairly short-term goals, so I think the cash-on-cash multiples aren’t as good as the IRRs. In general, smaller companies historically trade at lower multiples than larger companies, so we hope to take advantage of – and capitalize on — that difference in multiple. We want to take a company will less than $10 million in EBITDA and make it grow into a company with more than $10 million in EBITDA.
5. Some people say that it’s harder to name a firm than to actually launch it. Why the name High Road Capital?
It’s just sort of part of my philosophy. If you take the high road in life – and are honest and straightforward in the way you do business — you’ll wind up in a better place. I made that comment offhand to someone when we were forming the firm, and the concept sort of stuck.