Linsalata spinout Watervale to target small companies

Three Linsalata Capital partners are spinning out to form a new firm, Watervale Equity Partners, that will target control investments in manufacturers and distributors of industrial and consumer products with less than $6 million of EBITDA.

Mike Faremouth, a managing director at LinCap and now co-founder of Watervale, told Buyouts the spinout was a natural development, of which LinCap “was extremely supportive.” Faremouth is joined by LinCap alums Eric Bacon (co-president and senior managing director), Jim Guddy (principal) and Alex Campau (associate).

“You just get to these points, kind of inflection points, where it makes sense,” Faremouth said. “Jim and I had a shared vision; we thought there were some opportunities to go to that lower end of the lower-middle market, where our skills seem to apply, where we felt here was deal flow that we could access, where our approach to oversight fits. We approached Eric early on, because we thought it was something that would appeal to him, both the entrepreneurial side and the strategy.”

The departures come ahead of LinCap’s next round of fundraising. The firm has announced plans to go to market with LinCap Partners Fund VII, led by Senior Managing Director Gregg Taber.

It’s not clear whether Watervale will be raising a new fund. Faremouth declined to comment on fundraising or where the firm’s initial capital will come from.

At LinCap, Faremouth worked with Bacon for 12 years, and with Guddy for seven. Campau had been with the firm for three years and was ready for a promotion, Faremouth said. He’ll be a vice president at Watervale.

The firm intends to invest in businesses with strong brands or reputations, Faremouth said, “which can be created in many ways: new-product development, service quality. … They’re going to be known by the industry players as the go-to firms, and it’s usually proven out by their margin profile. So we expect a lot of engineered-product-type companies, supplying into niche industries.”

Since target companies will have enterprise values of less than $50 million, Watervale expects to be the first institutional capital for most of its investments. Such businesses will likely require “help with strategic planning and operational improvement,” Faremouth said, in order to move beyond a family-management model and “prepare them to grow to the next level.”

Action Item: Contact Mike Faremouth at mfaremouth@watervalepartners.com.

Photo of Mike Faremouth courtesy of Watervale